UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-35909
MARKETO, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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56-2558241 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
901 Mariners Island Boulevard, Suite 200
San Mateo, California 94404
(Address of principal executive offices)
(650) 376-2300
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES o NO x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero |
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Accelerated filero |
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Non-accelerated filerx |
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Smaller reporting companyo |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
There were 37,038,894 shares of the registrants Common Stock issued and outstanding as of August 2, 2013.
MARKETO, INC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that are based on our managements beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in, but not limited to, the sections titled Risk Factors, and Managements Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as anticipates, believes, could, seeks, estimates, expects, intends, may, plans, potential, predicts, projects, should, will, would or similar expressions and the negatives of those terms. Forward-looking statements include, but are not limited to, statements about:
· our future financial performance;
· our anticipated growth and growth strategies and our ability to effectively manage that growth and effect these strategies;
· anticipated trends, developments and challenges in our business and in the markets in which we operate;
· our ability to anticipate and adapt to future changes in our industry;
· our ability to anticipate market needs and develop new and enhanced products and services to meet those needs, and our ability to successfully monetize them;
· maintaining and expanding our customer base
· maintaining, expanding and responding to changes in our relationships with other companies;
· the impact of competition in our industry and innovation by our competitors;
· our ability to sell our products and expand internationally;
· the impact of seasonality on our business;
· the impact of any failure of our solutions or solution innovations;
· our reliance on our third-party service providers;
· the anticipated effect on our business of litigation to which we are or may become a party;
· our liquidity and working capital requirements;
· the estimates and estimate methodologies used in preparing our consolidated financial statements
Forward-looking statements involve known and unknown risks, uncertainties and other 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. We discuss these risks in greater detail in the section entitled Risk Factors and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our managements beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward looking statements, even if new information becomes available in the future.
PART I FINANCIAL INFORMATION
MARKETO, INC.
Condensed Consolidated Balance Sheets
(in thousands)
|
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June 30, |
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December 31, |
| ||
|
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2013 |
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2012 |
| ||
|
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(unaudited) |
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| ||
ASSETS |
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Current assets: |
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| ||
Cash and cash equivalents |
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$ |
121,882 |
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$ |
44,247 |
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Accounts receivable, net of allowances |
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16,961 |
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14,106 |
| ||
Prepaid expenses and other current assets |
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3,595 |
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2,379 |
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Total current assets |
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142,438 |
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60,732 |
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Property and equipment, net |
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10,918 |
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5,617 |
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Goodwill |
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9,537 |
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9,537 |
| ||
Intangible assets, net |
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2,645 |
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2,734 |
| ||
Other assets |
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642 |
|
536 |
| ||
Total assets |
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$ |
166,180 |
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$ |
79,156 |
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|
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
4,602 |
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$ |
2,217 |
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Accrued expenses and other current liabilities |
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13,052 |
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8,945 |
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Deferred revenue |
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30,566 |
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20,642 |
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Current portion of credit facility |
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1,297 |
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582 |
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Total current liabilities |
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49,517 |
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32,386 |
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Credit facility, net of current portion |
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5,316 |
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3,058 |
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Deferred rent |
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1,370 |
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148 |
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Total liabilities |
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56,203 |
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35,592 |
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Commitments and contingencies (Note 6) |
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Stockholders equity: |
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Convertible preferred stock |
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119,121 |
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Common stock |
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4 |
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|
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Additional paid-in capital |
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213,931 |
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6,499 |
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Accumulated other comprehensive income |
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157 |
|
145 |
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Accumulated deficit |
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(104,115 |
) |
(82,201 |
) | ||
Total stockholders equity |
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109,977 |
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43,564 |
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Total liabilities and stockholders equity |
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$ |
166,180 |
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$ |
79,156 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
MARKETO, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)
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Three Months |
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Six Months |
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2013 |
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2012 |
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2013 |
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2012 |
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Revenue: |
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Subscription and support |
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$ |
19,883 |
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$ |
12,379 |
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$ |
37,438 |
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$ |
23,400 |
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Professional services and other |
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2,621 |
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1,549 |
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4,802 |
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2,739 |
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Total revenue |
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22,504 |
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13,928 |
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42,240 |
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26,139 |
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Cost of revenue: |
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Subscription and support |
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6,321 |
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3,607 |
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12,141 |
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6,742 |
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Professional services and other |
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3,121 |
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2,101 |
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5,739 |
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3,906 |
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Total cost of revenue |
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9,442 |
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5,708 |
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17,880 |
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10,648 |
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Gross profit: |
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Subscription and support |
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13,562 |
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8,772 |
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25,297 |
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16,658 |
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Professional services and other |
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(500 |
) |
(552 |
) |
(937 |
) |
(1,167 |
) | ||||
Total gross profit |
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13,062 |
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8,220 |
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24,360 |
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15,491 |
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Operating expenses: |
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Research and development |
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5,985 |
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5,339 |
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10,981 |
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9,174 |
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Sales and marketing |
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15,488 |
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9,788 |
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27,806 |
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17,607 |
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General and administrative |
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3,876 |
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3,020 |
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7,303 |
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5,275 |
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Total operating expenses |
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25,349 |
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18,147 |
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46,090 |
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32,056 |
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Loss from operations |
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(12,287 |
) |
(9,927 |
) |
(21,730 |
) |
(16,565 |
) | ||||
Other income (expense), net |
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(86 |
) |
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(147 |
) |
(15 |
) | ||||
Loss before provision for income taxes |
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(12,373 |
) |
(9,927 |
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(21,877 |
) |
(16,580 |
) | ||||
Provision for income taxes |
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17 |
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37 |
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3 |
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Net loss |
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$ |
(12,390 |
) |
$ |
(9,927 |
) |
$ |
(21,914 |
) |
$ |
(16,583 |
) |
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|
|
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Net loss per share of common stock, basic and diluted |
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$ |
(0.63 |
) |
$ |
(3.61 |
) |
$ |
(1.91 |
) |
$ |
(6.25 |
) |
Shares used in computing net loss per share of common stock, basic and diluted |
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19,822 |
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2,752 |
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11,472 |
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2,655 |
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Comprehensive loss: |
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|
|
|
|
|
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Net loss |
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$ |
(12,390 |
) |
$ |
(9,927 |
) |
$ |
(21,914 |
) |
$ |
(16,583 |
) |
Other comprehensive income (loss): |
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|
|
|
|
|
|
|
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Foreign currency translation adjustments |
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(26 |
) |
9 |
|
12 |
|
19 |
| ||||
Comprehensive loss |
|
$ |
(12,416 |
) |
$ |
(9,918 |
) |
$ |
(21,902 |
) |
$ |
(16,564 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
MARKETO, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
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Six Months Ended June 30, |
| ||||
|
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2013 |
|
2012 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net loss |
|
$ |
(21,914 |
) |
$ |
(16,583 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
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Depreciation and amortization |
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1,787 |
|
650 |
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Stock-based compensation expense |
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3,617 |
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1,234 |
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Changes in operating assets and liabilities: |
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|
|
|
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Accounts receivable, net |
|
(2,856 |
) |
(3,333 |
) | ||
Prepaid expenses and other current assets |
|
(1,233 |
) |
71 |
| ||
Other assets |
|
(183 |
) |
(740 |
) | ||
Accounts payable |
|
2,606 |
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(1,124 |
) | ||
Accrued expenses and other current liabilities |
|
3,087 |
|
2,520 |
| ||
Deferred revenue |
|
9,932 |
|
5,733 |
| ||
Deferred rent |
|
86 |
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(27 |
) | ||
Net cash used in operating activities |
|
(5,071 |
) |
(11,599 |
) | ||
Cash flows from investing activities: |
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|
|
|
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Purchase of property and equipment |
|
(5,863 |
) |
(2,382 |
) | ||
Capitalized software development |
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(221 |
) |
|
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Cash acquired in acquisition |
|
|
|
698 |
| ||
Net cash used in investing activities |
|
(6,084 |
) |
(1,684 |
) | ||
Cash flows from financing activities: |
|
|
|
|
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Proceeds from initial public offering, net of underwriting discount |
|
80,506 |
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|
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Proceeds from private placement |
|
6,500 |
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|
| ||
Proceeds from issuance of common stock upon exercise of stock options |
|
1,416 |
|
413 |
| ||
Repurchase of unvested common stock from terminated employees |
|
(16 |
) |
(50 |
) | ||
Proceeds from issuance of debt |
|
3,089 |
|
1,100 |
| ||
Repayment of debt |
|
(116 |
) |
|
| ||
Payment of deferred initial public offering costs |
|
(2,537 |
) |
|
| ||
Net cash provided by financing activities |
|
88,842 |
|
1,463 |
| ||
Effect of foreign exchange rate changes on cash and cash equivalents |
|
(52 |
) |
83 |
| ||
Net increase (decrease) in cash and cash equivalents |
|
77,635 |
|
(11,737 |
) | ||
Cash and cash equivalents beginning of period |
|
44,247 |
|
67,400 |
| ||
Cash and cash equivalents end of period |
|
$ |
121,882 |
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$ |
55,663 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
| ||
Cash paid for interest |
|
$ |
69 |
|
$ |
|
|
Cash paid for income taxes |
|
28 |
|
|
| ||
Supplemental disclosure of noncash investing and financing activities: |
|
|
|
|
| ||
Conversion of convertible preferred stock into common stock |
|
119,121 |
|
|
| ||
Vesting of early exercise options |
|
410 |
|
137 |
| ||
Property and equipment acquired through tenant improvement allowance |
|
1,136 |
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The Company and Summary of Significant Accounting Policies and Estimates
Business
Marketo, Inc. (Marketo or the Company) was incorporated in the state of California on January 20, 2006. The Company was reincorporated in the state of Delaware in 2010. The Company operates from its headquarters in San Mateo, California and has operating subsidiaries in Ireland and Australia.
Marketo is a provider of a cloud-based marketing software platform that enables organizations to engage in modern relationship marketing. The Companys software platform is designed to enable the effective management, optimization and analytical measurement of marketing activities, enabling organizations to acquire new customers more efficiently, build stronger relationships with existing customers, improve sales effectiveness and drive faster revenue growth. On this platform, the Company delivers an easy to use, integrated suite of advanced applications. The Company generally offers its services on an annual subscription basis with quarterly or annual payment terms.
Initial Public Offering
On May 17, 2013, the Company closed its initial public offering (IPO) whereby 6,968,435 shares of common stock were sold to the public, including the underwriters overallotment option of 908,926 shares of common stock and 309,509 shares of common stock sold by selling stockholders, at a price of $13.00 per share. In addition, the Company sold 500,000 shares of common stock to funds affiliated with Battery Ventures, in a concurrent private placement, at a price of $13.00 per share. The Company received aggregate proceeds of approximately $87.0 million from the IPO and concurrent private placement, net of underwriters discounts and commissions, but before deduction of offering expenses of approximately $3.5 million. Upon the closing of the IPO, all shares of the Companys outstanding convertible preferred stock automatically converted into 25,876,142 shares of common stock. As of June 30, 2013, the Company had 37,002,877 shares of common stock issued and outstanding.
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes of the Company reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2013. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) have been condensed or omitted under the rules and regulations of the Securities and Exchange Commission (SEC).
These unaudited interim condensed consolidated financial statements should be read in conjunction with the Companys audited financial statements and related notes presented in the Companys final prospectus filed with the SEC on May 17, 2013 pursuant to Rule 424(b) of the Securities Act of 1933. There have been no changes in the Companys significant accounting policies from those that were disclosed in the Companys audited consolidated financial statements for the fiscal year ended December 31, 2012 included in the Companys final prospectus for its IPO.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Such management estimates and assumptions include the estimated selling price for the various elements in our customer contracts, the allowance for doubtful accounts, amounts collectible for sales tax, the fair value of common stock, stock-based compensation expense, useful lives of intangible assets and the valuation of deferred tax assets. Actual results could differ materially from those estimates, and such differences could be material to the financial statements and affect the results of operations reported in future periods.
Recent Accounting Pronouncements
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. This new accounting pronouncement is effective for interim and fiscal reporting periods beginning after December 15, 2012, with early adoption permitted. The Company has adopted this standard during the first quarter of 2013. The adoption of this standard expanded the consolidated financial statement footnote disclosures, however there were no amounts reclassified out of accumulated other comprehensive income in any period presented.
2. Fair Value of Financial Instruments
The Company measures certain financial assets at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:
· Level 1 Quoted prices in active markets for identical assets or liabilities.
· Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
· Level 3 Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
The fair value of the Companys investments in certain money market funds is their face value. Such instruments are classified as Level 1 and are included in cash and cash equivalents. The Company considers all highly liquid investments purchased with a remaining maturity of three months or less at the date of purchase to be cash equivalents.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
For certain other financial instruments, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.
As of June 30, 2013 and December 31, 2012 financial assets stated at fair value on a recurring basis were comprised of money market funds and a certificate of deposit included within cash and equivalents. The fair value of these financial assets was determined using the following inputs for the periods presented:
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||||||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||||
|
|
(in thousands) |
| ||||||||||||||||
Money market funds |
|
$ |
117,451 |
|
$ |
|
|
$ |
|
|
$ |
42,446 |
|
$ |
|
|
$ |
|
|
Certificate of deposit |
|
25 |
|
|
|
|
|
25 |
|
|
|
|
| ||||||
Total |
|
$ |
117,476 |
|
$ |
|
|
$ |
|
|
$ |
42,471 |
|
$ |
|
|
$ |
|
|
3. Balance Sheet Components
Cash and Cash Equivalents
Cash and cash equivalents consist of the following:
|
|
June 30, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Cash |
|
$ |
4,406 |
|
$ |
1,776 |
|
Cash equivalents |
|
|
|
|
| ||
Money market funds |
|
117,451 |
|
42,446 |
| ||
Certificate of deposit |
|
25 |
|
25 |
| ||
|
|
117,476 |
|
42,471 |
| ||
Total |
|
$ |
121,882 |
|
$ |
44,247 |
|
Accounts Receivable
Accounts receivable consist of the following:
|
|
June 30, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Accounts receivable |
|
$ |
17,319 |
|
$ |
14,442 |
|
Allowance for doubtful accounts |
|
(358 |
) |
(336 |
) | ||
Accounts receivable, net |
|
$ |
16,961 |
|
$ |
14,106 |
|
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Property and Equipment, Net
Property and equipment, net consists of the following:
|
|
June 30, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Computer equipment |
|
$ |
7,173 |
|
$ |
4,385 |
|
Software |
|
1,130 |
|
788 |
| ||
Office furniture |
|
1,168 |
|
803 |
| ||
Leasehold improvements |
|
2,451 |
|
986 |
| ||
Construction in progress |
|
2,352 |
|
542 |
| ||
Total property and equipment |
|
14,274 |
|
7,504 |
| ||
Less accumulated depreciation |
|
(3,356 |
) |
(1,887 |
) | ||
Property and equipment, net |
|
$ |
10,918 |
|
$ |
5,617 |
|
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are as follows:
|
|
June 30, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Accrued bonuses, commissions and wages |
|
$ |
6,022 |
|
$ |
4,737 |
|
Accrued vacation |
|
1,958 |
|
1,502 |
| ||
Liability payable for unvested stock options exercises |
|
777 |
|
523 |
| ||
Accrued legal, consulting and audit fees |
|
664 |
|
282 |
| ||
Liability for employee stock purchase plan |
|
506 |
|
|
| ||
Accrued sales taxes |
|
485 |
|
543 |
| ||
Accrued marketing expenses |
|
1,251 |
|
395 |
| ||
Accrued other |
|
1,389 |
|
963 |
| ||
Total |
|
$ |
13,052 |
|
$ |
8,945 |
|
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Changes in Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income is as follows:
|
|
Foreign |
|
Total |
| ||
|
|
(in thousands) |
| ||||
Beginning balance at January 1, 2013 |
|
$ |
145 |
|
$ |
145 |
|
|
|
|
|
|
| ||
Other comprehensive income before reclassfications |
|
12 |
|
12 |
| ||
Amounts reclassified from accumulated other comprehensive income |
|
|
|
|
| ||
|
|
|
|
|
| ||
Ending balance at June 30, 2013 |
|
$ |
157 |
|
$ |
157 |
|
4. Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following as of June 30, 2013 and December 31, 2012 (in thousands):
|
|
June 30, 2013 |
|
Weighted |
|
December 31, 2012 |
|
Weighted |
| ||
Developed technology |
|
$ |
1,300 |
|
4.3 |
|
$ |
1,300 |
|
4.8 |
|
Domain names |
|
700 |
|
5.8 |
|
700 |
|
6.3 |
| ||
Customer relationships |
|
900 |
|
7.3 |
|
900 |
|
7.8 |
| ||
Non-compete agreements |
|
130 |
|
0.8 |
|
130 |
|
1.3 |
| ||
Capitalized software development costs |
|
1,105 |
|
1.3 |
|
877 |
|
0.8 |
| ||
|
|
4,135 |
|
|
|
3,907 |
|
|
| ||
Less accumulated amortization |
|
(1,490 |
) |
|
|
(1,173 |
) |
|
| ||
Intangible assets, net |
|
2,645 |
|
|
|
2,734 |
|
|
| ||
Goodwill |
|
9,537 |
|
|
|
9,537 |
|
|
| ||
Goodwill and intangible assets, net |
|
$ |
12,182 |
|
|
|
$ |
12,271 |
|
|
|
Amortization expense for the periods indicated below was as follows (in thousands):
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, 2013 |
|
June 30, 2012 |
|
June 30, 2013 |
|
June 30, 2012 |
| ||||
Amortization expense |
|
$ |
158 |
|
$ |
150 |
|
$ |
317 |
|
$ |
193 |
|
Based on the carrying amount of intangible assets as of June 30, 2013, the estimated future amortization is as follows (in thousands):
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Six Months |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
Ending |
|
Years Ending December 31, |
|
|
| |||||||||||||||
|
|
December 31, |
|
|
|
|
|
|
|
|
|
2018 |
|
|
| |||||||
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
and beyond |
|
Total |
| |||||||
Developed Technology |
|
$ |
114 |
|
$ |
229 |
|
$ |
229 |
|
$ |
229 |
|
$ |
181 |
|
$ |
|
|
$ |
982 |
|
Domain Names |
|
50 |
|
100 |
|
100 |
|
100 |
|
100 |
|
129 |
|
579 |
| |||||||
Customer Relationships |
|
53 |
|
106 |
|
106 |
|
106 |
|
106 |
|
295 |
|
772 |
| |||||||
Non-compete Agreements |
|
32 |
|
19 |
|
|
|
|
|
|
|
|
|
51 |
| |||||||
Capitalized Software Development Costs |
|
99 |
|
152 |
|
10 |
|
|
|
|
|
|
|
261 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total |
|
$ |
348 |
|
$ |
606 |
|
$ |
445 |
|
$ |
435 |
|
$ |
387 |
|
$ |
424 |
|
$ |
2,645 |
|
5. Credit Facility
On May 21, 2012, the Company entered into a loan and security agreement with a bank related to an equipment facility providing the Company with an equipment line of up to $4.0 million (Original Line of Credit). On June 6, 2013, the Company entered into a first amendment to the loan and security agreement, which provided an additional line of credit for advances of up to an aggregate of $4.5 million (New Line of Credit). The interest rate associated with the Original Line of Credit and New Line of Credit is the greater of 4% or three-quarters percentage points above the prime rate, as determined on the applicable funding date. For each equipment advance, the Company will pay interest only for approximately nine months. Subsequently, the Company will make thirty-six equal monthly payments of principal and interest. The loan is secured by a security interest on substantially all of the Companys assets, including the equipment purchased with the advances, and excludes the Companys intellectual property. The loan and security agreement contains customary affirmative and negative covenants, including, among other things, maintaining certain business performance levels and limitations on disposal of assets, certain fundamental business changes, incurrences of debt, incurrences of liens, payments of dividends, repurchases of stock and engaging in affiliate transactions, in each case subject to certain exceptions. The loan and security agreement also contains customary events of default including, among other things, that during the existence of an event of default, interest on the obligations could be increased by 5%. As of June 30, 2013, the Company is in compliance with all of the covenants contained in the loan and securities agreement.
As of June 30, 2013 and December 31, 2012, the outstanding loan balance was $6.6 million and $3.6 million, respectively.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Contractual future repayments in relation to the above credit facility are as follows for the remainder of 2013 and the subsequent years ending December 31:
|
|
Principal |
|
Interest |
|
Total |
| |||
|
|
(in thousands) |
| |||||||
2013 (6 months) |
|
$ |
466 |
|
$ |
126 |
|
$ |
592 |
|
2014 |
|
1,926 |
|
217 |
|
2,143 |
| |||
2015 |
|
2,257 |
|
130 |
|
2,387 |
| |||
2016 |
|
1,693 |
|
43 |
|
1,736 |
| |||
2017 |
|
271 |
|
2 |
|
273 |
| |||
2018 and beyond |
|
|
|
|
|
|
| |||
Total |
|
$ |
6,613 |
|
$ |
518 |
|
$ |
7,131 |
|
6. Commitments and Contingencies
Except as set forth in Note 5 and below, there were no material changes in our commitments under contractual obligations, as disclosed in the Companys audited consolidated financial statements for the year ended December 31, 2012.
On April 15, 2013, the Company entered into a definitive lease agreement whereby the Company will lease approximately 10,406 square feet of office space in Portland, Oregon. The Companys contractual operating lease obligation under this agreement is approximately $1.2 million, payable over the five-year term of the lease.
Legal Contingencies
From time to time, the Company may be involved in various legal proceedings arising from the normal course of business activities.
On May 17, 2013, iHance, Inc. filed a complaint against the Company in the United States District Court for the Northern District of California, alleging that a salesperson email tracking feature in the Marketo Sales Insight application infringed upon certain of iHances patents. On July 29, 2013, the Company filed an answer to the complaint, denying iHances infringement allegations and asserting a counterclaim for a declaratory judgment of noninfringement and invalidity. The Company is continuing to evaluate iHances claims and intends to vigorously defend this matter. Based on the information currently available the Company does not believe any loss from this litigation is probable or estimable.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
7. Stockholders Equity and Stock Based Compensation
Convertible Preferred Stock
Upon the completion of the IPO, all outstanding convertible preferred stock was converted into 25,876,142 shares of common stock on a one-to-one basis.
Reverse Stock Split
On May 3, 2013, the Company effected a one-for-two reverse stock split of common stock and preferred stock. Upon the effectiveness of the reverse stock split, each two outstanding shares of common stock and each two outstanding shares of preferred stock, were exchanged into one share of common stock and one share of preferred stock, respectively. The reverse stock split also applied to any outstanding securities or rights convertible into, or exchangeable or exercisable for, common stock or preferred stock of the Company. Unless otherwise indicated, all share numbers, share prices and exercise prices (except shares authorized and par values) have been adjusted to reflect the stock split on a retroactive basis.
Common Stock Authorized
Upon the closing of the IPO, the Company increased the amount of common stock authorized for issuance from 100,000,000 to 1,000,000,000 common shares with a par value of $0.0001 per share.
Stock Option Plans
2006 Stock Plan
The Companys Board of Directors (Board) and the Companys stockholders adopted the 2006 Stock Plan (2006 Plan) in October 2006. The 2006 Plan was most recently amended in May 2013. The 2006 Plan was terminated in connection with the IPO, and accordingly, no shares will be available for issuance under this plan. The 2006 Plan will continue to govern outstanding awards granted thereunder. The 2006 Plan provided for the grant of incentive stock options and nonqualified stock options. As of June 30, 2013, options to purchase 7,872,832 shares of common stock and 201,260 restricted stock units remained outstanding under the 2006 Plan.
