UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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The |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 4, 2023, there were
Table of Contents
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PART I. |
6 |
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Item 1. |
6 |
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6 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
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8 |
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10 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
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Item 4. |
40 |
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PART II. |
42 |
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Item 1. |
42 |
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Item 1A. |
42 |
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Item 2. |
71 |
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Item 3. |
71 |
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Item 4. |
71 |
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Item 5. |
71 |
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Item 6. |
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73 |
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential,” or “continue,” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements about:
We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations, estimates, forecasts, and projections about future events and trends that we believe may affect our business, results of operations, financial condition, and prospects. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance, events, and circumstances reflected in the forward-looking statements will be achieved or occur at all. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors discussed in Part I, Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q as well as other documents that may be filed by us from time to time with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
3
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made available. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to our most recent Annual Report on Form 10-K and 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. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements.
4
SUMMARY OF RISK FACTORS
Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. The following is a summary of principal risks and uncertainties that could materially adversely affect our business, financial condition, and results of operations. This summary should be read in conjunction with the “Risk Factors” section and should not be relied upon as an exhaustive summary of the material risks and uncertainties facing our business.
5
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
AMPLITUDE, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(unaudited)
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As of |
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As of |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities, current |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Prepaid expenses and other current assets |
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Deferred commissions, current |
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Total current assets |
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Marketable securities, noncurrent |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Restricted cash, noncurrent |
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Deferred commissions, noncurrent |
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Operating lease right-of-use assets |
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Other noncurrent assets |
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Total assets |
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$ |
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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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$ |
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$ |
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Accrued expenses |
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Deferred revenue |
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Total current liabilities |
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Operating lease liabilities, noncurrent |
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Noncurrent liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
6
AMPLITUDE, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Restructuring and other related charges |
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Total operating expenses |
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Other income (expense), net |
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Loss before provision for (benefit from) income taxes |
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( |
) |
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( |
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( |
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( |
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Provision for (benefit from) income taxes |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Net loss per share attributable to Class A and Class B common stockholders: |
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Basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted-average shares used in computing net loss per share attributable to |
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Basic and diluted |
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Other comprehensive loss |
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Net unrealized gains (losses) on marketable securities |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Comprehensive loss |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
See accompanying notes to condensed consolidated financial statements.
7
AMPLITUDE, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(unaudited)
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Class A and Class B common stock |
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Additional |
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Accumulated other comprehensive |
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Accumulated |
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Total |
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Shares |
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Amount |
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capital |
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loss |
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deficit |
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equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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( |
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$ |
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( |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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Vesting of early exercised stock options |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Repurchase of unvested stock options |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Other comprehensive income (loss), net |
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— |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
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( |
) |
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$ |
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( |
) |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock under employee stock purchase plan |
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— |
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— |
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— |
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Vesting of early exercised stock options |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Other comprehensive income (loss), net |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Balance at June 30, 2023 |
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$ |
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$ |
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$ |
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( |
) |
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$ |
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( |
) |
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$ |
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8
AMPLITUDE, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(unaudited)
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Class A and Class B common stock |
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Additional |
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Accumulated other comprehensive |
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Accumulated |
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Total |
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Shares |
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Amount |
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capital |
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loss |
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deficit |
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equity |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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— |
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$ |
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( |
) |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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Vesting of early exercised stock options |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Repurchase of unvested stock options |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Cumulative impact of Topic 842 adoption |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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— |
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$ |
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( |
) |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock under employee stock purchase plan |
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— |
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— |
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— |
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Vesting of early exercised stock options |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Repurchase of unvested stock options |
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( |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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|
|
|
( |
) |
|
|
|
( |
) |
Balance at June 30, 2022 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
— |
|
|
$ |
|
( |
) |
|
$ |
|
|
||||
See accompanying notes to condensed consolidated financial statements.