2013 Equity Incentive Plan
The Board adopted, and the Companys stockholders approved, the 2013 Equity Incentive Plan (2013 Plan). The 2013 Plan was effective one business day prior to the effective date of the IPO. The 2013 Plan provides for the grant of incentive stock options, to the Companys employees and any parent and subsidiary corporations employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the Companys employees, directors and consultants and the Companys subsidiary corporations employees and consultants. In addition, the shares reserved for issuance under the 2013 Plan also include (a) those shares reserved but unissued under the 2006 Stock Plan (2006 Plan), and (b) shares returned to the 2006 Plan as the result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2013 Plan pursuant to (a) and (b) is 9,119,341 shares). The number of shares available for issuance under the 2013 Plan will also include an annual increase on the first day of each fiscal year beginning in 2014, equal to the least of:
· 3,250,000 shares;
· 5% of the outstanding shares of common stock as of the last day of the Companys immediately preceding fiscal year; or
· such other amount as the Companys Board of directors may determine.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is forfeited to or repurchased due to failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights, the forfeited or repurchased shares) will become available for future grant or sale under the 2013 Plan. With respect to stock appreciation rights, the net shares issued will cease to be available under the 2013 Plan and all remaining shares will remain available for future grant or sale under the 2013 Plan. Shares used to pay the exercise price of an award or satisfy the tax withholding obligations related to an award will become available for future grant or sale under the 2013 Plan. To the extent an award is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2013 Plan.
Summary of Stock Option Activity
A summary of the Companys stock option activity under all stock option plans and related information for six months ended June 30, 2013 was as follows:
|
|
OPTIONS OUTSTANDING |
| ||||||||||
|
|
Shares |
|
Number of |
|
Weighted- |
|
Weighted- |
|
Aggregate |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance as of December 31, 2012 |
|
928 |
|
6,581 |
|
$ |
3.21 |
|
8.08 |
|
$ |
11,431 |
|
Additional shares authorized |
|
4,502 |
|
|
|
|
|
|
|
|
| ||
Granted |
|
(2,118 |
) |
2,118 |
|
8.26 |
|
|
|
|
| ||
Exercised |
|
|
|
(634 |
) |
2.23 |
|
|
|
|
| ||
Repurchased |
|
9 |
|
|
|
1.67 |
|
|
|
|
| ||
RSUs granted, net of cancellations/forfeitures |
|
(76 |
) |
|
|
|
|
|
|
|
| ||
Cancelled/forfeited |
|
174 |
|
(174 |
) |
4.04 |
|
|
|
|
| ||
Balance as of June 30, 2013 |
|
3,420 |
|
7,892 |
|
4.62 |
|
8.24 |
|
159,766 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Exercisable as of June 30, 2013 |
|
|
|
7,602 |
|
4.61 |
|
8.76 |
|
153,989 |
| ||
Vested and expected to vest as of June 30, 2013 |
|
|
|
7,123 |
|
$ |
4.45 |
|
8.14 |
|
$ |
145,419 |
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Companys closing price of $24.87 as of June 30, 2013 for options that were in-the-money as of that date.
Option awards generally vest over a four year period, with 25% vesting after one year from date of grant and monthly thereafter. Stock options granted under our 2006 Plan provided employee option holders with an early exercise provision, where in the event of termination any unvested shares purchased are subject to repurchase by the Company at the original purchase price. This right of repurchase lapses as the option vests. Options exercisable as of June 30, 2013 include options that are exercisable prior to vesting.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The weighted average grant date fair value of options granted and the total intrinsic value of options exercised were as follows (in thousands, except weighted average grant date fair value):
|
|
Six Months Ended June 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
Weighted average grant date fair value |
|
$ |
4.44 |
|
$ |
2.59 |
|
Total intrinsic value of options exercised |
|
$ |
4,855 |
|
$ |
500 |
|
The total estimated grant date fair value of options vested during the six months ended June 30, 2013 was approximately $2.1 million.
Determining Fair Value of Stock Options
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model. The following assumptions were used to estimate the fair value of options granted to employees:
|
|
Three Months |
|
Six Months |
| ||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Expected term (in years) |
|
6 |
|
6 |
|
6 |
|
6 |
|
Risk-free interest rate |
|
0.86% - 1.375% |
|
1.09% |
|
0.86% - 1.375% |
|
1.09% |
|
Expected volatility |
|
57% - 58% |
|
63% |
|
57% - 58% |
|
63% - 65% |
|
Expected dividend rate |
|
0% |
|
0% |
|
0% |
|
0% |
|
The assumptions are based on the following for each of the periods presented:
Expected Term The Company estimates the expected term consistent with the simplified method identified by the SEC. The Company elected to use the simplified method because of its limited history of stock option exercise activity and its stock options meet the criteria of the plain-vanilla options as defined by the SEC. The simplified method calculates the expected term as the average of the vesting and contractual terms of the award.
Volatility Since the Company has no trading history by which to determine the volatility of its own common stock price, the expected volatility being used is derived from the historical stock volatilities of a representative industry peer group of comparable publicly listed companies over a period approximately equal to the expected term of the options.
Risk Free Interest Rate The risk free interest rate is based on U.S. Treasury zero coupon issues with remaining terms similar to the expected term on the options.
Expected Dividend The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Forfeiture The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All service based stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.
Restricted Stock Units
A summary of the Companys Restricted Stock Units (RSU) activity and related information for the six months ended June 30, 2013 is as follows:
|
|
Number of |
|
Weighted |
|
Aggregate |
| ||
Balance as of December 31, 2012 |
|
328 |
|
$ |
4.58 |
|
$ |
2,437 |
|
RSUs Granted |
|
76 |
|
15.10 |
|
|
| ||
RSUs Vested |
|
(148 |
) |
4.56 |
|
|
| ||
RSUs Repurchased |
|
|
|
|
|
|
| ||
RSUs Cancelled/Forfeited |
|
|
|
|
|
|
| ||
Balance as of June 30, 2013 |
|
257 |
|
$ |
7.70 |
|
$ |
6,383 |
|
During 2012 and the first six months of 2013, the Company granted RSUs to certain employees. Some of these RSUs are subject to a time-based vesting condition and some are subject to performance-based vesting condition, both of which must be satisfied before the RSUs are vested and settled for shares of common stock. The time-based vesting condition generally ranges from 2 to 4 years, and the performance-based vesting condition is satisfied upon the occurrence of a sale event or the completion of the Companys IPO. Stock-based compensation expense associated with the performance-based RSUs is recognized if the performance-based vesting condition is considered probable of achievement. Recognition of compensation expense for these performance-based RSUs commenced during the second quarter of 2013 upon the IPO of the Company, which satisfied the performance condition. For the three and six months ended June 30, 2013, the Company recognized approximately $1.1 million in stock based compensation associated with these RSUs. RSUs granted subsequent to the IPO are subject to a time-based vesting condition of 4 years.
The aggregate intrinsic value of RSUs outstanding at June 30, 2013 was approximately $6.4 million, using the Companys closing stock price of $24.87 per share as of June 30, 2013.
Employee Stock Purchase Plan
The Board adopted, and the Companys stockholders approved, a 2013 Employee Stock
Purchase Plan (ESPP). The ESPP became effective on May 1, 2013. The ESPP provides for annual increases in the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning in fiscal 2014, equal to the lesser of:
· 1% of the outstanding shares of our common stock on the first day of such fiscal year;
· 650,000 shares; or
· such other amount as may be determined by our board of directors
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The ESPP allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 15% of their eligible compensation, at not less than 85% of the fair market value, as defined in the ESPP, subject to any plan limitations. A participant may purchase a maximum of 1,250 shares during an offering period. The offering period generally start on the first trading day on or after February 15th and August 15th of each year, except that the first offering period commenced on the first trading day following the effective date of the Companys registration statement. At June 30, 2013, 738,032 shares were available for issuance under the ESPP.
Determining Fair Value of Employee Stock Plan Purchase Rights
The assumptions used to value employee stock purchase rights under the Black-Scholes model during the three and six months ended June 30, 2013 were as follows:
Expected term (in months) |
|
9 |
|
Risk-free interest rate |
|
0.11 |
% |
Expected volatility |
|
42 |
% |
Expected dividend rate |
|
0 |
% |
Stock Compensation Expense
The stock-based compensation expense included in operating results was allocated as follows (in thousands):
|
|
Three Months |
|
Six Months |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cost of subscription and support revenue |
|
$ |
114 |
|
$ |
38 |
|
$ |
177 |
|
$ |
68 |
|
Cost of professional services and other revenue |
|
154 |
|
60 |
|
247 |
|
91 |
| ||||
Research and development |
|
937 |
|
170 |
|
1,147 |
|
281 |
| ||||
Sales and marketing |
|
863 |
|
217 |
|
1,093 |
|
423 |
| ||||
General and administrative |
|
548 |
|
236 |
|
953 |
|
371 |
| ||||
Total stock-based compensation expense |
|
$ |
2,616 |
|
$ |
721 |
|
$ |
3,617 |
|
$ |
1,234 |
|
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
As of June 30, 2013, total unrecognized compensation cost related to unvested awards not yet recognized under all equity compensation plans, adjusted for estimate forfeitures, was as follows:
|
|
June 30, 2013 |
| |||
|
|
Unrecognized |
|
Average |
| |
|
|
(in thousands) |
|
(in years) |
| |
Stock options |
|
$ |
13,384 |
|
2.88 |
|
Restricted stock units |
|
1,200 |
|
1.69 |
| |
Employee Stock Purchase Plan |
|
948 |
|
0.64 |
| |
Total unrecognized stock-based compensation expense |
|
$ |
15,532 |
|
|
|
8. Net Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less the weighted-average unvested common stock subject to repurchase or forfeiture as they are not deemed to be issued for accounting purposes. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including preferred stock, stock options, RSUs and employee stock purchase plan, to the extent they are dilutive.
The following table sets forth the computation of the Companys basic and diluted net loss per share of common stock under the two-class method attributable to common stockholders:
|
|
Three Months |
|
Six Months |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(in thousands, except per share amount) |
| ||||||||||
Numerator: |
|
|
|
|
|
|
|
|
| ||||
Net loss |
|
$ |
(12,390 |
) |
$ |
(9,927 |
) |
$ |
(21,914 |
) |
$ |
(16,583 |
) |
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Weighted-average common shares outstanding |
|
20,020 |
|
2,949 |
|
11,725 |
|
2,797 |
| ||||
Less: Weighted-average unvested common shares subject to repurchase or forfeiture |
|
(198 |
) |
(197 |
) |
(253 |
) |
(142 |
) | ||||
Weighted-average shares used in computing net loss per share of common stock, basic and diluted |
|
19,822 |
|
2,752 |
|
11,472 |
|
2,655 |
| ||||
Net loss per share of common stock, basic and diluted |
|
$ |
(0.63 |
) |
$ |
(3.61 |
) |
$ |
(1.91 |
) |
$ |
(6.25 |
) |
The Company applied the two-class method to calculate its basic and diluted net loss per share of common stock, as its convertible preferred stock and common stock subject to repurchase are participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common shareholders.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
However, the two-class method does not impact the net loss per share of common stock as the Company was in a loss position for each of the periods presented and preferred shareholders and holders of common stock subject to repurchase do not have to participate in losses.
Additionally, since the Company was in a loss position for each of the periods presented, diluted net loss per share is the same as basic net loss per share for each periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were excluded from the diluted per share calculation because they would have been antidilutive were as follows:
|
|
As of June 30, |
| ||
|
|
2013 |
|
2012 |
|
|
|
(in thousands) |
| ||
Convertible preferred stock |
|
|
|
25,876 |
|
Stock options to purchase common stock |
|
7,892 |
|
6,373 |
|
Employee stock purchase plan |
|
283 |
|
|
|
Common stock held in escrow |
|
|
|
12 |
|
Common stock subject to repurchase |
|
197 |
|
128 |
|
Restricted stock units |
|
257 |
|
306 |
|
|
|
8,628 |
|
32,695 |
|
9. Income Taxes
The provision for income taxes for the three months ended June 30, 2013 and June 30, 2012 was approximately $17,000 and $0, respectively. The provision for income taxes consists primarily of foreign income taxes.
The provisions for income taxes for the six months ended June 30, 2013 and 2012 were approximately $37,000 and $3,000, respectively. The provision for income taxes consists primarily of state minimum taxes and foreign income taxes.
For the three and six months ended June 30, 2013 and 2012, the provision for income taxes differed from the statutory amount primarily due to state and foreign taxes currently payable, and the Company realized no benefit for current year losses due to maintaining a full valuation allowance against the U.S. and foreign net deferred tax assets.
The realization of tax benefits of deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available objective evidence, the Company does not believe it is more likely than not that the net deferred tax assets will be realizable. Accordingly, the Company has provided a full valuation allowance against the domestic and foreign net deferred tax assets as of June 30, 2013 and December 31, 2012. The Company intends to maintain the remaining valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance. During the three and six months ended June 30, 2013, there have been no material changes to the total amount of unrecognized tax benefits.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
10. Segment Information and Information about Geographic Areas
The accounting principles guiding disclosures about segments of an enterprise and related information establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method of determining which information is reported is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Companys chief operating decision maker (the CODM) is considered to be the Companys chief executive officer (CEO). The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. As such, the Company is determined to be operating in one business segment.
All of the Companys principal operations and decision-making functions are located in the United States.
Revenue
Revenues by geography are based on the shipping address of the customer. The following table presents our revenue by geographic region for the periods presented:
|
|
Three Months |
|
Six Months |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(in thousands) |
| ||||||||||
United States |
|
$ |
19,283 |
|
$ |
12,213 |
|
$ |
36,275 |
|
$ |
23,038 |
|
EMEA |
|
1,609 |
|
818 |
|
3,017 |
|
1,505 |
| ||||
Other |
|
1,612 |
|
897 |
|
2,948 |
|
1,596 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
22,504 |
|
$ |
13,928 |
|
$ |
42,240 |
|
$ |
26,139 |
|
No single customer accounted for more than 10% of our total revenue during the three and six months ended June 30, 2013 and 2011. No single customer accounted for more than 10% of accounts receivable as of December 31, 2012 and June 30, 2013.
MARKETO, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Long-lived Assets
The following table sets forth the Companys long-lived assets by geographic areas as of the periods presented (in thousands):
|
|
June 30, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
United States |
|
$ |
10,679 |
|
$ |
5,369 |
|
EMEA |
|
235 |
|
248 |
| ||
Other |
|
4 |
|
|
| ||
|
|
|
|
|
| ||
Total |
|
$ |
10,918 |
|
$ |
5,617 |
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Prospectus filed on May 17, 2013, pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act) with the SEC. As discussed in the section titled Special Note Regarding Forward-Looking Statements, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled Risk Factors included under Part II, Item 1A below.
Overview
We are the provider of a leading cloud-based marketing software platform that enables organizations to engage in modern relationship marketing. Our software platform is designed to enable the effective execution, management and analytical measurement of marketing activities, helping organizations to acquire new customers more efficiently, build stronger relationships with existing customers, improve sales effectiveness and drive faster revenue growth. On our platform, we deliver an easy-to-use, integrated suite of advanced applications, which today include Marketing Automation, Social Marketing, Sales Insight, Revenue Analytics and Financial Management, our newest financial management application. To enable our customers to obtain maximum value from our platform, we have created an ecosystem of third-party applications, as well as a network of resources to foster marketing thought leadership, sharing and collaboration among our users. Furthermore, we provide our customers with expert professional services, delivered by marketers, for marketers, to enable rapid time to value through effective implementation and usage of our solutions.
We designed our platform to be valuable across large enterprises and Small and Medium Businesses (SMBs) that sell to both businesses and consumers in virtually any industry. We market and sell our products directly and through a growing network of distribution partners. Our client base is diverse, with 2,592 customers across a wide range of industries including business services, consumer, financial services, healthcare, manufacturing, media, technology and telecommunications. Representative customers include one or more divisions of the following companies: Capgemini, CenturyLink, Citrix, Gannett, General Electric, Medtronic, Moodys, Panasonic, Symantec and Universal Music Group. No single customer represented more than 1% of subscription and support revenue during the three and six months ended June 30, 2013 and 2012. During the three and six months ended June 30, 2013 and 2012, our 20 largest customers accounted for less than 10% of our total revenue.
We deliver our solutions entirely through a multi-tenant cloud-based, or Software as a Service (SaaS), architecture which customers can configure to their specific needs. We initially focused our selling efforts on the SMB market, but beginning in late 2010, to address growing enterprise demand, we began to invest in an enterprise sales organization. We define the SMB market as companies with fewer than 1,500 employees and the enterprise market as companies with 1,500 or more employees. The percentage of our subscription and support revenue from enterprise customers was 26% and 25% during the three and six months ended June 30, 2013.
Our direct sales force has separate sales teams for the enterprise market and for the SMB market. Within our direct sales force, we also have a team that is responsible for selling to existing customers, who may renew their subscriptions, increase their usage of our platform and applications, acquire additional applications from our product family, or broaden the deployment of our solutions across their organizations. In addition, we have indirect sales teams that sell to distributors, agencies, resellers and OEMs, who in turn resell or use our platform to provide managed marketing services to their end customers. To date, substantially all of our revenue has been derived from direct sales, but we intend to invest in our indirect sales teams to increase indirect revenue as a percentage of our total revenue over time.
We provide our solutions on a subscription basis and we generated revenue of $22.5 million and $13.9 million for the three months ended June 30, 2013 and 2012, respectively, and $42.2 million and $26.1 million for the six months ended June 30, 2013 and 2012, respectively. We derive most of our revenue from subscriptions to our cloud-based software and related customer support services. Subscription and support revenue accounted for 88% and 89% of our total revenue during the three months ended June 30, 2013 and 2012, respectively and 89% and 90% of our total revenue during the six months ended June 30, 2013 and 2012, respectively. We price our products based on customer usage measures, which can include the number of leads in each customers database and the number of user seats authorized to access our service. Our subscription contracts are typically one year in length, but can range from one quarter to three years in length.
Professional services revenue accounted for 12% and 11% of our total revenue for the three months ended June 30, 2013 and 2012, respectively, and 11% and 10% of our total revenue for the six months ended June 30, 2103 and 2012, respectively. Our software is designed to be ready to use immediately upon provisioning of a new customer subscription. However, we believe that our customers success is enhanced by the effective use of modern relationship marketing strategies performed with our software, which we foster primarily through the sale and delivery of expert services that educate our customers on the best use of our solutions as well as assist in the implementation of our solution. In addition, some of our customers require services to support integrating their existing systems with our solution. Enterprise customers exhibit a higher demand for all of these services. Over the near term, due to market demand for expertise in modern relationship marketing, we expect our professional services revenue to grow at a faster rate than our subscription and support revenue, and therefore, to increase as a percentage of our total revenue. In addition, we also partner with third party consulting organizations that provide similar services to our customers in connection with their use of our platform.
Our customer base has grown from over 200 at the end of 2009 to 2,592 at the end of June 30, 2013, which has resulted in rapid revenue growth. We generate the majority of our revenue in the United States; however, we are focused on growing our international business. Revenue generated from our international customers was 14.3% and 12.3% during the three months ended June 30, 2013 and 2012, respectively, and 14.1% and 11.9% during the six months ended June 30, 2013 and 2012, respectively.
We have focused on rapidly growing our business and plan to continue to invest in growth. We expect our cost of revenue and operating expenses to continue to increase in absolute dollars in future periods. Marketing and sales expenses are expected to increase as we continue to expand our sales teams, increase our marketing activities and grow our international operations. Research and development expenses are expected to increase in absolute dollars to support the enhancement of our existing products and the development of new products. We also intend to invest in maintaining a high level of customer service and support which we consider critical for our continued success. We plan to continue investing in our data center infrastructure and services capabilities in order to support continued future customer growth. We also expect to incur additional general and administrative expenses as a result of both our growth and the infrastructure required to be a public company. We also may acquire or invest in businesses, products or technologies that we believe could complement or expand our platform and enhance our technical capabilities. Considering our plans for investment, we do not expect to be profitable in the near term and, in order to achieve profitability, we will need to grow revenue at a rate faster than our investments in cost of revenue and operating expenses. For the remainder of 2013, we expect the demand for our software and services, along with growth rates of revenues, to remain strong but at a somewhat slower growth rate as compared to what we experienced in 2012.
We had net losses of $12.4 million and $9.9 million for the three months ended June 30, 2013 and 2012, respectively, and $21.9 million and $16.6 million for the six months ended June 30, 2013 and 2012, respectively, primarily due to increased investments in our growth.
Since our inception, we financed our operations through cash collected from customers as well as preferred equity financings and our initial public offering and concurrent private placement completed in May 2013. We also maintain an equipment financing facility. As of June 30, 2013, we had outstanding borrowings of $6.6 million under this facility.
Seasonality, Cyclicality and Quarterly Trends
We have historically experienced seasonality in terms of when we enter into new customer agreements for our service. We sign a significantly higher percentage of agreements with new customers as well as renewal agreements with existing customers in the fourth quarter of each year as compared to any of the prior quarters. The first quarter and third quarter are typically the slowest in this regard. Furthermore, we usually sign a significant portion of these agreements during the last month, and often the last two weeks, of each quarter. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue, because we recognize subscription revenue over the term of the license agreement, which is typically one year, but ranges from one quarter to three years. As a result, a slowdown in our ability to enter into customer agreements may not be apparent in our revenue for the quarter, as the revenue recognized in any quarter is primarily from customer agreements entered into in prior quarters. Historical patterns should not be considered a reliable indicator of our future sales activity or performance.
Our revenue has increased over the periods presented due to increased sales to new customers, as well as increased usage of existing and new products by existing customers. Our operating expenses generally have increased sequentially in every quarter primarily due to increases in headcount and other related expenses to support our growth. We anticipate our operating expenses will continue to increase in absolute dollars in future periods as we invest in the long-term growth of our business.
In addition, each year we typically participate in several key industry trade shows, as well as host our own annual user conference. The timing of these events can vary from year to year, and the costs associated with these events typically have a significant effect on our sales and marketing expenses for the applicable quarter and cause our quarterly results to fluctuate.
Results of Operations for the Three and Six Months Ended June 30, 2013 and 2012
The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
|
|
Three Months |
|
Six Months |
| ||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
Subscription and support |
|
88.4 |
% |
88.9 |
% |
88.6 |
% |
89.5 |
% |
Professional services and other |
|
11.6 |
|
11.1 |
|
11.4 |
|
10.5 |
|
Total revenue |
|
100.0 |
|
100.0 |
|
100.0 |
|
100.0 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
Subscription and support |
|
28.1 |
|
25.9 |
|
28.7 |
|
25.8 |
|
Professional services and other |
|
13.9 |
|
15.1 |
|
13.6 |
|
14.9 |
|
Total cost of revenue |
|
42.0 |
|
41.0 |
|
42.3 |
|
40.7 |
|
Gross margin: |
|
|
|
|
|
|
|
|
|
Subscription and support |
|
60.3 |
|
63.0 |
|
59.9 |
|
63.7 |
|
Professional services and other |
|
(2.2 |
) |
(4.0 |
) |
(2.2 |
) |
(4.5 |
) |
Total gross margin |
|
58.0 |
|
59.0 |
|
57.7 |
|
59.3 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
26.6 |
|
38.3 |
|
26.0 |
|
35.1 |
|
Sales and marketing |
|
68.8 |
|
70.3 |
|
65.8 |
|
67.4 |
|
General and administrative |
|
17.2 |
|
21.7 |
|
17.3 |
|
20.2 |
|
Total operating expenses |
|
112.6 |
|
130.3 |
|
109.1 |
|
122.6 |
|
Loss from operations |
|
(54.6 |
) |
(71.3 |
) |
(51.4 |
) |
(63.4 |
) |
Other income (expense), net |
|
(0.4 |
) |
0.0 |
|
(0.3 |
) |
(0.1 |
) |
Loss before provision for income taxes |
|
(55.0 |
) |
(71.3 |
) |
(51.8 |
) |
(63.4 |
) |
Provision for income taxes |
|
0.1 |
|
0.0 |
|
0.1 |
|
0.0 |
|
Net loss |
|
(55.1 |
)% |
(71.3 |
)% |
(51.9 |
)% |
(63.4 |
)% |
Percentages are based on actual values. Totals may not sum due to rounding.
Revenue
|
|
Three Months |
|
|
|
|
|
Six Months |
|
|
|
|
| ||||||||||
(in thousands, except percentages) |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subscription and support |
|
$ |
19,883 |
|
$ |
12,379 |
|
$ |
7,504 |
|
60.6% |
|
$ |
37,438 |
|
$ |
23,400 |
|
$ |
14,038 |
|
60.0% |
|
Professional services and other |
|
2,621 |
|
1,549 |
|
1,072 |
|
69.2 |
|
4,802 |
|
2,739 |
|
2,063 |
|
75.3 |
| ||||||
Total revenue |
|
$ |
22,504 |
|
$ |
13,928 |
|
$ |
8,576 |
|
61.6% |
|
$ |
42,240 |
|
$ |
26,139 |
|
$ |
16,101 |
|
61.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Percentage of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subscription and support |
|
88.4 |
% |
88.9 |
% |
|
|
|
|
88.6 |
% |
89.5 |
% |
|
|
|
| ||||||
Professional services and other |
|
11.6 |
|
11.1 |
|
|
|
|
|
11.4 |
|
10.5 |
|
|
|
|
| ||||||
Total |
|
100.0 |
% |
100.0 |
% |
|
|
|
|
100.0 |
% |
100.0 |
% |
|
|
|
|
Total revenue increased $8.6 million, or 62%, during the second quarter of 2013 compared to the comparable period in 2012, due to the increase in subscription and support revenue of $7.5 million and an increase in professional services revenue of $1.1 million. Of the total increase in subscription and support revenue, 82% was attributable to revenue from new customers acquired from July 1, 2012 through June 30, 2013, and 18% was attributable to revenue from customers existing on or before June 30, 2012. During the six month period ended June 30, 2013, total revenue increased $16.1 million, or 62%, compared to the comparable period in 2012, due to the increase in subscription and support revenue of $14.0 million and an increase in professional services revenue of $2.1 million.
The increase in subscription revenue from new customers was primarily attributable to the growth in our total customer count primarily driven in the SMB market and to a lesser extent from our enterprise customers, whose contracts are of larger average dollar size per customer. The customers we added in the first half of 2013 generally had larger lead databases, on average, managed by our solution than the customers that we added in the first half of 2012 due to our increased penetration into the enterprise market. Volume increases and price increases resulting from the lapsing of introductory discounts on subscriptions also contributed to an increase in revenue, but to a much lesser extent. The increase in subscription revenue from existing customers was mostly attributable to customers increasing the size of the lead databases, on average, at annual renewal, as well as the upsell of additional products either during the term of their subscription or at the point of renewal of their subscription.
The increase in professional services revenue resulted from increased delivery of services across our customer base. A majority of the increase was attributable to increased delivery of professional services to enterprise customers, and the balance of the increase was attributable to our SMB customers. During the latter half of 2012 and the first half of 2013, we added a high proportion of enterprise customers for whom we delivered services during the first half of 2013. Our enterprise customers typically exhibit a higher demand for professional services than our SMB customers.
Cost of Revenue and Gross Margin
|
|
Three Months |
|
|
|
|
|
Six Months |
|
|
|
|
| ||||||||||
(in thousands, except percentages) |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
| ||||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subscription and support |
|
$ |
6,321 |
|
$ |
3,607 |
|
$ |
2,714 |
|
75.2% |
|
$ |
12,141 |
|
$ |
6,742 |
|
$ |
5,399 |
|
80.1% |
|
Professional services and other |
|
3,121 |
|
2,101 |
|
1,020 |
|
48.5 |
|
5,739 |
|
3,906 |
|
1,833 |
|
46.9 |
| ||||||
Total cost of revenue |
|
$ |
9,442 |
|
$ |
5,708 |
|
$ |
3,734 |
|
65.4% |
|
$ |
17,880 |
|
$ |
10,648 |
|
$ |
7,232 |
|
67.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subscription and support |
|
68.2 |
% |
70.9 |
% |
|
|
|
|
67.6 |
% |
71.2 |
% |
|
|
|
| ||||||
Professional services and other |
|
(19.1 |
) |
(35.6 |
) |
|
|
|
|
(19.5 |
) |
(42.6 |
) |
|
|
|
| ||||||
Total gross margin |
|
58.0 |
% |
59.0 |
% |
|
|
|
|
57.7 |
% |
59.3 |
% |
|
|
|
|
Cost of subscription and support increased due to the following (in thousands):
|
|
Change |
| ||||
|
|
Three |
|
Six |
| ||
Personnel-related costs |
|
$ |
852 |
|
$ |
1,767 |
|
Hosting costs |
|
935 |
|
1,757 |
| ||
Depreciation and amortization |
|
510 |
|
845 |
| ||
Facilities and IT allocations |
|
188 |
|
414 |
| ||
Various other items |
|
229 |
|
616 |
| ||
|
|
|
|
|
| ||
|
|
$ |
2,714 |
|
$ |
5,399 |
|
The increase in cost of subscription and support for the three and six months ended June 30, 2013 as compared to the same periods in 2012 was mostly due to increases in personnel-related costs and hosting costs as a result of our increase in computing and network capacity to support our customer growth. During 2012, to improve the responsiveness and long-term cost efficiency of our data center operations, we began an effort to transition from our managed hosting service provider to co-location data center facilities for which we are purchasing and managing our own computer equipment and systems. As a result, we hired additional personnel associated with the project, resulting in increased personnel costs and depreciation expense related to expenses associated with this project.
Our subscription and support gross margin was 68.2% and 70.9% for the three months ended June 30, 2013 and 2012, respectively, and 67.6% and 71.2% for the six months ended June 30, 2013 and 2012, respectively. This decrease in subscription and support gross margin was primarily a result of increased personnel-related costs from increases in headcount and additional expenses incurred associated with the migration of our data centers from our managed hosting service provider to new co-location facilities.
Cost of professional services and other increased due to the following (in thousands):
|
|
Change |
| ||||
|
|
Three |
|
Six |
| ||
Personnel-related costs |
|
$ |
641 |
|
$ |
1,245 |
|
Consulting |
|
110 |
|
201 |
| ||
Various other items |
|
269 |
|
387 |
| ||
|
|
$ |
1,020 |
|
$ |
1,833 |
|
The increase in cost of professional services and other during the three and six months ended June 30, 2013 was primarily due to an increase in personnel-related costs, as we continue to grow our headcount in our professional services organization to support demand for expert services. Additionally, consulting costs increased as a result of increased usage of outside contractors to supplement our existing staff.
Our professional services and other gross margin was (19.1)% and (35.6)% for the three months ended June 30, 2013 and 2012, respectively and (19.5)% and (42.6)% for the six months ended June 30, 2013 and 2012, respectively. The improvement in gross margin was primarily due to improved staff utilization resulting primarily from higher demand for professional services from our customers.
We expect that cost of revenue may increase in the future depending on the growth rate of new customer acquisition. We also expect that cost of revenues as a percentage of total revenues could fluctuate from period to period depending on growth of our professional services business and any associated costs relating to the delivery of professional services, the timing of sales of products that have royalties associated with them and the timing of significant expenditures.
Research and Development
|
|
Three Months |
|
|
|
|
|
Six Months |
|
|
|
|
| ||||||||||
(in thousands, except percentages) |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
| ||||||
Research and development |
|
$ |
5,985 |
|
$ |
5,339 |
|
$ |
646 |
|
12.1% |
|
$ |
10,981 |
|
$ |
9,174 |
|
$ |
1,807 |
|
19.7% |
|
Percentage of total revenue |
|
26.6 |
% |
38.3 |
% |
|
|
|
|
26.0 |
% |
35.1 |
% |
|
|
|
| ||||||
Research and development expenses increased due to the following (in thousands):
|
|
Change |
| ||||
|
|
Three |
|
Six |
| ||
Personnel-related costs |
|
$ |
503 |
|
$ |
1,317 |
|
Consulting |
|
212 |
|
550 |
| ||
Capitalized software development |
|
(228 |
) |
(228 |
) | ||
Various other items |
|
159 |
|
168 |
| ||
|
|
$ |
646 |
|
$ |
1,807 |
|
The increase in research and development expenses during the three and six months ended June 30, 2013 was primarily due to an increase in personnel-related costs as a result of the increase in headcount to help continue the enhancement of our existing product suite and to a lesser extent, an increase in stock-based compensation expense. Consulting fees, mostly related to sub-contracted development, increased as the result of the use of more outside contractors. These increases were partially offset by an increase in capitalized software development costs, which consists primarily of personnel-related expenses.
We believe that continued investment in our technology is important for our future growth, and, as a result, we expect research and development expenses to increase in absolute dollars although they may fluctuate as a percentage of total revenues.
Sales and Marketing
|
|
Three Months |
|
|
|
|
|
Six Months |
|
|
|
|
| ||||||||||
(in thousands, except percentages) |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
| ||||||
Sales and marketing |
|
$ |
15,488 |
|
$ |
9,788 |
|
$ |
5,700 |
|
58.2% |
|
$ |
27,806 |
|
$ |
17,607 |
|
$ |
10,199 |
|
57.9% |
|
Percentage of total revenue |
|
68.8 |
% |
70.3 |
% |
|
|
|
|
65.8 |
% |
67.4 |
% |
|
|
|
| ||||||
Sales and marketing expenses increased due to the following (in thousands):
|
|
Change |
| ||||
|
|
Three |
|
Six |
| ||
Personnel-related expenses |
|
$ |
2,328 |
|
$ |
3,982 |
|
Commissions |
|
2,006 |
|
3,814 |
| ||
Travel and entertainment |
|
372 |
|
584 |
| ||
Consulting |
|
223 |
|
465 |
| ||
Facilities and IT allocation |
|
403 |
|
801 |
| ||
Various other items |
|
368 |
|
553 |
| ||
|
|
$ |
5,700 |
|
$ |
10,199 |
|
The increase in sales and marketing expenses during the three and six months ended June 30, 2013 was primarily due to personnel-related costs, consisting of an increase in salary and benefits costs resulting from an increase in headcount and to a lesser extent, an increase in stock-based compensation expense. The increase in sales commission expense was driven by an increase in new customer acquisitions. The increase in travel costs reflects the expansion of our enterprise sales efforts and our sales and marketing efforts internationally. In addition, consulting fees increased as a result of increased use of outside consultants to support growth in our business. The increase in the allocation of facility and IT expenses was due principally to headcount growth in the sales and marketing department and higher IT and facilities expenses.
We expect sales and marketing expenses to increase in absolute dollars and remain our largest expense in absolute dollars and as a percentage of total revenues, although they may fluctuate as a percentage of total revenues.
General and Administrative
|
|
Three Months |
|
|
|
|
|
Six Months |
|
|
|
|
| ||||||||||
(in thousands, except percentages) |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
|
2013 |
|
2012 |
|
$ Change |
|
% Change |
| ||||||
General and administrative |
|
$ |
3,876 |
|
$ |
3,020 |
|
$ |
856 |
|
28.3% |
|
$ |
7,303 |
|
$ |
5,275 |
|
$ |
2,028 |
|
38.4% |
|
Percentage of total revenue |
|
17.2 |
% |
21.7 |
% |
|
|
|
|
17.3 |
% |
20.2 |
% |
|
|
|
| ||||||
General and administrative expenses increased due to the following (in thousands):
|
|
Change |
| ||||
|
|
Three |
|
Six |
| ||
Personnel-related costs |
|
$ |
740 |
|
$ |
1,319 |
|
Consulting |
|
227 |
|
670 |
| ||
Various other items |
|
(111 |
) |
39 |
| ||
|
|
$ |
856 |
|
$ |
2,028 |
|
The increase in general and administrative expenses during the three and six months ended June 30, 2013 was primarily due to increased personnel-related costs as a result of an increase in headcount. Consulting fees increased as we increased our use of external consultants to assist with preparatory work associated with our IPO and with implementing new systems to support our growth.
We expect that our general and administrative expenses will increase in absolute dollars as we continue to expand our business and infrastructure to support being a public company although they may fluctuate as a percentage of total revenues.
Liquidity and Capital Resources
To date, we have financed our operations primarily through cash received from customers for use of our service, private placements of preferred stock and our initial public offering and concurrent private placement completed in May 2013, as well as proceeds from equipment financings. As of December 31, 2012 and June 30, 2013, we had $44.2 million and $121.9 million, respectively, of cash and cash equivalents, most of which was held in money market accounts.
In May 2012, we entered into a loan and security agreement with a bank, and subsequently amended this loan and security agreement in June 2013. As of June 30, 2013, we had outstanding borrowings of $6.6 million under this facility. The interest rate associated with this equipment facility is the greater of 4% or 0.75 of a percentage point above the banks prime rate, as determined on the applicable funding date. For each equipment loan advance, we pay interest only for approximately nine months. Subsequently, we make thirty-six equal monthly payments of principal and interest. The loan and security agreement contains customary affirmative and negative covenants, including, among other things, maintaining certain business performance levels and limitations on disposal of assets, certain fundamental business changes, incurrences of debt, incurrences of liens, payments of dividends, repurchases of stock and engaging in affiliate transactions, in each case subject to certain exceptions. As of December 31, 2012 and June 30, 2013, we were in compliance with all of the covenants contained in the loan and security agreement.
A substantial source of our cash provided by operating activities is our deferred revenue, which is included on our consolidated balance sheet as a liability. Deferred revenue consists of the unearned portion of billed fees for our software subscriptions and professional services, which is amortized into revenue in accordance with our revenue recognition policy. As of December 31, 2012 and June 30, 2013, we had working capital of $28.3 million and $92.9 million, respectively, which included $20.6 million and $30.6 million of deferred revenue recorded as a current liability, respectively. The increase in our working capital at June 30, 2013 is primarily due to proceeds we received from our IPO of $80.5 million and from proceeds received on the completion of our private placement offering of $6.5 million.
We assess our liquidity primarily through our cash on hand as well as the projected timing of billings under contract with our customers and related collection cycles. We believe our current cash and cash equivalents, cash to be received from existing and new customers and net proceeds of this offering will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.
Our future capital requirements will depend on many factors, including equipment required in connection with the transition from our managed hosting service provider to co-location data center facilities, revenue growth and costs incurred to support customer growth, international expansion, research and development, litigation and increased general and administrative expenses to support the anticipated growth in our operations, including as a new public company. Our capital expenditures in future periods are expected to grow in line with our business. To the extent that existing cash and cash from operations are not sufficient to fund our future operations, we may need to raise additional funds through public or private equity or additional debt financing. Although we currently are not a party to any agreement and do not have any understanding with any third parties with respect to potential investments in, or acquisitions of, businesses or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.
The table below, for the periods indicated, provides selected cash flow information (in thousands):
|
|
June 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
Net cash used in operating activities |
|
$ |
(5,071 |
) |
$ |
(11,599 |
) |
Net cash used in investing activities |
|
(6,084 |
) |
(1,684 |
) | ||
Net cash provided by financing activities |
|
88,842 |
|
1,463 |
| ||
Net increase (decrease) in cash and cash equivalents, net of impact of foreign exchange rates on cash |
|
77,635 |
|
(11,737 |
) | ||
Net cash used in operating activities. Cash used in operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business, the increase in the number of customers using our cloud-based software and services, and the amount and timing of customer payments. Cash used in operating activities has historically come from a net loss driven by sales of subscriptions to our software services and adjusted for non-cash expenses items, such as depreciation and amortization of property and equipment, stock-based compensation, and intangible assets acquired in connection with the acquisition of Crowd Factory. The percentage of customers that pay quarterly rather than annually changes every quarter. We have historically seen billing frequencies that were predominately quarterly. However, our enterprise and larger SMB customers are increasingly opting for annual versus quarterly billing terms. While we expect this dynamic to continue, customer mix shifts from quarter to quarter. The percentage of customers who are billed quarterly and pay us quarterly has a material impact on our change in deferred revenue and therefore our net cash used in operating activities.
Our cash used in operating activities during the six months ended June 30, 2013 primarily reflected our net loss of $21.9 million, offset by non-cash expenses that included $1.8 million of depreciation and amortization and $3.6 million in stock-based compensation. Working capital sources of cash included a $9.9 million increase in deferred revenue resulting primarily from the addition of new customers and the customer mix of more annual versus quarterly billing invoiced during the period and a $3.0 million increase accrued expenses and other current liabilities primarily resulting from an increase in accrued commissions costs. These sources of cash were partially offset by a $2.9 million increase in accounts receivable. While our Days Sales Outstanding (DSO) improved from 81 days during the second quarter of 2012 to 69 days during the second quarter of 2013, our accounts receivable balance experienced an overall increase as a result of higher customer billings related to the increase in the number of customers during the period and an increase in annual billings.
Our cash used in operating activities during the six months ended June 30, 2012 primarily reflected our net loss of $16.6 million, offset by non-cash expenses that included $0.7 million of depreciation and amortization and $1.2 million in stock-based compensation. Working capital sources of cash included a $5.7 million increase in deferred revenue resulting primarily from the addition of new customers invoiced during the period and a $2.5 million increase accrued expenses and other current liabilities due to a higher level of expenses consistent with the overall growth of our business. These sources of cash were partially offset by a $3.3 million increase in accounts receivable due to higher customer billing volume resulting from increases in the number of customers and an increase in DSO from 60 days during the second quarter of 2011 to 81 days during the second quarter of 2012.
Net cash used in investing activities. Our primary investing activities have consisted of capital expenditures to purchase equipment required in connection with the transition from our managed hosting provider to co-location data center facilities for which we are purchasing and managing our own computer equipment and systems. As our business grows, we expect our capital expenditures and our activity to continue to increase.
For the six months ended June 30, 2013, cash used in investing activities consisted of $5.9 million for the purchases of property and equipment, primarily associated with our transition from a managed hosting service provider to co-location data center facilities for which we are purchasing and managing our own computer equipment and system and to a lesser extent, an increase in computer equipment, furniture and fixtures and leasehold improvements associated with supporting our increasing employee headcount and capitalized software development costs of $0.2 million.
For the six months ended June 30, 2012, cash used in investing activities consisted of $2.4 million for the purchases of computer and network equipment for building out our co-location facilities to support our customer base, as well as equipment and furniture and fixtures for supporting our increasing employee headcount. We also acquired $0.7 million in cash in connection with the acquisition of Crowd Factory.
Net cash provided by financing activities. Our primary financing activities have consisted of equity issuances raised to fund our operations as well as proceeds from and payments on equipment debt obligations entered into to finance our property and equipment, primarily equipment used in our data centers.
For the six months ended June 30, 2013, cash provided by financing activities of $88.8 million consisted of IPO proceeds of $80.5 million, net of paid underwriter discounts, proceeds of $6.5 million from the completion of our private placement offering, $3.1 million in proceeds from borrowings under the credit facility and $1.4 million from proceeds received from the issuance of common stock upon the exercise of stock options, partially offset by $2.5 million in cash payments related to costs associated with our IPO and $0.1 million related to the repayment of our credit facility.
For the six months ended June 30, 2012, cash provided by financing activities consisted of $1.1 million in proceeds from borrowings under the credit facility and $0.4 million of proceeds received from the issuance of common stock upon the exercise of stock options.
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes in our critical accounting policies and estimates during the second quarter of 2013 as compared to the critical accounting policies and estimates disclosed in Managements Discussion and Analysis of Financial Condition and Results of Operations included in the Companys final prospectus for its IPO.
Recent Accounting Pronouncements
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. This new accounting pronouncement is effective for interim and fiscal reporting periods beginning after December 15, 2012, with early adoption permitted. The Company has adopted this standard during the first quarter of 2013. The adoption of this standard expanded the consolidated financial statement footnote disclosures, however there were no amounts reclassified out of accumulated other comprehensive income in any period presented.
Contractual Obligations and Commitments
Except as set forth in Note 5 and Note 6, there were no material changes in our commitments under contractual obligations, as disclosed in the Companys audited consolidated financial statements for the year ended December 31, 2012.
Our primary contractual obligations are from our operating leases, credit facility and other contractual commitments. See Note 5 - Credit Facility and Note 6 - Commitments and Contingencies, to our Condensed Consolidated Financial Statements for a discussion of our credit facility, lease commitments and other contractual commitments.
Off-Balance Sheet Arrangements
During the six months ended June 30, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Euro, British Pound Sterling, and Australian dollar. Revenue generated from our international customers was 14.3% and 12.3% during the three months ended June 30, 2013 and 2012, respectively, and 14.1% and 11.9% during the six months ended June 30, 2013 and 2012, respectively. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect our revenue and other operating results as expressed in U.S. dollars.
We have experienced and will continue to experience fluctuations in our net income (loss) as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. We recognize foreign currency gains (losses) from time to time, but such gains (losses) were in immaterial amounts during each of the three and six months ended June 30, 2013 and 2012.
Interest Rate Sensitivity
We have a credit facility with equipment advances of approximately $3.6 million and $6.6 million during December 31, 2012 and June 30, 2013, respectively. The interest rate associated with this facility is the greater of 4% or three quarters of a percentage point above the prime rate. A one percent increase in the prime rate would not have an impact on our operating results as the greater of the two rates is 4%, and we would still pay interest of 4%. A 10% increase or decrease in interest rates would not result in a material change in either our obligations under this facility or in the returns on our cash and cash equivalents.
Inflation Risk
We do not believe that inflation has had a material effect on our business. However, if our costs, in particular personnel, sales and marketing and cloud-based infrastructure costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
On May 17, 2013, iHance, Inc. filed a complaint against the Company in the United States District Court for the Northern District of California, alleging that a salesperson email tracking feature in our Marketo Sales Insight application infringed upon certain of iHances patents. On July 29, 2013, we filed an answer to the complaint, denying iHances infringement allegations and asserting a counterclaim for a declaratory judgment of noninfringement and invalidity. We are continuing to evaluate iHances claims, but based on the information currently available, we do not believe any loss from this litigation is probable or estimable. However, addressing this or any other litigation could cause us to incur significant expenses and costs and, even if we were to prevail, this litigation could be costly and time consuming, could divert the attention of our management and key personnel from our business operations, and may discourage customers from purchasing our solution or renewing their subscriptions. In addition, as a result of the litigation, we may be required to pay settlement fees or damages, agree to a license to iHances patents on terms that are unfavorable to us, or become subject to an injunction that requires us to modify our salesperson email tracking feature. Any of these outcomes could harm our business. We intend to vigorously defend this matter.
A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this report, and in our other public filings. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.
We have a history of losses and may not achieve consistent profitability in the future.
We generated net losses of $11.8 million, $22.6 million and $34.4 million in 2010, 2011 and 2012, and $21.9 million for the six months ended June 30, 2013, respectively. As of June 30, 2013, we had an accumulated deficit of $104.1 million. We will need to generate and sustain increased revenue levels in future periods in order to become consistently profitable, and, even if we do, we may not be able to maintain or increase our level of profitability. We intend to continue to expend significant funds to expand our marketing and sales operations, develop and enhance our marketing software, meet the increased compliance requirements associated with our transition to and operation as a public company, upgrade our data center infrastructure and services capabilities and expand into new markets. Historically, we also have experienced negative gross margins on our professional services, which are expected to continue to be negative. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the market price of our common stock may significantly decrease.
If we are unable to attract new customers or sell additional services and functionality to our existing customers, our revenue growth will be adversely affected.
To increase our revenue, we must add new customers, encourage existing customers to renew their subscriptions on terms favorable to us, increase their usage of our solutions, and sell additional functionality to existing customers. As our industry matures, as interactive channels develop further, or as competitors introduce lower cost and/or differentiated products or services that are perceived to compete with ours, our ability to sell and renew based on pricing, technology and functionality could be impaired. As a result, we may be unable to renew our agreements with existing customers or attract new customers or new business from existing customers on terms that would be favorable or comparable to prior periods, which could have an adverse effect on our revenue and growth.
If subscription renewal rates decrease, or we do not accurately predict subscription renewal rates, our future revenue and operating results may be harmed.
Our customers have no obligation to renew their subscriptions for our software after the expiration of their subscription period, which is typically one year, but ranges from one quarter to three years. In addition, our customers may renew for lower subscription amounts or for shorter contract lengths. We may not accurately predict renewal rates for our customers. Our renewal rates may decline or fluctuate as a result of a number of factors, including customer usage, pricing changes, number of applications used by our customers, customer satisfaction with our service, the acquisition of our customers by other companies and deteriorating general economic conditions. If our customers do not renew their subscriptions for our service or decrease the amount they spend with us, our revenue will decline and our business will suffer.
If we are unable to maintain a good relationship with salesforce.com and develop and grow our relationships with other platform providers, our business will suffer.
As of June 30, 2013, approximately 74% of our customers integrated our solution with certain capabilities of salesforce.com using publicly available application programming interfaces (APIs). In general, we rely on the fact that salesforce.com continues to allow us access to its APIs to enable these customer integrations. To date, we have not relied on a long-term written contract to govern our relationship with salesforce.com. Instead, we are subject to the standard terms and conditions for application developers of salesforce.com, which govern the distribution, operation and fees of applications on the salesforce.com platform, and which are subject to change by salesforce.com from time to time. While we expect to continue to generate the majority of our revenue from our customers using the salesforce.com platform in the near term, we also integrate our solutions with other platform providers, including Microsoft, NetSuite, Oracle, SAP and SugarCRM. Any deterioration in our relationship with any platform provider would harm our business and adversely affect our operating results.