9
AMPLITUDE, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
|
|
Six Months Ended June 30, |
|||||||
|
|
2023 |
|
|
2022 |
|
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
|
||
Other |
|
|
( |
) |
|
|
|
|
|
Non-cash operating lease costs |
|
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
||
Deferred commissions |
|
|
( |
) |
|
|
( |
) |
|
Other noncurrent assets |
|
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
( |
) |
|
|
Accrued expenses |
|
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
|
||
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Capitalization of internal-use software costs |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
||
Proceeds from the exercise of stock options |
|
|
|
|
|
|
|
||
Cash received for tax withholding obligations on equity |
|
|
|
|
|
|
|
||
Cash paid for tax withholding obligations on equity award settlements |
|
|
( |
) |
|
|
( |
) |
|
Repurchase of unvested stock options |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
||
Net increase (decrease) in cash, cash equivalents, and |
|
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
||
Cash paid for income taxes |
|
$ |
|
|
$ |
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
||
Vesting of early exercised options |
|
$ |
|
|
$ |
|
|
||
Purchases of property and equipment included in liabilities |
|
$ |
|
|
$ |
|
|
||
Stock-based compensation capitalized as internal-use software costs |
|
$ |
|
|
$ |
|
|
||
See accompanying notes to condensed consolidated financial statements.
10
AMPLITUDE, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Description of Business
Amplitude, Inc. (the “Company”) was incorporated in the state of Delaware in 2011 and is headquartered in San Francisco, California. The Company provides a Digital Analytics Platform that helps companies analyze their customer behavior within digital products. The Company delivers its application over the Internet as a subscription service using a software-as-a-service (“SaaS”) model. The Company’s arrangements with customers do not provide the customer with the right to take possession of the software supporting the cloud-based application service at any time. The Company also offers customer support related to initial implementation setup, ongoing support services, and application training.
Segment Information
The Company has a operating and reportable segment. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources. Long-lived assets outside of the United States are immaterial. For information regarding the Company’s revenue by geographic area, see Note 2 below.
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP” or “GAAP”) and include the accounts of Amplitude, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The reporting currency of the Company is the United States dollar. The functional currency of the Company’s foreign subsidiaries is also the United States dollar.
The unaudited condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including certain notes required by U.S. GAAP on an annual reporting basis. In management’s opinion, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to state fairly the balance sheet, statements of operations and comprehensive loss, statements of stockholders’ equity, and statements of cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year or any future period.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements and may involve subjective or significant judgment by the Company; therefore, actual results could differ from the Company’s estimates. Items subject to such estimates and assumptions include, but are not limited to the:
11
Concentration of Risk and Significant Customers
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, marketable securities, and accounts receivable. Although the Company deposits its cash with high-quality, credit-rated financial institutions, the deposits, at times, may exceed federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents.
No customer accounted for
Significant Accounting Policies
The Company's significant accounting policies are described in the 2022 Form 10-K. There have been no significant changes to these policies that have had a material impact on the Company’s condensed consolidated financial statements and related notes for the six months ended June 30, 2023.
Deferred Revenue and Remaining Performance Obligations
The amount of revenue recognized in the six months ended June 30, 2023 that was included in deferred revenue as of December 31, 2022 was $
As of June 30, 2023 and December 31, 2022, unrecognized transaction price related to remaining performance obligations was $
|
|
As of |
|
|
As of |
|
||
Less than or equal to 12 months |
|
$ |
|
|
$ |
|
||
Greater than 12 months |
|
|
|
|
|
|
||
Total remaining performance obligations |
|
$ |
|
|
$ |
|
||
Disaggregation of Revenue
The following table shows the Company’s disaggregation of revenue by geographic areas, as determined based on the billing address of its customers (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
12
Deferred Commissions
Commissions paid upon the initial acquisition of a contract are deferred and then amortized on a straight-line basis over a period of benefit, determined to be
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Additions to deferred commissions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of deferred commissions |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred commissions, current portion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred commissions, net of current portion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total deferred commissions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following tables show the Company’s financial statement details as of June 30, 2023 and December 31, 2022.
Cash, Cash Equivalents and Restricted Cash
The following table represents the Company's cash, cash equivalents, and restricted cash at each period end (in thousands):
|
|
As of June 30, |
|
|
As of December 31, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2022 |
|
|
2021 |
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Restricted cash, noncurrent |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Total cash, cash equivalents, and restricted cash |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
|
|
As of June 30, |
|
|
As of |
|
||
|
|
2023 |
|
|
2022 |
|
||
Prepaid hosting |
|
$ |
|
|
$ |
|
||
Other prepaid expenses and other assets |
|
|
|
|
|
|
||
Total prepaid expense and other current assets |
|
$ |
|
|
$ |
|
||
13
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
||
|
|
As of June 30, |
|
|
As of |
|
||
|
|
2023 |
|
|
2022 |
|
||
Accrued commission |
|
$ |
|
|
$ |
|
||
Accrued payroll and employee related taxes |
|
|
|
|
|
|
||
Accrued restructuring and other related charges |
|
|
|
|
|
|
||
Accrued sales tax |
|
|
|
|
|
|
||
Liability from early exercised stock options |
|
|
|
|
|
|
||
2021 Employee Stock Purchase Plan withholding |
|
|
|
|
|
|
||
Operating lease liabilities, current |
|
|
|
|
|
|
||
Other accrued liabilities |
|
|
|
|
|
|
||
Total accrued expenses |
|
$ |
|
|
$ |
|
||
The following table summarizes, for financial assets measured at fair value, the respective fair value and classification by level of input within the fair value hierarchy (in thousands):
|
|
|
As of June 30, 2023 |
|
||||||||||||||||
|
|
|
Amortized Cost |
|
|
|
Gross Unrealized Gains |
|
|
|
Gross Unrealized Losses |
|
|
|
Estimated Fair Value |
|
||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
||||
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. governmental securities |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
|||
|
|
|
As of December 31, 2022 |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Amortized Cost |
|
|
|
Gross Unrealized Gains |
|
|
|
Gross Unrealized Losses |
|
|
|
Estimated Fair Value |
|
||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
||||
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. governmental securities |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
|||
The Company uses quoted prices in active markets for identical assets to determine the fair value of the Company's Level 1 investments. The fair value of the Company's Level 2 investments is determined using pricing based on quoted market prices or alternative market observable inputs.
The fair value of the Company's available-for-sale securities as of June 30, 2023, by remaining contractual maturities, was as follows (in thousands):
14
|
|
|
|
|
|
As of June 30, 2023 |
|
|
Due in one year or less |
|
|
|
|
|
$ |
|
|
Due in greater than one year |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
15
Intangible Assets Other Than Goodwill
Intangible assets, net consisted of the following (in thousands):
|
|
|
As of June 30, 2023 |
|
|
|
As of December 31, 2022 |
|
||||||||||||||||||||||
|
|
|
Gross Carrying |
|
|
|
Accumulated Amortization |
|
|
|
Net Carrying |
|
|
|
Gross Carrying |
|
|
|
Accumulated Amortization |
|
|
|
Net Carrying |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Developed technology |
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
||||
Customer related |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
||||
Intangible assets, net |
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
||||
Amortization expense of intangible assets was $
As of June 30, 2023, future amortization expense is expected to be as follows (in thousands):
|
|
Amount |
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Total |
|
$ |
|
|
Preferred stock
In connection with the direct listing of the Company's Class A common stock on the Nasdaq Capital Market (the “Direct Listing”), on September 21, 2021, an amended and restated certificate of incorporation of the Company was filed with the Secretary of State of the State of Delaware, which authorized the issuance of
Common Stock
The Company has two classes of common stock: Class A common stock and Class B common stock. The Company's amended and restated certificate of incorporation authorizes the issuance of
Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder. Shares of Class B common stock will also automatically convert into one share of Class A common stock upon any transfer, except for certain permitted transfers described in the Company's amended and restated certificate of incorporation. In addition, each share of Class B common stock held by the Company's three cofounders (or any of such founder’s affiliates) will convert automatically into one share of Class A common stock on the earlier of: (i) the death or incapacity of such founder or (ii) the date that is six months following the date on which such founder is no longer an employee or director of the Company (unless such founder has rejoined the Company during such six-month period). Each outstanding share of the Company's Class B common stock will also convert automatically into one share of Class A common stock on the date that is six months following the date on which no founder is an employee or director of the Company (unless a founder has rejoined the Company during such six-month period). In addition, any transfer by a founder (or such founder’s affiliates) to one or more of the other founders (or such founders’ affiliates) will not result in the automatic conversion of such shares of Class B common stock to Class A common stock. Once converted into Class A common stock, the Class B common stock may not be reissued.