Our business may be harmed if any platform provider:
· discontinues or limits access to its APIs by us;
· terminates or does not allow us to renew or replace our contractual relationship;
· modifies its terms of service or other policies, including fees charged to, or other restrictions on, us, other application developers, or changes how customer information is accessed by us or our customers;
· establishes more favorable relationships with one or more of our competitors, or acquires one or more of our competitors and offers competing services to us, such as may be the case with the acquisition of ExactTarget by salesforce.com in July 2013 or of Eloqua by Oracle in late 2012; or
· otherwise develops its own competitive offerings.
In addition, we have benefited from these platform providers brand recognition, reputations and customer bases. Any losses or shifts in the market position of these platform providers in general, in relation to one another or to new competitors or new technologies could lead to losses in our relationships or customers, or our need to identify or transition to alternative channels for marketing our solutions. Any such requirements for changes or shifts on us could consume substantial resources and may not be effective. Any such changes in the future could negatively impact our ability to reach our prospective customers, which would harm our business.
We face significant competition from both established and new companies offering marketing software and other related applications, as well as internally developed software, which may harm our ability to add new customers, retain existing customers and grow our business.
The marketing software market is evolving, highly competitive and significantly fragmented. We expect competition to continue to increase in the future. With the introduction of new technologies and the potential entry of new competitors into the market, we expect competition to persist and intensify in the future, which could harm our ability to increase sales, maintain or increase renewals and maintain our prices.
We face intense competition from other software companies that develop marketing software and from marketing services companies that provide interactive marketing services. Competition could significantly impede our ability to sell our marketing software on terms favorable to us. Our current and potential competitors may develop and market new technologies that render our existing or future products less competitive, unmarketable or obsolete. In addition, if these competitors develop products with similar or superior functionality to our solutions, we may need to decrease the prices for our solutions in order to remain competitive. If we are unable to maintain our current pricing due to competitive pressures, our margins will be reduced and our operating results will be negatively affected.
Our competitors offer various solutions that compete with us. Some of these competitors include:
· cloud-based marketing automation providers such as Act-On, Eloqua (a division of Oracle), ExactTarget (acquired by salesforce.com in July 2013) and HubSpot;
· traditional database marketing software vendors such as Aprimo (a division of Teradata), SAS Institute and Unica (a division of IBM);
· email marketing software vendors, such as Responsys and Silverpop; and
· large-scale enterprise suites such as Oracle and SAP.
We also expect that new competitors, such as enterprise software vendors that have traditionally focused on enterprise resource planning or back office applications, will continue to enter the marketing software market with competing products, which could have an adverse effect on our business, operating results and financial condition. For example, due to the growing awareness of the importance of technology solutions to modern relationship marketing, we expect to face additional competition from new entrants to our markets. In addition to salesforce.coms acquisition of ExactTarget, other sales force automation and CRM system vendors, such as Microsoft and NetSuite, could acquire or develop solutions that compete with our offerings. Some of these companies have acquired social media marketing and other marketing software providers to integrate with their broader offerings.
Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we have, are able to devote greater resources to the development, promotion, sale and support of their products and services, have more extensive customer bases and broader customer relationships than we have, and may have longer operating histories and greater name recognition than we have. As a result, these competitors may be better able to respond quickly to new technologies and to undertake more extensive marketing campaigns. In a few cases, these vendors may also be able to offer marketing software at little or no additional cost by bundling them with their existing suite of solutions. To the extent any of our competitors have existing relationships with potential customers for either marketing software or other solutions, those customers may be unwilling to purchase our solutions because of those existing relationships with that competitor. If we are unable to compete with such companies, the demand for our marketing software could substantially decline.
In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. For example, Oracle acquired our competitor Eloqua in late 2012, ExactTarget acquired our competitor Pardot in 2012, and salesforce.com subsequently acquired ExactTarget in July 2013. Other companies such as Adobe, IBM and salesforce.com have also recently acquired companies in the marketing automation and/or social marketing and related spaces. These acquisitions have resulted in fewer but larger companies with whom we compete for customers. Our competitors may also establish or strengthen cooperative relationships with our current or future strategic distribution and technology partners or other parties with whom we have relationships, thereby limiting our ability to promote and implement our solutions. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our business, operating results and financial condition.
Our recent rapid growth may not be indicative of our future growth and, if we continue to grow rapidly, we may not be able to manage our growth effectively.
From 2010 to 2012, our revenue grew from $14.0 million to $58.4 million. For the six months ended June 30, 2013, our revenues grew to $42.2 million from $26.1 million during the six months ended June 30, 2012. We expect that, in the future, as our revenue increases to higher levels, our revenue growth rate will decline. We believe growth of our revenue depends on a number of factors, including our ability to:
· price our marketing software effectively so that we are able to attract and retain customers without compromising our profitability;
· attract new customers, increase our existing customers use of our services and provide our customers with excellent customer support;
· introduce our marketing software to new markets outside of the United States; and
· increase awareness of our brand on a global basis.
We may not successfully accomplish any of these objectives. We plan to continue our investment in future growth. We expect to continue to expend substantial financial and other resources on:
· sales and marketing, including a significant expansion of our sales organization;
· our technology infrastructure, including systems architecture, management tools, scalability, availability, performance and security, as well as disaster recovery measures;
· product development, including investments in our product development team and the development of new products and new features for existing products;
· international expansion; and
· general administration, including legal and accounting expenses related to being a public company.
In addition, our historical rapid growth has placed and may continue to place significant demands on our management and our operational and financial resources. We have also experienced significant growth in database size, the number of users and transactions and the amount of data that our hosting infrastructure supports. As we continue to grow, we may need to open new offices in the United States and internationally, and hire additional personnel for those offices. Finally, our organizational structure is becoming more complex as we add additional staff, and we will need to improve our operational, financial and management controls as well as our reporting systems and procedures. We will require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas without undermining our corporate culture of rapid innovation, teamwork and attention to customer success that has been central to our growth so far.
If our or our customers security measures are compromised or unauthorized access to customer data is otherwise obtained, our marketing software may be perceived as not being secure, customers may curtail or cease their use of our solutions, our reputation may be harmed and we may incur significant liabilities.
Our operations involve the storage and transmission of customer data, including personally identifiable information, and security incidents could result in unauthorized access to, loss of or unauthorized disclosure of this information, litigation, indemnity obligations and other possible liabilities, as well as negative publicity, which could damage our reputation, impair our sales and harm our business. Cyber attacks and other malicious Internet-based activity continue to increase generally, and cloud-based platform providers of marketing services have been targeted. If our security measures are compromised as a result of third-party action, employee or customer error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our reputation could be damaged, our business may be harmed and we could incur significant liability. In addition, if the security measures of our customers are compromised, even without any actual compromise of our own systems, we may face negative publicity or reputational harm if our customers or anyone else incorrectly attributes the blame for such security breaches on us or our systems. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to sabotage systems because they change frequently and generally are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more widely known and recognized when we are a public company, we may become more of a target for third parties seeking to compromise our security systems or gain unauthorized access to our customers data.
Many governments have enacted laws requiring companies to notify individuals of data security incidents involving certain types of personal data. In addition, some of our customers contractually require notification of any data security compromise. Security compromises experienced by our competitors, by our customers or by us may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business and operating results.
There can be no assurance that any limitations of liability provisions in our contracts for a security breach would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. We also cannot be sure that our existing general liability insurance coverage and coverage for errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and operating results.
Interruptions to or degraded performance of our service could result in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.
We currently serve our customers from third-party data center hosting facilities located in California, Texas, Virginia and the United Kingdom. The continuous availability of our service depends on the operations of those facilities, on a variety of network service providers, on third-party vendors and on our own data center operations staff. In addition, we depend on our third-party facility providers ability to protect these facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. In 2012, we began an effort to transition from a managed hosting service provider to co-location data center facilities for which we are purchasing and managing our own computer equipment and systems. This transition requires that we complete customer migrations without material interruption, which increases the risk of possible adverse business impact of any interruption or failure in the delivery of our service that could result from the transition. If there are any lapses of service or damage to a facility, we could experience lengthy interruptions in our service as well as delays and additional expenses in arranging new facilities and services. Even with current and planned disaster recovery arrangements, which, to date, have not been tested in an actual crisis, our business could be harmed.
We designed our system infrastructure and procure and own or lease the computer hardware used for our services. Design and mechanical errors, spikes in usage volume and failure to follow operations protocols and procedures could cause our systems to fail, resulting in interruptions in our solution. Any interruptions or delays in our service, whether as a result of third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with customers and cause our revenue to decrease and/or our expenses to increase. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability and cause us to issue credits or cause customers not to renew their subscriptions, any of which could materially adversely affect our business.
If we are unable to further penetrate the B2C market and additional vertical industries, our revenue may not grow and our operating results may be harmed.
Currently, a significant majority of our revenue is derived from companies in the B2B market and a significant portion are derived from customers in the technology industry. An important part of our strategy, however, is to further penetrate the B2C market and vertical industries outside of technology. We have less experience in this market and these industries, and expanding into them may require us to develop additional features for our products, expand our expertise in certain areas, and add sales and support personnel possessing familiarity with this market and the relevant vertical industries. In addition, B2C customers may have greater usage requirements during their peak selling seasons which could put pressure on our systems and infrastructure and require us to expand these systems and infrastructure to meet increased demand. As a result of these and other factors, our efforts to expand further into the B2C market and further into additional vertical industries may be expensive, may not succeed and may harm our revenue growth and operating results.
We may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly operating results have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance, and comparing our operating results on a period-to-period basis may not be meaningful. In addition to the other risks described in this prospectus, factors that may affect our quarterly operating results include the following:
· changes in spending on marketing software by our current or prospective customers;
· pricing of our marketing software so that we are able to attract and retain customers;
· acquisition of new customers and increases of our existing customers use of our services;
· customer renewal rates and the amounts for which agreements are renewed;
· customer delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors;
· budgeting cycles of our customers;
· changes in the competitive dynamics of our market, including consolidation among competitors or customers;
· the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses (including marketing events and commissions and bonuses associated with performance), and employee benefit expenses;
· the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges;
· the amount and timing of costs associated with recruiting, training and integrating new employees;
· the amount and timing of cash collections from our customers and the mix of quarterly and annual billings;
· introduction and adoption of our marketing software in markets outside of the United States;
· unforeseen costs and expenses related to the expansion of our business, operations and infrastructure;
· costs and timing of costs associated with the transition of our data center facilities;
· awareness of our thought leadership and brand on a global basis;
· changes in the levels of our capital expenditures;
· foreign currency exchange rate fluctuations; and
· general economic and political conditions in our domestic and international markets.
We may not be able to accurately forecast the amount and mix of future subscriptions, revenue and expenses and, as a result, our operating results may fall below our estimates or the expectations of public market analysts and investors. If our revenue or operating results fall below the expectations of investors or securities analysts, or below any guidance we may provide, the price of our common stock could decline.
We may not be able to scale our business quickly enough to meet our customers growing needs and if we are not able to grow efficiently, our operating results could be harmed.
As usage of our marketing software grows and as customers use our solutions for more advanced relationship marketing programs, we will need to devote additional resources to improving our application architecture, integrating with third-party systems, and maintaining infrastructure performance. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support and professional services, to serve our growing customer base, particularly as our customer demographics expand over time. Any failure of or delay in these efforts could cause impaired system performance and reduced customer satisfaction. These issues could reduce the attractiveness of our marketing software to customers, resulting in decreased sales to new customers, lower renewal rates by existing customers, the issuance of service credits, or requested refunds, which could hurt our revenue growth and our reputation. Even if we are able to upgrade our systems and expand our staff, any such expansion will be expensive and complex, requiring management time and attention. We could also face inefficiencies or operational failures as a result of our efforts to scale our infrastructure. Moreover, there are inherent risks associated with upgrading, improving and expanding our information technology systems. We cannot be sure that the expansion and improvements to our infrastructure and systems will be fully or effectively implemented on a timely basis, if at all. These efforts may reduce revenue and our margins and adversely impact our financial results.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our marketing software may become less competitive.
Our future success will depend on our ability to adapt and innovate our marketing software. To attract new customers and increase revenue from existing customers, we continually will need to enhance and improve our offerings to meet customer needs at prices that our customers are willing to pay. Such efforts will require adding new functionality and responding to technological advancements, which will increase our research and development costs. If we are unable to develop new solutions that address our customers needs, or to enhance and improve our solutions in a timely manner, we may not be able to achieve or maintain adequate market acceptance of our solutions. Our ability to grow is also subject to the risk of future disruptive technologies. Access and use of our marketing software is provided via the cloud, which, itself, was disruptive to the previous enterprise software model. If new technologies emerge that are able to deliver marketing software and related applications at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete.
Because we recognize revenue from subscriptions over the term of the relevant contract, downturns or upturns in sales are not immediately reflected in full in our operating results.
As a subscription-based business, we recognize revenue over the term of each of our contracts, which is typically one year, but range from one quarter to three years. As a result, much of the revenue we report each quarter results from contracts entered into during previous quarters. Consequently, a shortfall in demand for our solutions and professional services or a decline in new or renewed contracts in any one quarter may not significantly reduce our revenue for that quarter but could negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in new sales or renewals of our marketing software will not be reflected in full in our operating results until future periods. Our revenue recognition model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable term of the contracts.
Because our long-term growth strategy involves further expansion of our sales to customers outside the United States, our business will be susceptible to risks associated with international operations.
A component of our growth strategy involves the further expansion of our operations and customer base internationally. In 2010, 2011 and 2012, and the six months ended June 30, 2013, revenue generated outside of the United States was 10.6%, 10.7% , 12.8% and 14.1%, respectively, of our total revenue. We currently have international offices outside of North America in Europe and Australia, which focus primarily on selling and implementing our solutions in those regions. In the future, we may expand to other international locations. Our current international operations and future initiatives will involve a variety of risks, including:
· changes in a specific countrys or regions political or economic conditions;
· unexpected changes in regulatory requirements, taxes or trade laws;
· more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information, particularly in the European Union;
· differing 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;
· challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;
· difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems;
· increased travel, real estate, infrastructure and legal compliance costs associated with international operations;
· currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;
· limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;
· laws and business practices favoring local competitors or general preferences for local vendors;
· limited or insufficient intellectual property protection;
· political instability or terrorist activities;
· exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act and similar laws and regulations in other jurisdictions; and
· adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.
We opened our first international office two years ago, and our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer.
Failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our solutions.
Our ability to increase our customer base and achieve broader market acceptance of our marketing software will depend to a significant extent on our ability to expand our marketing and sales operations. We plan to continue expanding our sales force and third-party channel partners, both domestically and internationally. We also plan to dedicate significant resources to sales and marketing programs, including Internet and other online advertising. The effectiveness of our online advertising has varied over time and may vary in the future due to competition for key search terms, changes in search engine use and changes in the search algorithms used by major search engines. All of these efforts will require us to invest significant financial and other resources. In addition, the cost to acquire customers is high due to these marketing and sales efforts. Our business will be seriously harmed if our efforts do not generate a correspondingly significant increase in revenue. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel, if our 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.
If we fail to maintain our thought leadership position in modern relationship marketing, our business may suffer.
We believe that maintaining our thought leadership position in modern relationship marketing is an important element in attracting new customers. We devote significant resources to develop and maintain our thought leadership position, with a focus on identifying and interpreting emerging trends in relationship marketing, shaping and guiding industry dialog, and creating and sharing the best marketing practices. Our activities related to developing and maintaining our thought leadership may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in such effort. We rely upon the continued services of our management and employees with domain expertise in modern relationship marketing, and the loss of any key management or employees in this area could harm our competitive position and reputation. If we fail to successfully grow and maintain our thought leadership position, or incur substantial expenses in our attempts to do so, we may not attract enough new customers or retain our existing customers, and our business could suffer.
Our quarterly results reflect seasonality in the sale of our marketing software, which can make it difficult to achieve sequential revenue growth or could result in sequential revenue declines.
We have historically experienced seasonal variations in our signing of customer contracts and renewals. We sign a significantly higher percentage of agreements with new customers as well as renewal agreements with existing customers in the fourth quarter of each year as compared to any of the prior quarters. The first quarter is typically the slowest in this regard. We expect this seasonality to continue in the future, which may cause fluctuations in certain of our operating results and financial metrics, and thus limit our ability to predict future results. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue, because we recognize subscription revenue over the term of the license agreement, which is typically
one year, but ranges from one quarter to three years. As a result, a slowdown in our ability to enter into customer agreements may not be apparent in our revenue for the quarter, as the revenue recognized in any quarter is primarily from customer agreements entered into in prior quarters. Historical patterns should not be considered indicative of our future sales activity or performance.
If we fail to forecast our revenue accurately, or if we fail to match our expenditures with corresponding revenue, our operating results could be adversely affected.
Because our recent growth has resulted in the rapid expansion of our business, we do not have a long history upon which to base forecasts of future operating revenue. In addition, for our enterprise customers, the lengthy sales cycle for the evaluation and implementation of our solutions, which typically extends for several months, may also cause us to experience a delay between increasing operating expenses for such sales efforts, and, upon successful sales, the generation of corresponding revenue. Accordingly, we may be unable to prepare accurate internal financial forecasts or replace anticipated revenue that we do not receive as a result of delays arising from these factors. As a result, our operating results in future reporting periods may be significantly below the expectations of the public market, equity research analysts or investors, which could harm the price of our common stock.
The standards and practices that private entities use to regulate the use of email have in the past interfered with, and may in the future interfere with, the effectiveness of our software and our ability to conduct business.
Our customers rely in part on email to communicate with their existing or prospective customers. Various private entities, such as commercial email, antivirus and network security providers, attempt to regulate the use of email for commercial solicitation. These entities often advocate standards of conduct or practice that significantly exceed current legal requirements and classify certain email solicitations that comply with current legal requirements as spam. Some of these entities maintain blacklists of companies and individuals, and the websites, Internet service providers and Internet protocol addresses associated with those entities or individuals that do not adhere to those standards of conduct or practices for commercial email solicitations that the blacklisting entity believes are appropriate. If a companys Internet protocol addresses are listed by a blacklisting entity, emails sent from those addresses may be blocked if they are sent to any Internet domain or Internet address that subscribes to the blacklisting entitys service or purchases its blacklist. Any of the foregoing restrictions or limitation on emails or internet addresses impacting our customers could lead to diminishing effectiveness of our marketing software solutions, and, in turn, result in service problems and ultimately a reduction in renewals or loss of customers for us.
We rely on our management team and other key employees, and the loss of one or more key employees could harm our business.
Our success and future growth depend upon the continued services of our management team, including Phillip M. Fernandez, our President and Chief Executive Officer, and other key employees in the areas of research and development, marketing, sales, services and general and administrative functions. From time to time, there may be changes in our management team resulting from the hiring or departure of executives, which could disrupt our business. We also are dependent on the continued service of our existing software engineers because of the complexity of our solutions. We may terminate any employees employment at any time, with or without cause, and any employee may resign at any time, with or without cause. In addition, our executive officers and certain other management-level employees benefit from management retention agreements and/or a change in control acceleration policy in which an involuntary termination by us without cause or a voluntary termination by the employee for good reason, as such terms are defined in the agreements and policy, in connection with or one year after a change of control transaction, will result in either severance pay or acceleration of equity vesting for the individual, which would increase the cost to us of any such departure. We do not maintain key man life insurance on any of our employees. The loss of one or more of our key employees could harm our business.
The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.
To execute our business strategy, we must attract and retain highly qualified personnel. In particular, we compete with many other companies for software developers with high levels of experience in designing, developing and managing cloud-based software, as well as for skilled sales and operations professionals, and we may not be successful in attracting and retaining the professionals we need. Also, marketing domain experts and enterprise sales professionals are very important to our success and are difficult to replace. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and difficulty in retaining highly skilled employees with appropriate qualifications. In particular, we have experienced a more competitive hiring environment in the San Francisco Bay Area, where we are headquartered. Many of the companies with which we compete for experienced personnel have greater resources than we do. In addition, in making employment decisions, particularly in the software industry, job candidates often consider the value of the stock options or other equity incentives they are to receive in connection with their employment. If the price of our stock declines, or experiences significant volatility, our ability to attract or retain key employees will be adversely affected. If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed.
If our marketing software fails due to defects or similar problems, and if we fail to correct any defect or other software problems, we could lose customers, become subject to service performance or warranty claims or incur significant costs.
Our solutions and the systems infrastructure underlying our marketing software platform are inherently complex and may contain material defects or errors. We have from time to time found defects in our solutions and may discover additional defects in the future. We may not be able to detect and correct defects or errors before customers begin to use our solutions. Consequently, we or our customers may discover defects or errors after our solutions have been implemented. These defects or errors could also cause inaccuracies in the data we collect and process for our customers, or even the loss, damage or inadvertent release of such confidential data. We implement bug fixes and upgrades as part of our regularly scheduled system maintenance, which may lead to system downtime. Even if we are able to implement the bug fixes and upgrades in a timely manner, any history of defects or inaccuracies in the data we collect for our customers, or the loss, damage or inadvertent release of such confidential data could cause our reputation to be harmed, and customers may elect not to purchase or renew their agreements with us and subject us to service performance credits, warranty claims or increased insurance costs. The costs associated with any material defects or errors in our software or other performance problems may be substantial and could materially adversely affect our operating results.
If we do not or cannot maintain the compatibility of our marketing software with third-party applications that our customers use in their businesses, our revenue will decline.
The functionality and popularity of our marketing software depends, in part, on our ability to integrate our solutions with third-party applications and platforms, including CRM, event management, e-commerce, call center, and social media sites that our customers use and from which they obtain data. Third-party providers of applications and APIs may change the features of their applications and platforms, restrict our access to their applications and platforms or alter the terms governing use of their applications and APIs and access to those applications and platforms in an adverse manner. Such changes could functionally limit or terminate our ability to use these third-party applications and platforms in conjunction with our solution, which could negatively impact our offerings and harm our business. If we fail to integrate our software with new third-party applications and platforms that our customers use for marketing purposes, we may not be able to offer the functionality that our customers need, which would negatively impact our ability to generate revenue and adversely impact our business.
If we fail to offer high-quality education and customer support, our business and reputation would suffer.
High-quality education and customer support is important for the successful marketing and sale of our solution and for the renewal of existing customers. Providing this education and support requires that our customer support personnel have specific marketing domain knowledge and expertise, making it more difficult for us to hire qualified personnel and to scale up our support operations due to the extensive training required. The importance of high-quality customer support will increase as we expand our business and pursue new customers. If we do not help our customers quickly resolve post-deployment issues and provide effective ongoing support, our ability to sell additional functionality and services to existing customers would suffer and our reputation with existing or potential customers would be harmed.
Future acquisitions, strategic investments, partnerships or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our operating results and financial condition.
We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not the acquisition purchases are completed. In addition, we have limited experience in acquiring other businesses, having acquired only one company since our inception. If we acquire additional businesses, we may not be able to integrate successfully the acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. We may not be able to find and identify desirable acquisition targets or be successful in entering into an agreement with any particular target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer.
Future product development is dependent on adequate research and development resources. If we do not adequately fund our research and development efforts, we may not be able to compete effectively and our business and operating results may be harmed.
In order to remain competitive, we must continue to develop new product offerings, applications and enhancements to our existing cloud-based marketing software. Maintaining adequate research and development personnel and resources to meet the demands of the market is essential. If we are unable to develop solutions internally due to certain constraints, such as high employee turnover, lack of management ability or a lack of other research and development resources, we may miss market opportunities. Further, many of our competitors expend a considerably greater amount of funds on their research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors could materially adversely affect our business.
Shifts over time in the mix of sizes or types of organizations that purchase our solutions or changes in the components of our solutions purchased by our customers could negatively affect our operating results.
Our strategy is to sell our marketing software to organizations of broadly different sizes, from SMBs to large enterprises. Our gross margins can vary depending on numerous factors related to the implementation and use of our marketing software, including the sophistication and intensity of our customers use of our solutions and the level of professional services and support required by a customer. For example, our enterprise customers typically require more professional services and because our professional services offerings typically have a higher cost of revenue than subscriptions to our solutions, any increase in sales of professional services would have an adverse effect on our overall gross margin and operating results. Providing professional services to enterprises allows us to utilize our staff more efficiently than is the case in providing professional services to
other customers or in other contexts; consequently, while an increase in providing professional services to enterprises typically hurts our overall gross margin, it may improve our professional services and other gross margin. Sales to enterprise customers may also entail longer sales cycles and more significant selling efforts. Selling to SMB customers may involve smaller contract size, higher relative selling costs and greater credit risk and uncertainty. If the mix of organizations that purchase our solutions changes, or the mix of solution components purchased by our customers changes, our gross margins could decrease and our operating results could be adversely affected.
Economic uncertainties or downturns in the general economy or the industries in which our customers operate could disproportionately affect the demand for our marketing software and negatively impact our operating results.
General worldwide economic conditions have experienced a significant downturn and fluctuations in recent years, and market volatility and uncertainty remain widespread. As a result, we and our customers find it extremely difficult to accurately forecast and plan future business activities. In addition, these conditions could cause our customers or prospective customers to reduce their marketing and sales budgets, which could decrease corporate spending on our marketing software, resulting in delayed and lengthened sales cycles, a decrease in new customer acquisition and/or loss of customers. Furthermore, during challenging economic times, our customers may face issues with their cash flows and in gaining timely access to sufficient credit or obtaining credit on reasonable terms, which could impair their ability to make timely payments to us, impact customer renewal rates and adversely affect our revenue. If such conditions occur, we may be required to increase our reserves, allowances for doubtful accounts and write-offs of accounts receivable, and our operating results would be harmed. In addition, a downturn in the technology sector may disproportionately affect us because a significant portion of our customers are technology companies. We cannot predict the timing, strength or duration of any economic slowdown or recovery, whether global, regional or within specific markets. If the conditions of the general economy or markets in which we operate worsen, our business could be harmed. In addition, even if the overall economy improves, the market for marketing software may not experience growth or we may not experience growth.
If we fail to enhance our brand, our ability to expand our customer base will be impaired and our financial condition may suffer.
We believe that our development of the Marketo brand is critical to achieving widespread awareness of our existing and future marketing software solutions, and, as a result, is important to attracting new customers and maintaining existing customers. We also believe that the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful marketing software at competitive prices. In the past, our efforts to build our brand have involved significant expenses. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. In addition, to sell to and service our customers we utilize a combination of internal personnel and third-party service providers, as well as indirect sales partners that pursue additional channel, agency and OEM distribution partnerships. These third-party service providers and indirect sales partners, who are not in our control, may harm our reputation and damage our brand perception in the marketplace. If we fail to successfully promote and maintain our brand, our business could suffer.
We are dependent on the continued participation and level of service of our third-party professional service providers and our indirect sales partners.
We rely on third-party service providers to provide certain services to us and/or our customers, as well as indirect sales partners to pursue additional channel, agency and OEM distribution partnerships. If any of these third-party service providers stop supporting our solution or if our network of providers does not expand, we will likely have to expand our internal team to meet the needs of our customers, which could increase our operating costs and result in lower gross margins. To the extent that we are unable to recruit alternative partners, or to expand our internal team, our revenue and operating results would be harmed.
If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.
Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights in our products and services. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Any of our patents, trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. While we have some U.S. patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued in the future may not provide us with competitive advantages, 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. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our products may be unenforceable under the laws of certain jurisdictions and foreign countries. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information may increase.
We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our solutions.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our managements attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or injure our reputation.
Our business may suffer if it is alleged or determined that our technology infringes the intellectual property rights of others.
The software industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual and proprietary rights. Companies in the software industry, including in marketing software, are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Many of our competitors and other industry participants have been issued patents and/or have filed patent applications and may assert patent or other intellectual property rights within the industry. Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred to as patent trolls, have purchased patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive threatening letters or notices or may be the subject of claims that our solutions and underlying technology infringe or violate the intellectual property rights of others. For example, as described further under Note 6, Commitments and Contingencies on May 7, 2013, iHance, Inc. filed a complaint against us alleging that a salesperson email tracking feature in our Marketo Sales Insight application infringed upon
certain of iHances patents. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert managements attention and resources, damage our reputation and brand, and cause us to incur significant expenses. Our technologies may not be able to withstand any third-party claims or rights against their use. Claims of intellectual property infringement might require us to redesign our application, delay releases, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling our solutions. If we cannot or do not license the infringed technology on reasonable terms or at all, or substitute similar technology from another source, our revenue and operating results could be adversely impacted. Additionally, our customers may not purchase our marketing software if they are concerned that they may infringe third-party intellectual property rights. The occurrence of any of these events may have a material adverse effect on our business.
In our subscription agreements with our customers, we agree to indemnify our customers against any losses or costs incurred in connection with claims by a third party alleging that a customers use of our services infringes the intellectual property rights of the third party. There can be no assurance that any existing limitations of liability provisions in our contracts would be enforceable or adequate, or would otherwise protect us from any such liabilities or damages with respect to any particular claim. Our customers who are accused of intellectual property infringement may in the future seek indemnification from us under the terms of our contracts. If such claims are successful, or if we are required to indemnify or defend our customers from these or other claims, these matters could be disruptive to our business and management and have a material adverse effect on our business, operating results and financial condition.
We use open source software in our products, which could subject us to litigation or other actions.
We use open source software in our marketing software and may use more open source software in the future. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our products. In addition, if we were to combine our proprietary software products with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software products. If we inappropriately use open source software, we may be required to re-engineer our products, discontinue the sale of our products or take other remedial actions.
Existing federal, state and foreign laws regulate Internet tracking software, the senders of commercial emails and text messages, website owners and other activities, and could impact the use of our marketing solution and potentially subject us to regulatory enforcement or private litigation.
Certain aspects of how our customers utilize our solution are subject to regulations in the United States, European Union and elsewhere. New and expanding Do Not Track regulations have recently been enacted or proposed that protect users right to choose whether or not to be tracked online. These regulations seek, among other things, to allow consumers to have greater control over the use of private information collected online, to forbid the collection or use of online information, to demand a business to comply with their choice to opt out of such collection or use, and to place limits upon the disclosure of information to third party websites. These policies could have a significant impact on the operation of our marketing software and could impair our attractiveness to customers, which would harm our business.
Many of our customers and potential customers in the healthcare, financial services and other industries are subject to substantial regulation regarding their collection, use and protection of data and may be the subject of further regulation in the future. Accordingly, these laws or significant new laws or regulations or changes in, or repeals of, existing laws, regulations or governmental policy may change the way these customers do business and may require us to implement additional features or offer additional contractual terms to satisfy customer and regulatory requirements, or could cause the demand for and sales of our marketing software to decrease and adversely impact our financial results.
In addition, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) establishes certain requirements for commercial email messages and specifies penalties for the transmission of commercial email messages that are intended to deceive the recipient as to source or content. The CAN-SPAM Act, among other things, obligates the sender of commercial emails to provide recipients with the ability to opt out of receiving future commercial emails from the sender. In addition, the CAN-SPAM Act, regulations issued pursuant to the CAN-SPAM Act, and the Telephone Consumer Protection Act allow companies to send some types of commercial text messages only when the recipient has opted in to the receipt of such text messages. The ability of our customers message recipients to opt out of receiving commercial emails may minimize the effectiveness of the email components of our marketing software offerings. In addition, certain states and foreign jurisdictions, such as Australia, Canada and the European Union, have enacted laws that regulate sending email, and some of these laws are more restrictive than U.S. laws. For example, some foreign laws prohibit sending unsolicited email unless the recipient has provided the sender advance consent to receipt of such email, or in other words has opted-in to receiving it. A requirement that recipients opt into, or the ability of recipients to opt out of, receiving commercial emails may minimize the effectiveness of our software.
Our solutions include features that enable our customers to run sweepstakes, contests and similar events that are subject to regulation by various jurisdictions. To the extent that these regulations and the enforcement of these regulations dissuade our customers from conducting these types of events, they could impact customer demand for these features and ultimately customer demand for our solutions.
In addition, U.S., state and foreign jurisdictions are considering and may in the future enact legislation or laws restricting the ability to conduct marketing activities in mobile, social and web channels. Any of the foregoing existing or future restrictions could require us to change one or more aspects of the way we operate our business, which could impair our ability to attract and retain customers, or increase our operating costs or otherwise harm our business. We may be unable to pass along those costs to our clients in the form of increased subscription fees.
While these laws and regulations generally govern our customers use of our solution, we may be subject to certain laws as a data processor on behalf of, or as a business associate of, our customers. For example, these laws and regulations governing the collection, use and disclosure of personal information include, in the United States, rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Gramm-Leach-Bliley Act of 1999 and state breach notification laws, and internationally, the Data Protection Directive in the European Union and the Federal Data Protection Act in Germany. If we were found to be in violation of any of these laws or regulations as a result of government enforcement or private litigation, we could be subjected to civil and criminal sanctions, including both monetary fines and injunctive action that could force us to change our business practices, all of which could adversely affect our financial performance and significantly harm our reputation and our business.
Privacy concerns and consumers acceptance of Internet behavior tracking may limit the applicability, use and adoption of our marketing software.
Privacy concerns may cause consumers to resist providing the personal data necessary to allow our customers to use our service effectively. We have implemented various features intended to enable our customers to better protect consumer privacy, but these measures may not alleviate all potential privacy concerns and threats. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our service in certain industries. In addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. There are numerous lawsuits in process against various technology companies that collect and use personal information. If those lawsuits are successful, it could impact the way we conduct our business and adversely affect our financial results. The costs of compliance with, and other burdens imposed by, the foregoing laws, regulations, policies and actions may limit the use and adoption of our cloud-based marketing software and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance or loss of any such action.
We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales, which could adversely harm our business.
State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of such taxes to our subscription cloud-based marketing software in various jurisdictions is unclear. Further, these jurisdictions rules regarding tax nexus are complex and vary significantly. As a result, we could face the possibility of tax assessments and audits, and our liability for these taxes and associated penalties could exceed our original estimates. A successful assertion that we should be collecting additional sales, use, value added or other taxes in those jurisdictions where we have not historically done so and do not accrue for such taxes could result in substantial tax liabilities and related penalties for past sales, discourage customers from purchasing our application or otherwise harm our business and operating results.
Changes in tax laws or regulations that are applied adversely to us or our customers could increase the costs of our cloud-based marketing software and adversely impact our business.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. These events could require us or our customers to pay additional tax amounts on a prospective or retroactive basis, as well as require us or our customers to pay fines and/or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future customers may elect not to continue or purchase our marketing software in the future. Additionally, new, changed, modified or newly interpreted or applied tax laws could increase our customers and our compliance, operating and other costs, as well as the costs of our software. Any or all of these events could adversely impact our business and financial performance.
We are a multinational organization faced with increasingly complex tax issues in many jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions.
As a multinational organization, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and operating results. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material impact on us and the results of our operations.
Failure to comply with laws and regulations could harm our business.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be harmed. In addition, responding to any action will likely result in a significant diversion of managements attention and resources and an increase in professional fees. Enforcement actions and sanctions could further harm our business, operating results and financial condition.
Catastrophic events may disrupt our business.
We rely heavily on our data centers, network infrastructure and information technology systems for our business operations. A disruption or failure of these systems in the event of online attack, earthquake, fire, terrorist attack, power loss, telecommunications failure or other similar catastrophic event could cause system interruptions, delays in accessing our service, reputational harm and loss of critical data or could prevent us from providing our solutions to our customers. Our service is delivered from data centers operated by third parties in California, Texas, Virginia and the United Kingdom. In addition, we are headquartered and most of our employees reside in the San Francisco Bay Area, an area particularly susceptible to earthquakes, and a major earthquake or other catastrophic event could affect our employees, who may not be able to access our systems or otherwise continue to provide our solutions to our customers. A catastrophic event that results in the destruction or disruption of our data centers, or our network infrastructure or information technology systems, or access to our systems, could affect our ability to conduct normal business operations and adversely affect our operating results.
The requirements of being a public company may strain our systems and resources, divert managements attention and be costly.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934 (Exchange Act) the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), and the rules and regulations of The NASDAQ Stock Market. The requirements of these rules and regulations increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources.
The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing the costly process of implementing and testing our systems to report our results as a public company, to continue to manage our growth and to implement internal controls. We are and will continue to be required to implement and maintain various other control and business systems related to our equity, finance, treasury, information technology, other recordkeeping systems and other operations. As a result of this implementation and maintenance, managements attention may be diverted from other business concerns, which could adversely affect our business. Furthermore, we rely on third-party software and system providers for ensuring our reporting obligations and effective internal controls, and to the extent these third parties fail to provide adequate service including as a result of any inability to scale to handle our growth and the imposition of these increased reporting and internal controls and procedures, we could incur material costs for upgrading or switching systems and our business could be materially affected.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are 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 intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of managements time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.
In addition, we expect these laws, rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain appropriate levels of coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.
As a result of being a public company, our business and financial condition have become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the time and resources of our management and adversely affect our business and operating results.
Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported operating results.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. Accounting for revenue from sales of subscriptions to software is particularly complex, is often the subject of intense scrutiny by the SEC, and will evolve as FASB continues to consider applicable accounting standards in this area.
For example, we recognize subscription revenue in accordance with Accounting Standards Update 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements a Consensus of the Emerging Issues Task Force (ASU 2009-13) (formerly known as EITF 08-01). The FASB and the SEC continue to issue interpretations and guidance for applying the relevant accounting standards to a wide range of sales contract terms and business arrangements that are prevalent in software licensing and subscription arrangements. As a result of future interpretations or applications of existing accounting standards, including ASU 2009-13, we could be required to delay revenue recognition into future periods, which would adversely affect our operating results.
In addition, certain factors have in the past and may in the future cause us to defer recognition for subscription fees. For example, the inclusion in our customer contracts of material non-standard terms, such as acceptance criteria, could require the deferral of subscription revenue. To the extent that such contracts become more prevalent in the future our revenue may be adversely affected.
Because of these factors and other specific requirements under accounting principles generally accepted in the United States for revenue recognition, we must have very precise terms in our arrangements in order to recognize revenue when we initially deliver our hosting services or perform our professional services. Negotiation of mutually acceptable terms and conditions can extend our sales cycle, and we may accept terms and conditions that do not permit revenue recognition at the time of delivery.
Risks Related to Ownership of Our Common Stock
Our stock price may be volatile and may decline regardless of our operating performance resulting in substantial losses for investors purchasing shares in this offering.
The trading prices of the securities of technology companies, including providers of software via the cloud-based model, have been highly volatile. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
· actual or anticipated fluctuations in our revenue and other operating results, including as a result of the addition or loss of any number of customers;
· announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;
· the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
· failure of securities analysts to initiate or maintain coverage of us, changes in ratings and financial estimates and publication of other news by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
· changes in operating performance and stock market valuations of cloud-based software or other technology companies, or those in our industry in particular;
· price and volume fluctuations in the trading of our common stock and in the overall stock market, including as a result of trends in the economy as a whole;
· announcements by us with regard to the effectiveness of our internal controls and our ability to accurately report financial results;
· new laws or regulations or new interpretations of existing laws or regulations applicable to our business our industry;
· lawsuits threatened or filed against us;
· changes in key personnel; and
· other events or factors, including those resulting from war, incidents of terrorism or responses to these events.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies.
In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.
If securities or industry analysts do not publish research or publish incorrect or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. If no or few securities or industry analysts cover our company, the trading price for our stock would be negatively impacted. If one or more of the analysts who covers us downgrades our stock or publishes incorrect or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.
The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters including the ability to influence the outcome of director elections and other matters requiring stockholder approval.
Our executive officers, directors, current five percent or greater stockholders and affiliated entities together beneficially own approximately 72.0% of our common stock outstanding. As a result, these stockholders, acting together, have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.
As a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting commencing with our annual report covering the year ending December 31, 2014. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Prior to this offering, we have never been required to test our internal controls within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner, particularly if material weaknesses or significant deficiencies persist. In the past certain significant deficiencies have been identified in our internal financial and accounting controls and procedures. In addition, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). If we are unable to comply with the requirements of Section 404 in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities, which would require additional financial and management resources.
Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting. Ineffective disclosure controls and procedures or internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.
Implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In the event that we are not able to demonstrate compliance with Section 404 of the Sarbanes-Oxley Act in a timely manner, that our internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and our stock price could decline.
Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to invest in future growth opportunities. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could seriously harm our business and operating results. If we incur debt, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As a result, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
Substantial future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.
The market price for our common stock could decline as a result of the sale of substantial amounts of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares. Based on shares outstanding as of June 30, 2013, we have outstanding approximately 37.0 million shares of common stock, approximately 30.0 million of which are subject to 180-day contractual lock-ups entered into in connection with our initial public offering that expire in November 2013. In addition, Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC may permit our officers, directors, employees and current stockholders to sell shares prior to the expiration of the lock-up agreements.
Holders of an aggregate of 26,376,142 shares of our common stock as of June 30, 2013, have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders. Substantially all of these shares are subject to the 180-day contractual lock-ups referred to above.
In addition, the shares of common stock subject to outstanding options under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations.
If a substantial number of shares are sold, or if it is perceived that they will be sold, in the public market, before or after the expiration of the 180-day contractual lock-up period, the trading price of our common stock could decline substantially.
Anti-takeover provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and bylaws include provisions that:
· authorize blank check preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;
· create a classified board of directors whose members serve staggered three-year terms;
· specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of the board, the chief executive officer or the president;
· prohibit stockholder action by written consent;
· establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;
· provide that our directors may be removed only for cause;
· provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
· specify that no stockholder is permitted to cumulate votes at any election of directors;
· authorize our board of directors to modify, alter or repeal our amended and restated bylaws; and
· require supermajority votes of the holders of our common stock to amend specified provisions of our charter documents.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us in certain circumstances.
Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. In addition, any future financing or credit agreements may prohibit us from paying any type of dividends. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares. Investors seeking cash dividends should not purchase our common stock.
We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering. We may choose to take advantage of some but not all of these reduced reporting burdens. If we take advantage of any of these reduced reporting burdens in future filings, the information that we provide our security holders may be different than you might get from other public companies in which you hold equity interests. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to opt out of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
a) Sale of Unregistered Securities
From April 1, 2013 through June 30, 2013, we granted to employees options to purchase an aggregate of 345,800 shares of common stock at an exercise price of $12.00 per share and 3,250 restricted stock units under our 2006 Stock Plan (the 2006 Plan).
From April 1, 2013 through June 30, 2013, we issued and sold to employees an aggregate of 218,769 shares of common stock upon the exercise of options under the 2006 Plan at exercise prices ranging from $0.34 to $12.00 per share, for an aggregate exercise price of approximately $726,000. From April 1, 2013 through June 30, 2013, a total of 147,609 RSUs vested and converted into common stock.
On May 17, 2013, we closed our initial public offering, which included 500,000 shares of common stock sold by us to funds affiliated with Battery Ventures, in a concurrent private placement, at a price of $13.00 per share, for an aggregate price of $6,500,000.
b) Use of Proceeds from Public Offering of Common Stock
On May 17, 2013, we closed our IPO whereby 6,059,509 shares of common stock, which included 5,750,000 shares of common stock sold by us (and does not include 908,926 shares of common stock from the full exercise of the overallotment option of shares granted to the underwriters), and 309,509 shares of common stock sold by the selling stockholders, at a price of $13.00 per share. The offer and sale of all of the shares in the initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-187689). Goldman, Sachs & Co., Credit Suisse, Canaccord Genuity, UBS Investment Bank, JMP Securities and Raymond James acted as the underwriters. We did not receive any proceeds from the sales of shares by the selling stockholders. The total gross proceeds from the offering to us were $74.8 million (excluding proceeds from the full exercise of the overallotment option of shares granted to the underwriters). After deducting underwriting discounts and commissions of $5.2 million and offering expenses payable by us of $3.5 million, we received approximately $66.0 million. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on May 17, 2013 pursuant to Rule 424(b) of the Securities Act. We invested the funds received in registered money market funds.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
None.
The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Quarterly Report.
EXHIBIT
INDEX
Exhibit |
|
Description |
|
Incorporated by |
|
Incorporated |
|
Date Filed |
3.1 |
|
Certificate of Incorporation of the Company filed May 22, 2013. |
|
Filed herewith |
|
|
|
|
3.2 |
|
Bylaws of the Company dated May 22, 2013. |
|
Filed herewith |
|
|
|
|
4.1 |
|
Second Amendment to Amended and Restated Investor Rights Agreement, dated May 22, 2013, by and among the Company and certain of its stockholders. |
|
Filed herewith |
|
|
|
|
10.1 |
|
2013 Equity Incentive Plan and forms of agreement thereunder |
|
S-1/A |
|
10.3 |
|
May 13, 2013 |
10.2 |
|
2013 Employee Stock Purchase Plan and form of agreement thereunder |
|
S-1/A |
|
10.4 |
|
May 13, 2013 |
10.3 |
|
First Amendment to Loan and Security Agreement, dated June 6, 2013, between the Company and Silicon Valley Bank. |
|
Filed herewith |
|
|
|
|
31.1 |
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. |
|
Filed herewith |
|
|
|
|
31.2 |
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. |
|
Filed herewith |
|
|
|
|
32.1* |
|
Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. |
|
Furnished herewith |
|
|
|
|
101 |
|
The following materials from the Marketo, Inc. Form 10-Q for the quarter ended June 30, 2013 formatted in Extensible Business Reporting Language (XBRL): (i)the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of Cash Flows and (iv) Notes to Condensed Consolidated Financial Statements. |
|
Filed herewith |
|
|
|
|
|
* |
The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Marketo, Inc. | |
|
|
| |
|
|
|
|
Date: August 9, 2013 |
|
By: |
/s/ Frederick A. Ball |
|
|
|
|
|
|
|
Frederick A. Ball |
|
|
|
|
|
|
|
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MARKETO, INC.
a Delaware corporation
Marketo, Inc., a corporation organized and existing under the laws of the State of Delaware (the Corporation), hereby certifies as follows:
A. The name of the Corporation is Marketo, Inc., and the original Certificate of Incorporation of this Corporation was filed with the Secretary of State of the State of Delaware on December 17, 2009.
B. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the DGCL), and restates, integrates and further amends the provisions of the Corporations Amended and Restated Certificate of Incorporation, and has been duly approved by the written consent of the stockholders of the Corporation in accordance with Section 228 of the DGCL.
C. The text of the Amended and Restated Certificate of Incorporation of this Corporation is hereby amended and restated to read in its entirety as follows:
ARTICLE I
The name of the Corporation is Marketo, Inc.
ARTICLE II
The address of the Corporations registered office in the State of Delaware is 3500 South DuPont Highway, City of Dover, County of Kent, Delaware 19901. The name of the Corporations registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which Corporations may be organized under the DGCL.
ARTICLE IV
4.1 Authorized Capital Stock. The total number of shares of all classes of capital stock that the Corporation is authorized to issue is 1,020,000,000 shares, consisting of 1,000,000,000 shares of Common Stock, par value $0.0001 per share (the Common Stock), and 20,000,000 shares of Preferred Stock, par value $0.0001 per share (the Preferred Stock).
4.2 Increase or Decrease in Authorized Capital Stock. The number of authorized shares of Preferred Stock or Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote generally in the election of directors, irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), voting together as a single class, without a separate vote of the holders of the class or classes the number of authorized shares of which are being increased or decreased, unless a vote by any holders of one or more series of Preferred Stock is required by the express terms of any series of Preferred Stock as provided for or fixed pursuant to the provisions of Section 4.4 of this Article IV.
4.3 Common Stock.
(a) The holders of shares of Common Stock shall be entitled to one vote for each such share on each matter properly submitted to the stockholders on which the holders of shares of Common Stock are entitled to vote. Except as otherwise required by law or this certificate of incorporation (this Certificate of Incorporation which term, as used herein, shall mean the certificate of incorporation of the Corporation , as amended from time to time, including the terms of any certificate of designations of any series of Preferred Stock), and subject to the rights of the holders of Preferred Stock, at any annual or special meeting of the stockholders the holders of shares of Common Stock shall have the right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation that relates solely to the terms, number of shares, powers, designations, preferences, or relative participating, optional or other special rights (including, without limitation, voting rights), or to qualifications, limitations or restrictions thereon, of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one more other such series, to vote thereon pursuant to this Certificate of Incorporation (including, without limitation, by any certificate of designations relating to any series of Preferred Stock) or pursuant to the DGCL.