16
The Company has reserved shares of its common stock as follows:
|
|
As of |
|
|
As of |
|
||
|
|
|
|
|
|
|
||
2014 Stock Option and Grant Plan and 2021 Incentive Award Plan: |
|
|
|
|
|
|
||
Equity plan stock options outstanding |
|
|
|
|
|
|
||
RSUs outstanding |
|
|
|
|
|
|
||
Shares available for future issuance |
|
|
|
|
|
|
||
2021 Employee Stock Purchase Plan: |
|
|
|
|
|
|
||
Shares available for future issuance |
|
|
|
|
|
|
||
Total reserved shares |
|
|
|
|
|
|
||
Equity Incentive Plans
2014 Stock Option and Grant Plan
In December 2014, the Company adopted its 2014 Stock Option and Grant Plan (as amended, the “2014 Plan”), pursuant to which shares of the Company’s common stock were reserved for the issuance of stock options (incentive and non-statutory), restricted stock units (“RSUs”), and restricted stock to employees, directors, and consultants under terms and provisions established by the Company's board of directors and approved by the Company’s stockholders. The 2014 Plan was terminated in September 2021 in connection with the Direct Listing but continues to govern the terms of outstanding awards that were granted prior to the termination of the 2014 Plan. No further equity awards will be granted under the 2014 Plan. With the establishment of the 2021 Incentive Award Plan (the “2021 Plan”) as further discussed below, upon the expiration, forfeiture, cancellation, or reacquisition of any shares of Class A common stock underlying outstanding stock-based awards granted under the 2014 Plan, an equal number of shares of Class A common stock will become available for grant under the 2021 Plan.
2021 Incentive Award Plan
In August 2021, the Company's board of directors adopted, and its stockholders approved, the 2021 Plan, which became effective in connection with the Direct Listing. The 2021 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, RSU awards, performance bonus awards, performance stock units, dividend equivalent awards and other forms of equity compensation (collectively, “equity awards”). As of June 30, 2023, a total of
17
Stock Option Awards
Stock options granted under the 2014 Plan and the 2021 Plan (collectively, the “combined stock plans”) generally vest based on continued service over
Option activity under the Company's combined stock plans for the six months ended June 30, 2023 is set forth below:
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
||||
|
|
|
|
|
Weighted |
|
|
average |
|
|
Aggregate |
|
||||
|
|
Outstanding |
|
|
average |
|
|
remaining |
|
|
intrinsic |
|
||||
|
|
stock |
|
|
exercise |
|
|
contractual |
|
|
value |
|
||||
|
|
options |
|
|
price |
|
|
life (years) |
|
|
(in thousands) |
|
||||
Balances as of December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Cancelled/forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Balances as of June 30, 2023(1) |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of June 30, 2023(2) |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The aggregate intrinsic values of options are calculated as the difference between the exercise price of the options and the market price for shares of the Company’s Class A common stock as of each period-end. The total intrinsic value of options exercised for the six months ended June 30, 2023 and 2022 was $
Stock options granted during the six months ended June 30, 2023 and 2022 had a weighted average grant date fair value of $
As of June 30, 2023, total unrecognized stock-based compensation expense related to options outstanding under the combined stock plans was $
The fair value of each option granted to employees under the 2021 Plan is estimated on the grant date using the Black-Scholes pricing model.