(b) Subject to the rights of the holders of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the Corporation) when, as and if declared thereon by the Board of Directors from time to time out of any assets or funds of the Corporation legally available therefor and shall share equally on a per share basis in such dividends and distributions.
(c) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, and subject to the rights of the holders of Preferred Stock in respect thereof, the holders of shares of Common Stock shall be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them.
4.4 Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized, subject to limitations prescribed by law, to fix by resolution or resolutions and to set forth in a certification of designations filed pursuant to the DGCL the powers, designations, preferences and relative, participation, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, if any, of any wholly unissued series of Preferred Stock, including without limitation authority to fix by resolution or resolutions that dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any such series, and the number of shares constituting any such series and the designation thereof, or any of the foregoing.
(b) The Board of Directors is further authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, the number of which was fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated in the Certificate of Incorporation or the resolution of the Board of Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
ARTICLE V
5.1 General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
5.2 Number of Directors; Election; Term.
(a) Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, the number of directors that constitutes the entire Board of Directors of the Corporation shall be fixed solely by resolution of the Board of Directors.
(b) Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, effective upon the closing date (the Effective Date) of the initial sale of shares of common stock in the Corporation s initial public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, the directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The initial assignment of members of the Board of Directors to each such class shall be made by the Board of Directors. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of the stockholders following the Effective Date, the term of office of the initial Class II directors shall expire at the second annual meeting of the stockholders following the Effective Date and the term of office of the initial Class III directors shall expire at the third annual meeting of the stockholders following the
Effective Date. At each annual meeting of stockholders, commencing with the first regularly-scheduled annual meeting of stockholders following the Effective Date, each of the successors elected to replace the directors of a Class whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting next succeeding his or her election and until his or her respective successor shall have been duly elected and qualified. Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, if the number of directors that constitutes the Board of Directors is changed, any newly created directorships or decrease in directorships shall be so apportioned by the Board of Directors among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
(c) Notwithstanding the foregoing provisions of this Section 5.2, and subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, each director shall serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation, or removal.
(d) Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
5.3 Removal. Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, a director may be removed from office by the stockholders of the Corporation only for cause.
5.4 Vacancies and Newly Created Directorships. Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, and except as otherwise provided in the DGCL, vacancies occurring on the Board of Directors for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled only by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, or by a sole remaining director, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been assigned by the Board of Directors and until his or her successor shall be duly elected and qualified.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation.
ARTICLE VII
7.1 No Action by Written Consent of Stockholders. Except as otherwise expressly provided by the terms of any series of Preferred Stock permitting the holders of such series of Preferred Stock to act by written consent, any action required or permitted to be taken by stockholders of the Corporation must be effected at a duly called annual or special meeting of the stockholders and may not be effected by written consent in lieu of a meeting.
7.2 Special Meetings. Except as otherwise expressly provided by the terms of any series of Preferred Stock permitting the holders of such series of Preferred Stock to call a special meeting of the holders of such series, special meetings of stockholders of the Corporation may be called only by the Board of Directors, the chairperson of the Board of Directors, the chief executive officer or the president (in the absence of a chief executive officer), and the ability of the stockholders to call a special meeting is hereby specifically denied. The Board of Directors may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders.
7.3 Advance Notice. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.
7.4 Exclusive Jurisdiction. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or agent of the Corporation to the Corporation or the Corporations stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL or the Corporations Certificate of Incorporation or Bylaws, (iv) any action to interpret, apply, enforce or determine the validity of the Corporations Certificate of Incorporation or Bylaws, or (v) any action asserting a claim against the Corporation governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction over the indispensible parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 7.4.
ARTICLE VIII
8.1 Limitation of Personal Liability. To the fullest extent permitted by the DGCL, as it presently exists or may hereafter be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
8.2 Indemnification.
The Corporation shall indemnify, to the fullest extent permitted by applicable law, any director or officer of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including
attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding. The Corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board.
The Corporation shall have the power to indemnify, to the extent permitted by the DGCL, as it presently exists or may hereafter be amended from time to time, any employee or agent of the Corporation who was or is a party or is threatened to be made a party to any Proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding.
Any repeal or amendment of this Article VIII by the stockholders of the Corporation or by changes in law, or the adoption of any other provision of this Certificate of Incorporation inconsistent with this Article VIII will, unless otherwise required by law, be prospective only (except to the extent such amendment or change in law permits the Corporation to further limit or eliminate the liability of directors) and shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or amendment or adoption of such inconsistent provision with respect to acts or omissions occurring prior to such repeal or amendment or adoption of such inconsistent provision.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation (including any rights, preferences or other designations of Preferred Stock), in the manner now or hereafter prescribed by this Certificate of Incorporation and the DGCL; and all rights, preferences and privileges herein conferred upon stockholders by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article IX. Notwithstanding any other provision of this Certificate of Incorporation, and in addition to any other vote that may be required by law or the terms of any series of Preferred Stock, the affirmative vote of the holders of at least 662/3% of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision as part of this Certificate of Incorporation inconsistent with the purpose and intent of, Article V, Article VI, Article VII or this Article IX (including, without limitation, any such Article as renumbered as a result of any amendment, alteration, change, repeal or adoption of any other Article).
IN WITNESS WHEREOF, Marketo, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by a duly authorized officer of the Corporation on this 22nd day of May 2013.
|
By: |
/s/ Phillip M. Fernandez |
|
|
Phillip M. Fernandez |
|
|
President and Chief Executive Officer |
Exhibit 3.2
AMENDED AND RESTATED BYLAWS OF
MARKETO, INC.
(adopted on May 1, 2013 and effective as of the
closing of the corporations initial public offering)
TABLE OF CONTENTS
|
|
Page |
|
| |
ARTICLE I CORPORATE OFFICES |
1 | |
|
| |
1.1 |
REGISTERED OFFICE |
1 |
1.2 |
OTHER OFFICES |
1 |
|
|
|
ARTICLE II MEETINGS OF STOCKHOLDERS |
1 | |
|
| |
2.1 |
PLACE OF MEETINGS |
1 |
2.2 |
ANNUAL MEETING |
1 |
2.3 |
SPECIAL MEETING |
1 |
2.4 |
ADVANCE NOTICE PROCEDURES |
2 |
2.5 |
NOTICE OF STOCKHOLDERS MEETINGS |
6 |
2.6 |
QUORUM |
6 |
2.7 |
ADJOURNED MEETING; NOTICE |
6 |
2.8 |
CONDUCT OF BUSINESS |
6 |
2.9 |
VOTING |
7 |
2.10 |
STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING |
7 |
2.11 |
RECORD DATES |
7 |
2.12 |
PROXIES |
8 |
2.13 |
LIST OF STOCKHOLDERS ENTITLED TO VOTE |
8 |
2.14 |
INSPECTORS OF ELECTION |
9 |
|
|
|
ARTICLE III DIRECTORS |
9 | |
|
| |
3.1 |
POWERS |
9 |
3.2 |
NUMBER OF DIRECTORS |
9 |
3.3 |
ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS |
9 |
3.4 |
RESIGNATION AND VACANCIES |
10 |
3.5 |
PLACE OF MEETINGS; MEETINGS BY TELEPHONE |
10 |
3.6 |
REGULAR MEETINGS |
10 |
3.7 |
SPECIAL MEETINGS; NOTICE |
11 |
3.8 |
QUORUM; VOTING |
11 |
3.9 |
BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING |
11 |
3.10 |
FEES AND COMPENSATION OF DIRECTORS |
12 |
3.11 |
REMOVAL OF DIRECTORS |
12 |
|
| |
ARTICLE IV COMMITTEES |
12 | |
|
| |
4.1 |
COMMITTEES OF DIRECTORS |
12 |
4.2 |
COMMITTEE MINUTES |
12 |
4.3 |
MEETINGS AND ACTION OF COMMITTEES |
12 |
4.4 |
SUBCOMMITTEES |
13 |
|
| |
ARTICLE V OFFICERS |
13 | |
|
| |
5.1 |
OFFICERS |
13 |
5.2 |
APPOINTMENT OF OFFICERS |
14 |
5.3 |
SUBORDINATE OFFICERS |
14 |
TABLE OF CONTENTS
(continued)
|
|
Page |
|
|
|
5.4 |
REMOVAL AND RESIGNATION OF OFFICERS |
14 |
5.5 |
VACANCIES IN OFFICES |
14 |
5.6 |
REPRESENTATION OF SHARES OF OTHER CORPORATIONS |
14 |
5.7 |
AUTHORITY AND DUTIES OF OFFICERS |
15 |
5.8 |
THE CHAIRPERSON OF THE BOARD |
15 |
5.9 |
THE VICE CHAIRPERSON OF THE BOARD |
15 |
5.10 |
THE CHIEF EXECUTIVE OFFICER |
15 |
5.11 |
THE PRESIDENT |
15 |
5.12 |
THE VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS |
15 |
5.13 |
THE SECRETARY AND ASSISTANT SECRETARIES |
16 |
5.14 |
THE CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURERS |
16 |
|
|
|
ARTICLE VI STOCK |
16 | |
|
| |
6.1 |
STOCK CERTIFICATES; PARTLY PAID SHARES |
16 |
6.2 |
SPECIAL DESIGNATION ON CERTIFICATES |
17 |
6.3 |
LOST, STOLEN OR DESTROYED CERTIFICATES |
17 |
6.4 |
DIVIDENDS |
17 |
6.5 |
TRANSFER OF STOCK |
18 |
6.6 |
STOCK TRANSFER AGREEMENTS |
18 |
6.7 |
REGISTERED STOCKHOLDERS |
18 |
|
|
|
ARTICLE VII MANNER OF GIVING NOTICE AND WAIVER |
18 | |
|
| |
7.1 |
NOTICE OF STOCKHOLDERS MEETINGS |
18 |
7.2 |
NOTICE BY ELECTRONIC TRANSMISSION |
19 |
7.3 |
NOTICE TO STOCKHOLDERS SHARING AN ADDRESS |
19 |
7.4 |
NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL |
20 |
7.5 |
WAIVER OF NOTICE |
20 |
|
|
|
ARTICLE VIII INDEMNIFICATION |
20 | |
|
| |
8.1 |
INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS |
20 |
8.2 |
INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION |
21 |
8.3 |
SUCCESSFUL DEFENSE |
21 |
8.4 |
INDEMNIFICATION OF OTHERS |
21 |
8.5 |
ADVANCED PAYMENT OF EXPENSES |
21 |
8.6 |
LIMITATION ON INDEMNIFICATION |
22 |
8.7 |
DETERMINATION; CLAIM |
22 |
8.8 |
NON-EXCLUSIVITY OF RIGHTS |
23 |
8.9 |
INSURANCE |
23 |
8.10 |
SURVIVAL |
23 |
8.11 |
EFFECT OF REPEAL OR MODIFICATION |
23 |
8.12 |
CERTAIN DEFINITIONS |
23 |
TABLE OF CONTENTS
(continued)
|
|
Page |
|
|
|
ARTICLE IX GENERAL MATTERS |
24 | |
|
| |
9.1 |
EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS |
24 |
9.2 |
FISCAL YEAR |
24 |
9.3 |
SEAL |
24 |
9.4 |
CONSTRUCTION; DEFINITIONS |
24 |
|
|
|
ARTICLE X AMENDMENTS |
24 |
AMENDED AND RESTATED BYLAWS OF MARKETO, INC.
ARTICLE I CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of Marketo, Inc. shall be fixed in the corporations certificate of incorporation. References in these bylaws to the certificate of incorporation shall mean the certificate of incorporation of the corporation, as amended from time to time, including the terms of any certificate of designations of any series of Preferred Stock.
1.2 OTHER OFFICES
The corporations board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business.
ARTICLE II MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. The board of directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the DGCL). In the absence of any such designation or determination, stockholders meetings shall be held at the corporations principal executive office.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held on such date, at such time, and at such place (if any) within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the corporations notice of the meeting. At the annual meeting, directors shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
(i) A special meeting of the stockholders, other than those required by statute, may be called at any time only by (A) the board of directors, (B) the chairperson of the board of directors, (C) the chief executive officer or (D) the president (in the absence of a chief executive officer). A special meeting of the stockholders may not be called by any other person or persons. The board of directors may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders.
(ii) The notice of a special meeting shall include the purpose for which the meeting is called. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of the board of directors, the chairperson of the board of directors, the chief executive officer or the president (in the absence of a chief executive officer). Nothing contained in this Section 2.3(ii) shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held.
2.4 ADVANCE NOTICE PROCEDURES
(i) Advance Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be brought: (A) pursuant to the corporations proxy materials with respect to such meeting, (B) by or at the direction of the board of directors, or (C) by a stockholder of the corporation who (1) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(i) and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has timely complied in proper written form with the notice procedures set forth in this Section 2.4(i). In addition, for business to be properly brought before an annual meeting by a stockholder, such business must be a proper matter for stockholder action pursuant to these bylaws and applicable law. Except for proposals properly made in accordance with Rule 14a-8 under the Securities and Exchange Act of 1934, and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations), and included in the notice of meeting given by or at the direction of the board of directors, for the avoidance of doubt, clause (C) above shall be the exclusive means for a stockholder to bring business before an annual meeting of stockholders.
(a) To comply with clause (C) of Section 2.4(i) above, a stockholders notice must set forth all information required under this Section 2.4(i) and must be timely received by the secretary of the corporation. To be timely, a stockholders notice must be received by the secretary at the principal executive offices of the corporation not later than the 45th day nor earlier than the 75th day before the one-year anniversary of the date on which the corporation first mailed its proxy materials or a notice of availability of proxy materials (whichever is earlier) for the preceding years annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the one-year anniversary of the date of the previous years annual meeting, then, for notice by the stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting, or (ii) the tenth day following the day on which Public Announcement (as defined below) of the date of such annual meeting is first made. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholders notice as described in this Section 2.4(i)(a). Public Announcement shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended, or any successor thereto (the 1934 Act).
(b) To be in proper written form, a stockholders notice to the secretary must set forth as to each matter of business the stockholder intends to bring before the annual meeting: (1) a brief description of the business intended to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the corporations books, of the stockholder proposing such business and any Stockholder Associated Person (as defined below), (3) the class and
number of shares of the corporation that are held of record or are beneficially owned by the stockholder or any Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any Stockholder Associated Person, (4) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, (5) any material interest of the stockholder or a Stockholder Associated Person in such business, and (6) a statement whether either such stockholder or any Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of the corporations voting shares required under applicable law to carry the proposal (such information provided and statements made as required by clauses (1) through (6), a Business Solicitation Statement). In addition, to be in proper written form, a stockholders notice to the secretary must be supplemented not later than five days following the record date for notice of the meeting to disclose the information contained in clauses (3) and (4) above as of the record date for notice of the meeting. For purposes of this Section 2.4, a Stockholder Associated Person of any stockholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (ii) any beneficial owner of shares of stock of the corporation owned of record or beneficially by such stockholder and on whose behalf the proposal or nomination, as the case may be, is being made, or (iii) any person controlling, controlled by or under common control with such person referred to in the preceding clauses (i) and (ii).
(c) Without exception, no business shall be conducted at any annual meeting except in accordance with the provisions set forth in this Section 2.4(i) and, if applicable, Section 2.4(ii). In addition, business proposed to be brought by a stockholder may not be brought before the annual meeting if such stockholder or a Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Business Solicitation Statement applicable to such business or if the Business Solicitation Statement applicable to such business contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that business was not properly brought before the annual meeting and in accordance with the provisions of this Section 2.4(i), and, if the chairperson should so determine, he or she shall so declare at the annual meeting that any such business not properly brought before the annual meeting shall not be conducted.
(ii) Advance Notice of Director Nominations at Annual Meetings. Notwithstanding anything in these bylaws to the contrary, only persons who are nominated in accordance with the procedures set forth in this Section 2.4(ii) shall be eligible for election or re-election as directors at an annual meeting of stockholders. Nominations of persons for election or re-election to the board of directors of the corporation shall be made at an annual meeting of stockholders only (A) by or at the direction of the board of directors or (B) by a stockholder of the corporation who (1) was a stockholder of record at the time of the giving of the notice required by this Section 2.4(ii) and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has complied with the notice procedures set forth in this Section 2.4(ii). In addition to any other applicable requirements, for a nomination to be made by a stockholder, the stockholder must have given timely notice thereof in proper written form to the secretary of the corporation.
(a) To comply with clause (B) of Section 2.4(ii) above, a nomination to be made by a stockholder must set forth all information required under this Section 2.4(ii) and must be received by the secretary
of the corporation at the principal executive offices of the corporation at the time set forth in, and in accordance with, the final three sentences of Section 2.4(i)(a) above.
(b) To be in proper written form, such stockholders notice to the secretary must set forth:
(1) as to each person (a nominee) whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of the nominee, (B) the principal occupation or employment of the nominee, (C) the class and number of shares of the corporation that are held of record or are beneficially owned by the nominee and any derivative positions held or beneficially held by the nominee, (D) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of the nominee with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decrease the voting power of the nominee, (E) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, (F) a written statement executed by the nominee acknowledging that as a director of the corporation, the nominee will owe a fiduciary duty under Delaware law with respect to the corporation and its stockholders, and (G) any other information relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election or re-election of the nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation the nominees written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected or re-elected, as the case may be); and
(2) as to such stockholder giving notice, (A) the information required to be provided pursuant to clauses (2) through (5) of Section 2.4(i)(b) above, and the supplement referenced in the second sentence of Section 2.4(i)(b) above (except that the references to business in such clauses shall instead refer to nominations of directors for purposes of this paragraph), and (B) a statement whether either such stockholder or Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of a number of the corporations voting shares reasonably believed by such stockholder or Stockholder Associated Person to be necessary to elect or re-elect such nominee(s) (such information provided and statements made as required by clauses (A) and (B) above, a Nominee Solicitation Statement).
(c) At the request of the board of directors, any person nominated by a stockholder for election or re-election as a director must furnish to the secretary of the corporation (1) that information required to be set forth in the stockholders notice of nomination of such person as a director as of a date subsequent to the date on which the notice of such persons nomination was given and (2) such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as an independent director or audit committee financial expert of the corporation under applicable law, securities exchange rule or regulation, or any publicly-disclosed corporate governance guideline or committee charter of the corporation and (3) that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of such nominee; in the absence of the furnishing of such information if requested, such stockholders nomination shall not be considered in proper form pursuant to this Section 2.4(ii).
(d) Without exception, no person shall be eligible for election or re-election as a director of the corporation at an annual meeting of stockholders unless nominated in accordance with the
provisions set forth in this Section 2.4(ii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that a nomination was not made in accordance with the provisions prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the annual meeting, and the defective nomination shall be disregarded.
(iii) Advance Notice of Director Nominations for Special Meetings.
(a) For a special meeting of stockholders at which directors are to be elected or re-elected, nominations of persons for election or re-election to the board of directors shall be made only (1) by or at the direction of the board of directors or (2) by any stockholder of the corporation who (A) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(iii) and on the record date for the determination of stockholders entitled to vote at the special meeting and (B) delivers a timely written notice of the nomination to the secretary of the corporation that includes the information set forth in Sections 2.4(ii)(b) and (ii)(c) above. To be timely, such notice must be received by the secretary at the principal executive offices of the corporation not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected or re-elected at such meeting. A person shall not be eligible for election or re-election as a director at a special meeting unless the person is nominated (i) by or at the direction of the board of directors or (ii) by a stockholder in accordance with the notice procedures set forth in this Section 2.4(iii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading.
(b) The chairperson of the special meeting shall, if the facts warrant, determine and declare at the meeting that a nomination or business was not made in accordance with the procedures prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the meeting, and the defective nomination or business shall be disregarded.
(iv) Other Requirements and Rights. In addition to the foregoing provisions of this Section 2.4, a stockholder must also comply with all applicable requirements of state law and of the 1934 Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.4. Nothing in this Section 2.4 shall be deemed to affect any rights of:
(a) a stockholder to request inclusion of proposals in the corporations proxy statement pursuant to Rule 14a-8 (or any successor provision) under the 1934 Act; or
(b) the corporation to omit a proposal from the corporations proxy statement pursuant to Rule 14a-8 (or any successor provision) under the 1934 Act.
2.5 NOTICE OF STOCKHOLDERS MEETINGS
Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written notice of any meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. Where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwise provided by law, the certificate of incorporation or these bylaws.
If a quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) if the chairperson does not act, the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the board of directors shall fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 2.11of these bylaws, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.
2.8 CONDUCT OF BUSINESS
The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. The chairperson of any meeting of stockholders shall be designated by the board of directors; in the absence of such designation, the
chairperson of the board, if any, the chief executive officer (in the absence of the chairperson) or the president (in the absence of the chairperson of the board and the chief executive officer), or in their absence any other executive officer of the corporation, shall serve as chairperson of the stockholder meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.
Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
Except as otherwise required by law, the certificate of incorporation or these bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the majority of shares of such class or series or classes or series present in person or represented by proxy at the meeting shall be the act of such class or series or classes or series, except as otherwise provided by law, the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Subject to the rights of the holders of the shares of any series of Preferred Stock or any other class of stock or series thereof that have been expressly granted the right to take action by written consent, any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.
2.11 RECORD DATES
In order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If the board of directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the board of directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.
If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the provisions of Section 213 of the DGCL and this Section 2.11 at the adjourned meeting.
In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A written proxy may be in the form of any means of electronic transmission which sets forth or is submitted with information from which it can be determined that the means of electronic transmission was authorized by the person.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting; provided, however, if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date. The stockholder list shall be arranged in alphabetical order and show the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose related to the meeting for a period of at least 10 days prior to the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the corporations principal place of business. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
2.14 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholders proxy shall, appoint a person to fill that vacancy.
Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed and designated shall (i) ascertain the number of shares of capital stock of the corporation outstanding and the voting power of each share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspector or inspectors count of all votes and ballots, (vi) determine when the polls shall close; (vii) determine the result; and (viii) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.
In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspector or inspectors may consider such information as is permitted by applicable law. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
ARTICLE III DIRECTORS
3.1 POWERS
The business and affairs of the corporation shall be managed by or under the direction of the board of directors, except as may be otherwise provided in the DGCL or the certificate of incorporation.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time solely by resolution of the board of directors. No reduction of the authorized number of directors shall have the effect of removing any director before that directors term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such directors successor is elected and qualified or until such directors earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors. If so provided in the certificate of incorporation, the directors of the corporation shall be divided into three classes.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation; provided, however, that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the director. A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. Acceptance of such resignation shall not be necessary to make it effective. A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable. Unless otherwise provided in the certificate of incorporation or these bylaws, when one or more directors resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.
Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be filled only by a majority of the directors then in office, even if the directors in office represent less than a quorum, or by a sole remaining director. If the directors are divided into classes, a person so elected by the directors then in office to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.
If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board of directors (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the voting stock at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairperson of the board of directors, the chief executive officer, the president, the secretary or a majority of the authorized number of directors, at such times and places as he or she or they shall designate.
Notice of the time and place of special meetings shall be:
(i) delivered personally by hand, by courier or by telephone;
(ii) sent by United States first-class mail, postage prepaid;
(iii) sent by facsimile; or
(iv) sent by electronic mail,
directed to each director at that directors address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the corporations records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the corporations principal executive office) nor the purpose of the meeting.
3.8 QUORUM; VOTING
At all meetings of the board of directors, a majority of the total authorized number of directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.
If the certificate of incorporation provides that one or more directors shall have more or less than one vote per director on any matter, every reference in these bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without
a meeting if all members of the board of directors or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board of directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
3.10 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors.
3.11 REMOVAL OF DIRECTORS
A director may be removed from office by the stockholders of the corporation only for cause.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such directors term of office.
ARTICLE IV COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in these bylaws, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:
(i) Section 3.5 (place of meetings and meetings by telephone);
(ii) Section 3.6 (regular meetings);
(iii) Section 3.7 (special meetings; notice);
(iv) Section 3.8 (quorum; voting);
(v) Section 3.9 (action without a meeting); and
(vi) Section 7.5 (waiver of notice)
with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members. In addition, the following provisions shall apply:
(i) the time of regular meetings of committees may be determined by resolution of the committee;
(ii) special meetings of committees may also be called by resolution of the committee; and
(iii) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.
Any provision in the certificate of incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.
4.4 SUBCOMMITTEES
Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the board of directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
ARTICLE V OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the board of directors, a chairperson of the board of directors, a vice chairperson of the board of directors, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The board of directors shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in this Section 5 for the regular election to such office.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board of directors or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written or electronic notice to the corporation; provided, however, that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the officer. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by the board of directors or as provided in Section 5.3.
5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairperson of the board of directors, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
5.7 AUTHORITY AND DUTIES OF OFFICERS
All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the board of directors.
5.8 THE CHAIRPERSON OF THE BOARD
The chairperson of the board shall have the powers and duties customarily and usually associated with the office of the chairperson of the board. The chairperson of the board shall preside at meetings of the stockholders and of the board of directors.
5.9 THE VICE CHAIRPERSON OF THE BOARD
The vice chairperson of the board shall have the powers and duties customarily and usually associated with the office of the vice chairperson of the board. In the case of absence or disability of the chairperson of the board, the vice chairperson of the board shall perform the duties and exercise the powers of the chairperson of the board.
5.10 THE CHIEF EXECUTIVE OFFICER
The chief executive officer shall have, subject to the supervision, direction and control of the board of directors, ultimate authority for decisions relating to the supervision, direction and management of the affairs and the business of the corporation customarily and usually associated with the position of chief executive officer, including, without limitation, all powers necessary to direct and control the organizational and reporting relationships within the corporation. If at any time the office of the chairperson and vice chairperson of the board shall not be filled, or in the event of the temporary absence or disability of the chairperson of the board and the vice chairperson of the board, the chief executive officer shall perform the duties and exercise the powers of the chairperson of the board unless otherwise determined by the board of directors.
5.11 THE PRESIDENT
The president shall have, subject to the supervision, direction and control of the board of directors, the general powers and duties of supervision, direction and management of the affairs and business of the corporation customarily and usually associated with the position of president. The president shall have such powers and perform such duties as may from time to time be assigned to him or her by the board of directors, the chairperson of the board or the chief executive officer. In the event of the absence or disability of the chief executive officer, the president shall perform the duties and exercise the powers of the chief executive officer unless otherwise determined by the board of directors.
5.12 THE VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS
Each vice president and assistant vice president shall have such powers and perform such duties as may from time to time be assigned to him or her by the board of directors, the chairperson of the board, the chief executive officer or the president.
5.13 THE SECRETARY AND ASSISTANT SECRETARIES
(i) The secretary shall attend meetings of the board of directors and meetings of the stockholders and record all votes and minutes of all such proceedings in a book or books kept for such purpose. The secretary shall have all such further powers and duties as are customarily and usually associated with the position of secretary or as may from time to time be assigned to him or her by the board of directors, the chairperson of the board, the chief executive officer or the president.
(ii) Each assistant secretary shall have such powers and perform such duties as may from time to time be assigned to him or her by the board of directors, the chairperson of the board, the chief executive officer, the president or the secretary. In the event of the absence, inability or refusal to act of the secretary, the assistant secretary (or if there shall be more than one, the assistant secretaries in the order determined by the board of directors) shall perform the duties and exercise the powers of the secretary.
5.14 THE CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURERS
(i) The chief financial officer shall be the treasurer of the corporation. The chief financial officer shall have custody of the corporations funds and securities, shall be responsible for maintaining the corporations accounting records and statements, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit or cause to be deposited moneys or other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The chief financial officer shall also maintain adequate records of all assets, liabilities and transactions of the corporation and shall assure that adequate audits thereof are currently and regularly made. The chief financial officer shall have all such further powers and duties as are customarily and usually associated with the position of chief financial officer, or as may from time to time be assigned to him or her by the board of directors, the chairperson, the chief executive officer or the president.
(ii) Each assistant treasurer shall have such powers and perform such duties as may from time to time be assigned to him or her by the board of directors, the chief executive officer, the president or the chief financial officer. In the event of the absence, inability or refusal to act of the chief financial officer, the assistant treasurer (or if there shall be more than one, the assistant treasurers in the order determined by the board of directors) shall perform the duties and exercise the powers of the chief financial officer.
ARTICLE VI STOCK
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the corporation by the chairperson of the board of directors or vice-chairperson of the board of directors, or the president or a vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The corporation shall not have power to issue a certificate in bearer form.
The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly-paid shares, or upon the books and records of the corporation in the case of uncertificated partly-paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully-paid shares, the corporation shall declare a dividend upon partly-paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
6.2 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section 6.2 or Sections 156, 202(a) or 218(a) of the DGCL or with respect to this section 6.2 a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
6.3 LOST, STOLEN OR DESTROYED CERTIFICATES
Except as provided in this Section 6.3, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owners legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
6.4 DIVIDENDS
The board of directors, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the corporations capital stock. Dividends may
be paid in cash, in property, or in shares of the corporations capital stock, subject to the provisions of the certificate of incorporation.
The board of directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.
6.5 TRANSFER OF STOCK
Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer; provided, however, that such succession, assignment or authority to transfer is not prohibited by the certificate of incorporation, these bylaws, applicable law or contract.
6.6 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
6.7 REGISTERED STOCKHOLDERS
The corporation:
(i) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;
(ii) shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and
(iii) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII MANNER OF GIVING NOTICE AND WAIVER
7.1 NOTICE OF STOCKHOLDERS MEETINGS
Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the corporations records. An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or other agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
7.2 NOTICE BY ELECTRONIC TRANSMISSION
Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:
(i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and
(ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice.
However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
Any notice given pursuant to the preceding paragraph shall be deemed given:
(i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
(iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iv) if by any other form of electronic transmission, when directed to the stockholder.
An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
An electronic transmission means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
7.3 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any
stockholder who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice.
7.4 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL
Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
7.5 WAIVER OF NOTICE
Whenever notice is required to be given to stockholders, directors or other persons under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders or the board of directors, as the case may be, need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.
ARTICLE VIII INDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS
Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding) (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director of the corporation or an officer of the corporation, or while a director of the corporation or officer of the corporation is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such persons conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause to believe that such persons conduct was unlawful.
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the corporation, or while a director or officer of the corporation is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
8.3 SUCCESSFUL DEFENSE
To the extent that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith.
8.4 INDEMNIFICATION OF OTHERS
Subject to the other provisions of this Article VIII, the corporation shall have power to indemnify its employees and its agents to the extent not prohibited by the DGCL or other applicable law. The board of directors shall have the power to delegate the determination of whether employees or agents shall be indemnified to such person or persons as the board of determines.
8.5 ADVANCED PAYMENT OF EXPENSES
Expenses (including attorneys fees) incurred by an officer or director of the corporation in defending any Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article VIII or the DGCL. Such expenses (including attorneys fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems reasonably appropriate and shall be subject to the corporations expense guidelines. The right to advancement of expenses shall not apply to any claim for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding referenced in Section 8.6(ii) or 8.6(iii) prior to a determination that the person is not entitled to be indemnified by the corporation.
8.6 LIMITATION ON INDEMNIFICATION
Subject to the requirements in Section 8.3 and the DGCL, the corporation shall not be obligated to indemnify any person pursuant to this Article VIII in connection with any Proceeding (or any part of any Proceeding):
(i) for which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;
(ii) for an accounting or disgorgement of profits pursuant to Section 16(b) of the 1934 Act, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);
(iii) for any reimbursement of the corporation by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the corporation, as required in each case under the 1934 Act (including any such reimbursements that arise from an accounting restatement of the corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), or the payment to the corporation of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements);
(iv) initiated by such person against the corporation or its directors, officers, employees, agents or other indemnitees, unless (a) the board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (b) the corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the corporation under applicable law, (c) otherwise required to be made under Section 8.7 or (d) otherwise required by applicable law; or
(v) if prohibited by applicable law; provided, however, that if any provision or provisions of this Article VIII shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article VIII (including, without limitation, each portion of any paragraph or clause containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article VIII (including, without limitation, each such portion of any paragraph or clause containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforcebable.
8.7 DETERMINATION; CLAIM
If a claim for indemnification or advancement of expenses under this Article VIII is not paid in full within 90 days after receipt by the corporation of the written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. The corporation shall indemnify such person against any and all expenses that are incurred by such person in connection with any action for indemnification or advancement of expenses from the corporation under this Article VIII, to the extent such person is successful in such action, and to the extent not prohibited by law. In any such suit, the corporation shall, to the fullest extent not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement of expenses.
8.8 NON-EXCLUSIVITY OF RIGHTS
The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such persons official capacity and as to action in another capacity while holding such office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.
8.9 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the DGCL.
8.10 SURVIVAL
The rights to indemnification and advancement of expenses conferred by this Article VIII shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
8.11 EFFECT OF REPEAL OR MODIFICATION
Any amendment, alteration or repeal of this Article VIII shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to such amendment, alteration or repeal.
8.12 CERTAIN DEFINITIONS
For purposes of this Article VIII, references to the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as referred to in this Article VIII.
ARTICLE IX GENERAL MATTERS
9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
Except as otherwise provided by law, the certificate of incorporation or these bylaws, the board of directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
9.2 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.
9.3 SEAL
The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
9.4 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term person includes both an entity and a natural person.
ARTICLE X AMENDMENTS
These bylaws may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the affirmative vote of the holders of at least 66 2/3% of the total voting power of outstanding voting securities, voting together as a single class, shall be required for the stockholders of the corporation to alter, amend or repeal, or adopt any bylaw inconsistent with, the following provisions of these bylaws: Article II, Sections 3.1, 3.2, 3.4 and 3.11 of Article III, Article VIII and this Article X (including, without limitation, any such Article or Section as renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other Bylaw). The board of directors shall also have the power to adopt, amend or repeal bylaws; provided, however, that a bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the board of directors.
MARKETO, INC.
CERTIFICATE OF AMENDMENT OF BYLAWS
The undersigned hereby certifies that he or she is the duly elected, qualified, and acting Secretary or Assistant Secretary of Marketo, Inc., a Delaware corporation and that the foregoing bylaws, comprising 24 pages, were amended and restated on May 22, 2013 by the corporations board of directors.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this 22nd day of May, 2013.
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/s/ Sharon Zezima |
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Secretary |
Exhibit 4.1
MARKETO, INC.
FORM OF SECOND AMENDMENT TO
AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT (this Amendment) is made as of May 22, 2013 by and among Marketo, Inc., a Delaware corporation (the Company), and the undersigned holders of the Companys capital stock.
WHEREAS, the Company and certain holders of the Companys capital stock previously entered into the Amended and Restated Investors Rights Agreement dated November 15, 2011, as amended by the Amendment and Joinder Agreement dated April 17, 2012 by and among the Company and certain holders of the Companys capital stock (the Rights Agreement);
WHEREAS, the Company has entered into a Common Stock Purchase Agreement with Battery Ventures IX, L.P. and Battery Investment Partners IX, LLC (together, Battery Ventures) dated as of May 3, 2013 (the Purchase Agreement) pursuant to which Battery Ventures will purchase shares of the Companys common stock (the Shares) immediately following the closing of the Qualified IPO (as defined therein) (the Closing); and
WHEREAS, the Company and the undersigned holders of the requisite number of shares of Company capital stock under the Rights Agreement now desire to amend the terms of the Rights Agreement as set forth herein to include the Shares as Registrable Securities under the Rights Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:
1. Amendment to Section 1.1(g). Section 1.1(g) of the Rights Agreement is hereby amended and restated in its entirety to read as follows:
(g) The term Registrable Securities means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock, (ii) the Common Stock issued pursuant to that certain Common Stock Purchase Agreement by and among the Company, Battery Ventures IX, L.P. and Battery Investment Partners IX, LLC dated May 3, 2013 and (iii) any Common Stock of the Company issued as (or issuable upon conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i) or (ii) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned.
2. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in
accordance with the laws of the State of California, without giving effect to principles of conflicts of law.
3. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
4. Titles and Subtitles. The titles and subtitles used in this Amendment are used for convenience only and are not to be considered in construing or interpreting this Amendment.
5. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
6. Rights Agreement. Wherever necessary, all other terms of the Rights Agreement are hereby amended to be consistent with the terms of this Amendment. Except as specifically set forth herein, the Rights Agreement shall remain in full force and effect.
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.
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MARKETO, INC., | |
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a Delaware corporation | |
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By: |
/s/ Phillip M. Fernandez |
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Name: |
Phillip M. Fernandez |
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Title: |
President & CEO |
[Signature Page to Second Amendment to Amended and Restated Investors Rights Agreement]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.
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BATTERY VENTURES IX, L.P. | |
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By: |
Battery Partners IX, LLC |
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General Partner |
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By: |
/s/ Neeraj Agrawal |
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Name: |
Neeraj Agrawal |
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Member Manager |
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BATTERY INVESTMENT PARTNERS IX, LLC | |
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By: |
Battery Partners IX, LLC |
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Managing Member |
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By: |
/s/ Neeraj Agrawal |
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Name: |
Neeraj Agrawal |
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Title: |
Member Manager |
[Signature Page to Second Amendment to Amended and Restated Investors Rights Agreement]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.
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INSTITUTIONAL VENTURE PARTNERS XII, L.P. | |
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By: |
Institutional Venture Management XII LLC |
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General Partner |
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By: |
/s/ Norman A. Fogelsong |
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Name: |
Norman A. Fogelsong |
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Title: |
Managing Director |
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INSTITUTIONAL VENTURE PARTNERS XIII, L.P. | |
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By: |
Institutional Venture Management XIII LLC |
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General Partner |
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By: |
/s/ Norman A Fogelsong |
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Name: |
Norman A. Fogelsong |
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Title: |
Managing Director |
[Signature Page to Second Amendment to Amended and Restated Investors Rights Agreement]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.
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INTERWEST PARTNERS IX, L.P. | |
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By: InterWest Management Partners IX, LLC | |
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By: |
/s/ Doug Pepper |
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Name: |
Doug Pepper |
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Title: |
General Partner |
[Signature Page to Second Amendment to Amended and Restated Investors Rights Agreement]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.
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MAYFIELD XIII, | |
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a Cayman Islands Exempted Limited Partnership | |
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By: |
MAYFIELD XIII MANAGEMENT (EGP), L.P., a Cayman Islands Exempted Limited Partnership |
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General Partner |
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By: |
MAYFIELD XIII MANAGEMENT (UGP), LTD., a Cayman Islands Exempted Limited Company |
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General Partner |
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By: |
/s/ Robin Vasan |
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Name: |
Robin Vasan |
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Title: |
Authorized Signatory |
[Signature Page to Second Amendment to Amended and Restated Investors Rights Agreement]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.
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STORM VENTURES FUND III, L.P. | |
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By: |
Storm Venture Associates III, L.L.C. |
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General Partner |
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By: |
/s/ Tae Hea Nahm |
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Name: |
Tae Hea Nahm |
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Title: |
Managing Member |
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STORM VENTURES AFFILIATES FUND III, L.P. | |
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By: |
Storm Venture Associates III, L.L.C. |
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General Partner |
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By: |
/s/ Tae Hea Nahm |
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Name: |
Tae Hea Nahm |
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Managing Member |
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STORM VENTURES PRINCIPALS FUND III, L.L.C. | |
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By: |
Storm Venture Associates III, L.L.C. |
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General Partner |
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By: |
/s/ Tae Hea Nahm |
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Name: |
Tae Hea Nahm |
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Title: |
Managing Member |
[Signature Page to Second Amendment to Amended and Restated Investors Rights Agreement]
Exhibit 10.3
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT to Loan and Security Agreement (this Amendment) is entered into this 6th day of June, 2013 (the First Amendment Effective Date), by and between Silicon Valley Bank (Bank) and Marketo, Inc., a Delaware corporation (Borrower) whose address is 901 Mariners Blvd., Suite 200, San Mateo, CA 94404.
RECITALS
A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as May 21, 2012 (as the same may from time to time be amended, modified, supplemented or restated, the Loan Agreement). Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.
B. Borrower has requested that Bank amend the Loan Agreement to (i) extend an additional equipment loan facility, and (ii) make certain other revisions to the Loan Agreement as more fully set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2. Amendments to Loan Agreement.
2.1 Section 2.1.2 (2013 Equipment Advances). A new Section 2.1.2 is added to the Loan Agreement which reads as follows:
2.1.2 2013 Equipment Advance Facility.
(a) Availability. Subject to the terms and conditions of this Agreement, during the 2013 Equipment Draw Period, Bank shall make advances (each, a 2013 Equipment Advance and, collectively, the 2013 Equipment Advances) not exceeding the 2013 Equipment Line. 2013 Equipment Advances may only be used to finance Eligible Equipment purchased within ninety (90) days (determined based upon the applicable invoice date of such Eligible Equipment) before the date of each 2013 Equipment Advance. No 2013 Equipment Advance may exceed 100% of the total invoice for Eligible Equipment (excluding taxes, shipping, warranty charges, freight discounts and installation expenses relating to such Eligible Equipment except to the extent such are allowed to be financed pursuant hereto as Other Equipment). Unless otherwise agreed to by Bank, not more than 25% of the proceeds of the 2013 Equipment Line shall be used to finance Other Equipment. Each 2013 Equipment Advance must be in an amount equal to at least the lesser of Five Hundred Thousand Dollars ($500,000) or the amount that has not yet been drawn under the 2013 Equipment Line. After repayment, no 2013 Equipment Advance may be reborrowed.
(b) Repayment. For each 2013 Equipment Advance: (i) Borrower shall make monthly payments of interest only commencing on the first day of the month following the month in which the Funding Date occurs with respect to such 2013 Equipment Advance and continuing thereafter on the first day of each successive calendar month through its 2013 Equipment Line Interest Only Period, (ii) commencing on its 2013 Equipment Line Amortization Date and continuing thereafter on the first day of each successive calendar month through and including its 2013 Equipment Maturity Date (each a 2013 Equipment Payment Date), Borrower shall make thirty-six (36) equal monthly payments of principal and accrued interest which would fully amortize such 2013
Equipment Advance, and (iii) all unpaid principal and accrued and unpaid interest is due and payable in full on the 2013 Equipment Maturity Date with respect to such 2013 Equipment Advance. 2013 Equipment Advances may only be prepaid in accordance with Sections 2.1.2(d) and 2.1.2(e).
(c) Interest Rate. Subject to Section 2.3(b), the principal amount outstanding under each 2013 Equipment Advance shall accrue interest, which interest shall be payable monthly, at a fixed per annum rate equal to the greater of (i) four percent (4.0%), or (ii) three-quarters percentage points (0.75%) above the WSJ Prime Rate as determined on the Funding Date.
(d) Mandatory Prepayment Upon an Acceleration. If the 2013 Equipment Advances are accelerated following the occurrence and during the continuance of an Event of Default, Borrower shall immediately pay to Bank an amount equal to the sum of (i) all outstanding principal plus accrued and unpaid interest, plus (ii) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.
(e) Permitted Prepayment of 2013 Equipment Advances. Borrower shall have the option to prepay all, but not less than all, of the 2013 Equipment Advances advanced by Bank under this Agreement, provided Borrower (i) delivers written notice to Bank of its election to prepay such 2013 Equipment Advances at least ten (10) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all outstanding principal plus accrued and unpaid interest of such 2013 Equipment Advances, plus (B) all other sums, if any, that shall have become due and payable, including interest at the Default Rate, if any, with respect to any past due amounts.
(f) Procedures for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of a 2013 Equipment Advance set forth in this Agreement, to obtain a 2013 Equipment Advance, Borrower must notify Bank (which notice shall be irrevocable) by electronic mail or facsimile no later than 12:00 p.m. Pacific time one (1) Business Day before the proposed Funding Date. The notice shall be a Payment/Advance Form, must be signed by a Responsible Officer or designee, and shall include a copy of the invoice for the Equipment being financed. Borrower shall also deliver to Bank, copies of invoices for the Financed Equipment and such additional information as Bank may reasonably request at least five (5) Business Days before the proposed Funding Date. At Banks discretion, Bank shall have the opportunity to confirm that, upon filing the UCC-1 financing statement covering the Equipment, Bank shall have a first priority perfected security interest in such Equipment. If Borrower satisfies the conditions of each 2013 Equipment Advance, Bank shall disburse such 2013 Equipment Advance by transfer to the Designated Deposit Account.
2.2 Sections 6.2(a), (b), (c) and (d) (Financial Reporting). Sections 6.2(a), (b), (c) and (d)of the Loan Agreement are hereby amended in their entirety and replaced with the following:
(a) Quarterly Reporting. Within five (5) days of filing, but no later than forty-five (45) days after the end of each fiscal quarter for the first three quarters of each fiscal year, Borrowers 10-Q for such fiscal quarter (the Quarterly Financial Statements);
(b) Annual Reporting. Within five (5) days of filing, but no later than ninety (90) days after the end of each fiscal year, Borrowers 10-K for such fiscal year (the Annual Financial Statements);
(c) Compliance Certificate. Concurrently with the delivery of each of the Quarterly Financial Statements and each of the Annual Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such period, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank may reasonably request;
(d) Bookings Report. Concurrently with the delivery of each of the Quarterly Financial Statements and each of the Annual Financial Statements, a company prepared bookings report detailing new and renewal annually recurring revenue and subscription bookings and service bookings for each month within such period and certified by a Responsible Officer and in a form acceptable to Bank (the Bookings Report);
2.3 Section 6.6 (Operating Accounts). Section 6.6(b), which reads Borrower shall maintain at least Two Million Dollars ($2,000,000) at all times in deposit accounts and securities accounts maintained with Bank and Banks Affiliates is hereby amended in its entirety to read intentionally omitted.
2.4 Section 6.11 (Financial Covenant) A new Section 6.11 is added to the Loan Agreement which reads as follows:
6.11 Financial Covenants. Borrower shall maintain as of the last day of each quarter on a cumulative basis with respect to Borrower:
(a) Performance to Bookings Plan. As of the last day of each quarter, Borrower s cumulative subscription bookings shall be at least eighty-six percent (86%) of Borrowers projected performance as outlined in Borrowers Board approved bookings plan submitted to Bank on 1/23/2013, file named Marketo 2013 Forecast.pptx) on cumulative basis. For periods beyond December 31, 2013, covenant levels shall be set by Bank with receipt of Borrowers Board approved bookings forecast (due within 60 days of prior fiscal year end)
2.5 Section 8.1 (Payment Default). Section 8.1 of the Loan Agreement is hereby amended in its entirety and replaced with the following:
Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Equipment Maturity Date or the 2013 Equipment Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);
2.6 Section 8.2(a) (Covenant Default). Section 8.2(a) of the Loan Agreement is hereby amended in its entirety and replaced with the following:
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.11 or violates any covenant in Section 7; or
2.7 Section 13 (Definitions). The following terms and their definitions are added in proper alphabetical order to Section 13.1 of the Loan Agreement:
2013 Equipment Advance or 2013 Equipment Advances is defined in Section 2.1.2.
2013 Equipment Line Amortization Date means, for 2013 Equipment Advance, the earlier of: (a) the day nine (9) months after its Funding Date, or if such date is not the first day of the month, then the first day of the calendar month immediately following such date, and (b) October 1, 2014
2013 Equipment Draw Period is the period of time from the First Amendment Effective Date through the earlier to occur of (a) December 31, 2013 or (b) an Event of Default.
2013 Equipment Line Interest Only Period means, for each 2013 Equipment Advance, the period of time commencing on its Funding Date through the day before its 2013 Equipment Amortization Date.
2013 Equipment Line is Four Million Five Hundred Thousand Dollars ($4,500,000).
2013 Equipment Maturity Date is, for each 2013 Equipment Advance, its 36th 2013 Equipment Payment Date but no later than September 1, 2017.
2013 Equipment Payment Date is defined in Section 2.1.2(b).
Annual Financial Statements is defined in Section 6.2(b).
Bookings Report is defined in Section 6.2(d).
First Amendment is the First Amendment to Loan and Security Agreement by and between Bank and Borrower.
First Amendment Effective Date is defined in the First Amendment.