Restricted Stock Units
RSUs granted under the 2021 Plan generally vest based on continued service. RSUs granted pursuant to the 2014 Plan vest according to a service condition as well as a performance condition, through a liquidity event, including (i) a change in control of the Company or (ii) the initial public offering of the Company’s equity securities, following which the securities shall be publicly traded, which includes a direct listing. As a result of the Direct Listing, the performance condition for all RSUs granted pursuant to the 2014 Plan has been met. During the three and six months ended June 30, 2023, the Company recorded $
As of June 30, 2023, total unrecognized stock-based compensation expense related to RSUs was $
18
RSU activity during the six months ended June 30, 2023 was as follows:
|
|
Restricted stock |
|
|
Weighted-average |
|
||
Balance as of December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Cancelled/forfeited |
|
|
( |
) |
|
|
|
|
Balance as of June 30, 2023 |
|
|
|
|
$ |
|
||
2021 Employee Stock Purchase Plan
In August 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Employee Stock Purchase Plan (the “ESPP”), which became effective in connection with the Direct Listing. The ESPP authorizes the issuance of shares of Class A common stock pursuant to purchase rights granted to employees. As of June 30, 2023, a total of
As of June 30, 2023,
Stock-based compensation expense, net of actual forfeitures is reflected in the condensed consolidated statements of operations and comprehensive loss (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restructuring and other related charges |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
19
The Company had an effective tax rate of (
During the three and six months ended June 30, 2023 and 2022, the Company evaluated all available evidence, both positive and negative, including historical levels of income, and expectations and risks associated with estimates of future taxable income, and determined that it is more likely than not that its net deferred tax assets will not be realized in the United States. Due to uncertainties surrounding the realization of the deferred tax assets, the Company continues to maintain a full valuation allowance against its net deferred tax assets within the United States.
Supplemental cash flow information related to operating leases was as follows (in thousands):
|
|
Six Months Ended |
|
|
|
|
2023 |
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
$ |
|
|
Cash paid for operating lease liabilities |
|
$ |
|
|
Future minimum lease payments under non-cancellable operating leases with initial lease terms in excess of one year included in the Company’s lease liabilities as of June 30, 2023 were as follows (in thousands):
Year ending December 31: |
|
|
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total undiscounted operating lease payments |
|
$ |
|
|
Less: imputed interest |
|
|
( |
) |
Total operating lease liabilities |
|
$ |
|
|
20
Legal Matters
The Company is involved in various legal and regulatory matters arising from the normal course of business activities. The Company records litigation accruals for legal matters, which are both probable and estimable. For legal proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable), the Company has determined that it does not have material exposure, or it is unable to develop a range of reasonably possible losses. Although no assurance may be given, the Company believes that it is not presently a party to any litigation of which the outcome, if determined adversely, would individually or in the aggregate be reasonably expected to have a material and adverse effect on the business, operating results, cash flows, or financial position. Legal fees are expensed in the period in which they are incurred.
Basic net loss per share attributable to the Company’s common stockholders is computed in conformity with the two-class method required for participating securities. The rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. As the liquidation and dividend rights are identical, all undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted net loss per share attributable to common stockholders are, therefore, the same for both Class A and Class B common stock on both an individual and a combined basis.
Basic net loss per share is computed by dividing the net loss attributable to the Company’s common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is the same as basic net loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive given the Company’s net loss position in each period presented.
The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to Class A and Class B common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average shares used in computing net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to Class A and Class B |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following potential shares of common stock were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (in thousands):
|
|
As of June 30, |
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
Equity plan stock options outstanding |
|
|
|
|
|
|
|
||
Equity plan stock options early exercised |
|
|
|
|
|
|
|
||
RSUs outstanding |
|
|
|
|
|
|
|
||
Restricted shares |
|
|
|
|
|
|
|
||
Shares issuable pursuant to the ESPP |
|
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
|
||
21
(11) Restructuring
In April 2023, the Company authorized a restructuring plan (the “Restructuring Plan”) to reduce its global workforce to improve operational efficiencies and reduce operating costs. In connection with this reduction in workforce, the Company incurred non-recurring charges of $
These amounts are included in “Restructuring and other related charges” within our condensed consolidated statements of operations and comprehensive loss as they are incurred.