Quarterly Financial Statements is defined in Section 6.2(a).
2.8 Section 13 (Definitions). The following terms and their respective definitions set forth in Section 13.1 of the Loan Agreement are amended in their entirety and replaced with the following:
Credit Extension is any Equipment Advance, 2013 Equipment Advance, or any other extension of credit by Bank for Borrowers benefit.
Financed Equipment is all present and future Eligible Equipment in which Borrower has any interest which is financed by an Equipment Advance or a 2013 Equipment Advance.
WSJ Prime Rate is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the prime rate then in effect; provided that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank, the Prime Rate shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors).
2.9 Compliance Certificate. Exhibit D to the Loan Agreement, the Compliance Certificate is replaced in its entirety with Exhibit A to the First Amendment.
3. Limitation of Amendments.
3.1 The amendments set forth in Section 2 above are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.
4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:
4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;
4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
4.3 The organizational documents of Borrower delivered to Bank prior to the First Amendment Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;
4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;
4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and
4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors rights.
5. Amendment Fee. Borrower shall pay to Bank a fully earned, non-refundable amendment fee of Fifteen Thousand Dollars ($15,000) on the First Amendment Effective Date.
6. Bank Expenses. Borrower shall pay to Bank all Bank Expenses (including reasonable attorneys fees and expenses) incurred through and after the First Amendment Effective Date, when due.
7. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
8. Effectiveness. This Amendment shall be deemed effective as of the First Amendment Effective Date upon the occurrence of all of the following:
(a) the due execution and delivery to Bank of this Amendment by each party hereto;
(b) the due execution and delivery to Bank of Corporate Borrowing Certificate by Borrower;
(c) the delivery to Bank of Borrowers: (i) current certificate of incorporation certified by the Delaware Secretary of State, and (ii) current signed bylaws and any amendments thereto; and
(d) the payment to Bank of the fee described in Section 5 of this Amendment.
9. Amendments in Writing; Integration. This Amendment is a Loan Document. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Amendment and the Loan Documents.
10. Governing Law; Venue. The provisions of Section 11 of the Loan Agreement apply to this Amendment.
[Signature page follows.]
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Loan and Security Agreement to be duly executed and delivered as of the date first written above.
BORROWER: |
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MARKETO, INC. |
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By: |
/s/ Frederick A. Ball |
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Name: |
Frederick A. Ball |
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Title: |
Senior Vice President and Chief Financial Officer |
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BANK: |
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SILICON VALLEY BANK |
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By: |
/s/ Holly R. Dungan |
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Name: |
Holly R. Dungan |
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Title: |
Vice President |
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EXHIBIT A
COMPLIANCE CERTIFICATE
TO: |
SILICON VALLEY BANK |
Date: |
FROM: MARKETO, INC. |
The undersigned authorized officer of Marketo, Inc.(Borrower) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement):
(1) Borrower is in complete compliance for the period ending with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.
Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenant |
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Required |
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Complies |
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Quarterly Financial Statements with Compliance Certificate |
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Quarterly [within 5 days of SEC filing but within 45 days of quarter end for first 3 quarters of each fiscal year] |
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Yes No |
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Annual Financial Statements with Compliance Certificate |
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Within 5 days of SEC filing but FYE within 90 days |
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Bookings Report with Compliance Certificate |
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Quarterly [concurrently with Quarterly Financial Statements and Annual Financial Statements] |
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Yes No |
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Annual projections |
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FYE within 60 days |
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Yes No |
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10-Q, 10-K and 8-K |
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Within 5 days after filing with SEC |
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Yes No |
Section 6.11 Covenant |
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Required |
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Actual |
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Complies |
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|
|
|
|
Performance to Booking Plan [measured quarterly] |
|
86 |
% |
% |
|
Yes No |
|
CERTIFICATION UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Phillip M. Fernandez, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Marketo, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 9, 2013 |
/s/ Phillip M. Fernandez |
|
|
|
Phillip M. Fernandez |
|
|
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
CERTIFICATION UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Frederick A. Ball, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Marketo, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 9, 2013 |
/s/ Frederick A. Ball |
|
|
|
Frederick A. Ball |
|
|
|
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
CERTIFICATION UNDER SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of Marketo, Inc.
Date: August 9, 2013 |
/s/ Phillip M. Fernandez |
|
|
|
Phillip M. Fernandez |
|
|
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to Marketo, Inc. and will be retained by Marketo, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION UNDER SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of Marketo, Inc.
Date: August 9, 2013 |
/s/ Frederick A. Ball |
|
|
|
Frederick A. Ball |
|
|
|
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to Marketo, Inc. and will be retained by Marketo, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Balance Sheet Components (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Balance Sheet Components | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of cash and cash equivalents |
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Schedule of accounts receivable |
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Schedule of property and equipment, net |
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Schedule of accrued expenses and other current liabilities |
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Schedule of changes in accumulated other comprehensive income |
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Commitments and Contingencies
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Commitments and Contingencies | |
Commitments and Contingencies | 6. Commitments and Contingencies
Except as set forth in Note 5 and below, there were no material changes in our commitments under contractual obligations, as disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2012.
On April 15, 2013, the Company entered into a definitive lease agreement whereby the Company will lease approximately 10,406 square feet of office space in Portland, Oregon. The Company’s contractual operating lease obligation under this agreement is approximately $1.2 million, payable over the five-year term of the lease.
Legal Contingencies
From time to time, the Company may be involved in various legal proceedings arising from the normal course of business activities.
On May 17, 2013, iHance, Inc. filed a complaint against the Company in the United States District Court for the Northern District of California, alleging that a salesperson email tracking feature in the Marketo Sales Insight application infringed upon certain of iHance’s patents. On July 29, 2013, the Company filed an answer to the complaint, denying iHance’s infringement allegations and asserting a counterclaim for a declaratory judgment of noninfringement and invalidity. The Company is continuing to evaluate iHance’s claims and intends to vigorously defend this matter. Based on the information currently available the Company does not believe any loss from this litigation is probable or estimable. |
Fair Value of Financial Instruments (Details) (Recurring basis, Level 1, USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Fair Value of Financial Instruments | ||
Total fair value of financial assets | $ 117,476 | $ 42,471 |
Money market funds
|
||
Fair Value of Financial Instruments | ||
Total fair value of financial assets | 117,451 | 42,446 |
Certificate of deposit
|
||
Fair Value of Financial Instruments | ||
Total fair value of financial assets | $ 25 | $ 25 |
Goodwill and Intangible Assets (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Goodwill and Intangible Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of goodwill and intangible assets | Goodwill and intangible assets consisted of the following as of June 30, 2013 and December 31, 2012 (in thousands):
|
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Schedule of amortization expense | Amortization expense for the periods indicated below was as follows (in thousands):
|
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Schedule of estimated future amortization based on the carrying amount of intangible assets | Based on the carrying amount of intangible assets as of June 30, 2013, the estimated future amortization is as follows (in thousands):
|
Goodwill and Intangible Assets (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Dec. 31, 2012
|
Jun. 30, 2013
Developed technology
|
Dec. 31, 2012
Developed technology
|
Jun. 30, 2013
Domain names
|
Dec. 31, 2012
Domain names
|
Jun. 30, 2013
Customer relationships
|
Dec. 31, 2012
Customer relationships
|
Jun. 30, 2013
Non-compete agreements
|
Dec. 31, 2012
Non-compete agreements
|
Jun. 30, 2013
Capitalized software development costs
|
Dec. 31, 2012
Capitalized software development costs
|
|
Goodwill and Intangible Assets | |||||||||||||||
Intangible assets, gross | $ 4,135 | $ 4,135 | $ 3,907 | $ 1,300 | $ 1,300 | $ 700 | $ 700 | $ 900 | $ 900 | $ 130 | $ 130 | $ 1,105 | $ 877 | ||
Less accumulated amortization | (1,490) | (1,490) | (1,173) | ||||||||||||
Intangible assets, net | 2,645 | 2,645 | 2,734 | 982 | 579 | 772 | 51 | 261 | |||||||
Goodwill | 9,537 | 9,537 | 9,537 | ||||||||||||
Goodwill and intangible assets, net | 12,182 | 12,182 | 12,271 | ||||||||||||
Weighted Average Remaining Useful Life | 4 years 3 months 18 days | 4 years 9 months 18 days | 5 years 9 months 18 days | 6 years 3 months 18 days | 7 years 3 months 18 days | 7 years 9 months 18 days | 9 months 18 days | 1 year 3 months 18 days | 1 year 3 months 18 days | 9 months 18 days | |||||
Amortization expense | 158 | 150 | 317 | 193 | |||||||||||
Estimated future amortization | |||||||||||||||
Six Months Ended December 31, 2013 | 348 | 348 | 114 | 50 | 53 | 32 | 99 | ||||||||
2014 | 606 | 606 | 229 | 100 | 106 | 19 | 152 | ||||||||
2015 | 445 | 445 | 229 | 100 | 106 | 10 | |||||||||
2016 | 435 | 435 | 229 | 100 | 106 | ||||||||||
2017 | 387 | 387 | 181 | 100 | 106 | ||||||||||
2018 and beyond | 424 | 424 | 129 | 295 | |||||||||||
Intangible assets, net | $ 2,645 | $ 2,645 | $ 2,734 | $ 982 | $ 579 | $ 772 | $ 51 | $ 261 |
Balance Sheet Components (Details 2) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | |
---|---|---|
Jun. 30, 2013
|
Dec. 31, 2012
|
|
Accrued expenses and other current liabilities | ||
Accrued bonuses, commissions and wages | $ 6,022 | $ 4,737 |
Accrued vacation | 1,958 | 1,502 |
Liability payable for unvested stock options exercises | 777 | 523 |
Accrued legal, consulting and audit fees | 664 | 282 |
Liability for employee stock purchase plan | 506 | |
Accrued sales taxes | 485 | 543 |
Accrued marketing expenses | 1,251 | 395 |
Accrued other | 1,389 | 963 |
Total | 13,052 | 8,945 |
Changes in accumulated other comprehensive income | ||
Beginning balance | 145 | |
Other comprehensive income before reclassifications | 12 | |
Ending balance | 157 | |
Foreign Currency Items
|
||
Changes in accumulated other comprehensive income | ||
Beginning balance | 145 | |
Other comprehensive income before reclassifications | 12 | |
Ending balance | $ 157 |
Income Taxes (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Income Taxes | ||||
Provision for income taxes | $ 17 | $ 0 | $ 37 | $ 3 |
Stockholder's Equity and Stock Based Compensation (Details 2) (USD $)
In Thousands, except Share data, unless otherwise specified |
6 Months Ended | 3 Months Ended | 6 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | ||||||
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Jun. 30, 2013
Employee Stock Purchase Plan
|
Jun. 30, 2013
RSU
|
Jun. 30, 2013
RSU
|
Dec. 31, 2012
RSU
|
Jun. 30, 2013
RSU
Minimum
|
Jun. 30, 2013
RSU
Maximum
|
Jun. 30, 2013
Options
|
Jun. 30, 2012
Options
|
Jun. 30, 2013
Options
|
Jun. 30, 2012
Options
|
Jun. 30, 2013
Options
Minimum
|
Jun. 30, 2013
Options
Minimum
|
Jun. 30, 2012
Options
Minimum
|
Jun. 30, 2013
Options
Maximum
|
Jun. 30, 2013
Options
Maximum
|
Jun. 30, 2012
Options
Maximum
|
|
Assumptions used for estimation of fair value | ||||||||||||||||
Expected term | 9 months | 6 years | 6 years | 6 years | 6 years | |||||||||||
Risk-free interest rate (as a percent) | 0.11% | 1.09% | 1.09% | 0.86% | 0.86% | 1.375% | 1.375% | |||||||||
Expected volatility (as a percent) | 42.00% | 63.00% | 57.00% | 57.00% | 63.00% | 58.00% | 58.00% | 65.00% | ||||||||
Expected dividend rate (as a percent) | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | |||||||||||
Vesting period | 4 years | 2 years | 4 years | |||||||||||||
Number of RSUs | ||||||||||||||||
Balance at the beginning of the period (in shares) | 328,000 | |||||||||||||||
RSUs Granted (in shares) | 76,000 | |||||||||||||||
RSUs vested (in shares) | (148,000) | |||||||||||||||
Balance at the end of the period (in shares) | 257,000 | 257,000 | ||||||||||||||
Weighted Average Grant Date Fair Value | ||||||||||||||||
Balance at the beginning of the period (in dollars per share) | $ 4.58 | |||||||||||||||
RSUs Granted (in dollars per share) | $ 15.10 | |||||||||||||||
RSUs vested (in dollars per share) | $ 4.56 | |||||||||||||||
Balance at the end of the period (in dollars per share) | $ 7.70 | $ 7.70 | ||||||||||||||
Aggregate Intrinsic Value | ||||||||||||||||
Balance at the end of the period (in dollars) | $ 6,383 | $ 6,383 | $ 2,437 | |||||||||||||
Additional information | ||||||||||||||||
Closing stock price (in dollars per share) | $ 24.87 | $ 24.87 | $ 24.87 | $ 24.87 |
Fair Value of Financial Instruments
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Fair Value of Financial Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | 2. Fair Value of Financial Instruments
The Company measures certain financial assets at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:
· Level 1 — Quoted prices in active markets for identical assets or liabilities.
· Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
· Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
The fair value of the Company’s investments in certain money market funds is their face value. Such instruments are classified as Level 1 and are included in cash and cash equivalents. The Company considers all highly liquid investments purchased with a remaining maturity of three months or less at the date of purchase to be cash equivalents.
For certain other financial instruments, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.
As of June 30, 2013 and December 31, 2012 financial assets stated at fair value on a recurring basis were comprised of money market funds and a certificate of deposit included within cash and equivalents. The fair value of these financial assets was determined using the following inputs for the periods presented:
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Goodwill and Intangible Assets
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Goodwill and Intangible Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets |
4. Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following as of June 30, 2013 and December 31, 2012 (in thousands):
Amortization expense for the periods indicated below was as follows (in thousands):
Based on the carrying amount of intangible assets as of June 30, 2013, the estimated future amortization is as follows (in thousands):
|
Stockholder's Equity and Stock Based Compensation
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Jun. 30, 2013
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Stockholder's Equity and Stock Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholder's Equity and Stock Based Compensation |
7. Stockholder’s Equity and Stock Based Compensation
Convertible Preferred Stock
Upon the completion of the IPO, all outstanding convertible preferred stock was converted into 25,876,142 shares of common stock on a one-to-one basis.
Reverse Stock Split
On May 3, 2013, the Company effected a one-for-two reverse stock split of common stock and preferred stock. Upon the effectiveness of the reverse stock split, each two outstanding shares of common stock and each two outstanding shares of preferred stock, were exchanged into one share of common stock and one share of preferred stock, respectively. The reverse stock split also applied to any outstanding securities or rights convertible into, or exchangeable or exercisable for, common stock or preferred stock of the Company. Unless otherwise indicated, all share numbers, share prices and exercise prices (except shares authorized and par values) have been adjusted to reflect the stock split on a retroactive basis.
Common Stock Authorized
Upon the closing of the IPO, the Company increased the amount of common stock authorized for issuance from 100,000,000 to 1,000,000,000 common shares with a par value of $0.0001 per share.
Stock Option Plans
2006 Stock Plan
The Company’s Board of Directors (Board) and the Company’s stockholders adopted the 2006 Stock Plan (2006 Plan) in October 2006. The 2006 Plan was most recently amended in May 2013. The 2006 Plan was terminated in connection with the IPO, and accordingly, no shares will be available for issuance under this plan. The 2006 Plan will continue to govern outstanding awards granted thereunder. The 2006 Plan provided for the grant of incentive stock options and nonqualified stock options. As of June 30, 2013, options to purchase 7,872,832 shares of common stock and 201,260 restricted stock units remained outstanding under the 2006 Plan.
2013 Equity Incentive Plan
The Board adopted, and the Company’s stockholders approved, the 2013 Equity Incentive Plan (2013 Plan). The 2013 Plan was effective one business day prior to the effective date of the IPO. The 2013 Plan provides for the grant of incentive stock options, to the Company’s employees and any parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the Company’s employees, directors and consultants and the Company’s subsidiary corporations’ employees and consultants. In addition, the shares reserved for issuance under the 2013 Plan also include (a) those shares reserved but unissued under the 2006 Stock Plan (2006 Plan), and (b) shares returned to the 2006 Plan as the result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2013 Plan pursuant to (a) and (b) is 9,119,341 shares). The number of shares available for issuance under the 2013 Plan will also include an annual increase on the first day of each fiscal year beginning in 2014, equal to the least of:
· 3,250,000 shares; · 5% of the outstanding shares of common stock as of the last day of the Company’s immediately preceding fiscal year; or · such other amount as the Company’s Board of directors may determine.
If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is forfeited to or repurchased due to failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights, the forfeited or repurchased shares) will become available for future grant or sale under the 2013 Plan. With respect to stock appreciation rights, the net shares issued will cease to be available under the 2013 Plan and all remaining shares will remain available for future grant or sale under the 2013 Plan. Shares used to pay the exercise price of an award or satisfy the tax withholding obligations related to an award will become available for future grant or sale under the 2013 Plan. To the extent an award is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2013 Plan.
Summary of Stock Option Activity
A summary of the Company’s stock option activity under all stock option plans and related information for six months ended June 30, 2013 was as follows:
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company’s closing price of $24.87 as of June 30, 2013 for options that were in-the-money as of that date.
Option awards generally vest over a four year period, with 25% vesting after one year from date of grant and monthly thereafter. Stock options granted under our 2006 Plan provided employee option holders with an early exercise provision, where in the event of termination any unvested shares purchased are subject to repurchase by the Company at the original purchase price. This right of repurchase lapses as the option vests. Options exercisable as of June 30, 2013 include options that are exercisable prior to vesting.
The weighted average grant date fair value of options granted and the total intrinsic value of options exercised were as follows (in thousands, except weighted average grant date fair value):
The total estimated grant date fair value of options vested during the six months ended June 30, 2013 was approximately $2.1 million.
Determining Fair Value of Stock Options
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model. The following assumptions were used to estimate the fair value of options granted to employees:
The assumptions are based on the following for each of the periods presented:
Expected Term — The Company estimates the expected term consistent with the simplified method identified by the SEC. The Company elected to use the simplified method because of its limited history of stock option exercise activity and its stock options meet the criteria of the “plain-vanilla” options as defined by the SEC. The simplified method calculates the expected term as the average of the vesting and contractual terms of the award.
Volatility — Since the Company has no trading history by which to determine the volatility of its own common stock price, the expected volatility being used is derived from the historical stock volatilities of a representative industry peer group of comparable publicly listed companies over a period approximately equal to the expected term of the options.
Risk Free Interest Rate — The risk free interest rate is based on U.S. Treasury zero coupon issues with remaining terms similar to the expected term on the options.
Expected Dividend — The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.
Forfeiture — The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All service based stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.
Restricted Stock Units
A summary of the Company’s Restricted Stock Units (RSU) activity and related information for the six months ended June 30, 2013 is as follows:
During 2012 and the first six months of 2013, the Company granted RSUs to certain employees. Some of these RSUs are subject to a time-based vesting condition and some are subject to performance-based vesting condition, both of which must be satisfied before the RSUs are vested and settled for shares of common stock. The time-based vesting condition generally ranges from 2 to 4 years, and the performance-based vesting condition is satisfied upon the occurrence of a sale event or the completion of the Company’s IPO. Stock-based compensation expense associated with the performance-based RSUs is recognized if the performance-based vesting condition is considered probable of achievement. Recognition of compensation expense for these performance-based RSUs commenced during the second quarter of 2013 upon the IPO of the Company, which satisfied the performance condition. For the three and six months ended June 30, 2013, the Company recognized approximately $1.1 million in stock based compensation associated with these RSUs. RSUs granted subsequent to the IPO are subject to a time-based vesting condition of 4 years.
The aggregate intrinsic value of RSUs outstanding at June 30, 2013 was approximately $6.4 million, using the Company’s closing stock price of $24.87 per share as of June 30, 2013.
Employee Stock Purchase Plan
The Board adopted, and the Company’s stockholders approved, a 2013 Employee Stock
Purchase Plan (ESPP). The ESPP became effective on May 1, 2013. The ESPP provides for annual increases in the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning in fiscal 2014, equal to the lesser of:
· 1% of the outstanding shares of our common stock on the first day of such fiscal year; · 650,000 shares; or · such other amount as may be determined by our board of directors
The ESPP allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 15% of their eligible compensation, at not less than 85% of the fair market value, as defined in the ESPP, subject to any plan limitations. A participant may purchase a maximum of 1,250 shares during an offering period. The offering period generally start on the first trading day on or after February 15th and August 15th of each year, except that the first offering period commenced on the first trading day following the effective date of the Company’s registration statement. At June 30, 2013, 738,032 shares were available for issuance under the ESPP.
Determining Fair Value of Employee Stock Plan Purchase Rights
The assumptions used to value employee stock purchase rights under the Black-Scholes model during the three and six months ended June 30, 2013 were as follows:
Stock Compensation Expense
The stock-based compensation expense included in operating results was allocated as follows (in thousands):
As of June 30, 2013, total unrecognized compensation cost related to unvested awards not yet recognized under all equity compensation plans, adjusted for estimate forfeitures, was as follows:
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Credit Facility
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Jun. 30, 2013
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Credit Facility | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit Facility | 5. Credit Facility
On May 21, 2012, the Company entered into a loan and security agreement with a bank related to an equipment facility providing the Company with an equipment line of up to $4.0 million (Original Line of Credit). On June 6, 2013, the Company entered into a first amendment to the loan and security agreement, which provided an additional line of credit for advances of up to an aggregate of $4.5 million (New Line of Credit). The interest rate associated with the Original Line of Credit and New Line of Credit is the greater of 4% or three-quarters percentage points above the prime rate, as determined on the applicable funding date. For each equipment advance, the Company will pay interest only for approximately nine months. Subsequently, the Company will make thirty-six equal monthly payments of principal and interest. The loan is secured by a security interest on substantially all of the Company’s assets, including the equipment purchased with the advances, and excludes the Company’s intellectual property. The loan and security agreement contains customary affirmative and negative covenants, including, among other things, maintaining certain business performance levels and limitations on disposal of assets, certain fundamental business changes, incurrences of debt, incurrences of liens, payments of dividends, repurchases of stock and engaging in affiliate transactions, in each case subject to certain exceptions. The loan and security agreement also contains customary events of default including, among other things, that during the existence of an event of default, interest on the obligations could be increased by 5%. As of June 30, 2013, the Company is in compliance with all of the covenants contained in the loan and securities agreement.
As of June 30, 2013 and December 31, 2012, the outstanding loan balance was $6.6 million and $3.6 million, respectively.
Contractual future repayments in relation to the above credit facility are as follows for the remainder of 2013 and the subsequent years ending December 31:
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Credit Facility (Details) (USD $)
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0 Months Ended | 6 Months Ended | |||
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Jun. 30, 2013
Equipment facility
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May 21, 2012
Original line of credit
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Jun. 30, 2013
Original line of credit
item
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Dec. 31, 2012
Original line of credit
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Jun. 06, 2013
New line of credit
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Credit facility | |||||
Maximum borrowing capacity | $ 4,000,000 | $ 4,500,000 | |||
Minimum interest rate (as a percent) | 4.00% | ||||
Percentage points above prime rate considered for determining interest rate | 0.75% | ||||
Interest payment period | 9 months | ||||
Number of equal monthly principal and interest payments | 36 | ||||
Percentage of increase in interest rate basis of existence of an event as per loan and security agreement | 5.00% | ||||
Principal | |||||
2013 | 466,000 | ||||
2014 | 1,926,000 | ||||
2015 | 2,257,000 | ||||
2016 | 1,693,000 | ||||
2017 | 271,000 | ||||
Total | 6,613,000 | 3,600,000 | |||
Interest | |||||
2013 | 126,000 | ||||
2014 | 217,000 | ||||
2015 | 130,000 | ||||
2016 | 43,000 | ||||
2017 | 2,000 | ||||
Total | 518,000 | ||||
Total | |||||
2013 | 592,000 | ||||
2014 | 2,143,000 | ||||
2015 | 2,387,000 | ||||
2016 | 1,736,000 | ||||
2017 | 273,000 | ||||
Total | $ 7,131,000 |