The condensed consolidated balance sheet as of June 30, 2023 includes $
|
|
Accrued restructuring and other related charges |
|
|
Beginning balance as of January 1, 2023 |
|
$ |
|
|
Accruals |
|
|
|
|
Payments |
|
|
( |
) |
Ending balance as of June 30, 2023 |
|
$ |
|
|
(12) Subsequent Events
In July 2023, the Company issued
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes appearing in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). 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. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Unless the context otherwise requires, all references in this report to “Amplitude,” the “Company,” “we,” “our,” “us,” or similar terms refer to Amplitude, Inc. and its subsidiaries.
Overview
Amplitude is a leading Digital Analytics Platform that provides self-service visibility into the entire customer journey. With Amplitude, organizations can build amazing product experiences, drive revenue growth, and win their categories. We work with over 2,300 paying customers of various sizes and stages of digital maturity, across many industries, including the teams behind some of the most-beloved digital products in the world. We have experienced significant growth in recent years, with approximately 700 employees in seven global offices.
At the core of our Digital Analytics Platform is our Behavioral Graph, a proprietary, purpose-built behavioral database that is the largest of its kind. Our Behavioral Graph instantly finds patterns, makes recommendations, and connects customer actions along their journeys to the right business outcomes, like engagement, growth, and loyalty. We architected our Behavioral Graph to power numerous products, beginning with our core product analytics solution. Consistently ranked #1 in multiple categories by G2, Amplitude Analytics provides real-time product data so cross-functional teams can understand what is working and what is not. We have since expanded our offerings to include products that enable teams to build personalized product experiences, test product changes, and improve data quality across their technology stack.
Key Factors Affecting Our Performance
We believe that the growth and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations.
Customer Acquisition and Expansion
We believe that our Digital Analytics Platform can help businesses across industries, company size, and stages of digital maturity drive better business outcomes through optimizing the digital product experience of their customers. We are focused on continuing to acquire new customers and expanding our relationships with our existing installed base to support our long-term growth. We have invested, and expect to continue to invest, in our sales and marketing efforts to drive customer acquisition.
As of June 30, 2023 and 2022, we had 2,344 and 1,836 paying customers, respectively, representing an increase of 28% year-over-year. Our relationship with some of the world’s most beloved product-led companies has resulted in increased brand credibility and access to many attractive growth opportunities.
We have been successful at efficiently growing our customer spend over time as evidenced by our dollar-based net retention rates. As of June 30, 2023 and 2022, our dollar-based net retention rate for the trailing twelve months was 108% and 126%, respectively, for paying customers. Additionally, our ending dollar-based net retention rate for paying customers as of June 30, 2023 and 2022, was 101% and 118%, respectively. We continue to increase the number of customers who have entered and grown into larger subscriptions with us.
Investments in Platform
We believe that our customers will demand additional features and capabilities beyond our current platform offerings to assist them in optimizing their digital products. We have a history of, and will continue to invest significantly in, developing and delivering innovative products, features, and functionality targeted at our core customer base. In addition, we may choose to add new products and offerings or enhance our platform capabilities through acquisitions. In recent years, we have acquired companies to bolster our
23
predictive analytics and data instrumentation capabilities. Going forward, we may pursue both strategic partnerships and acquisitions that we believe will be complementary to our business, accelerate customer acquisition, increase usage of our platform, and/or expand our product offerings in our core markets.
Investing for Growth
Our investment for growth encompasses multiple critical areas, including product expansion, our sales force, sales support, partner ecosystem, and our international presence. We continue to evolve our technology to ensure that we are best serving our customers’ needs. We believe this will lead to continued increased retention and positive customer referrals that will continue to generate expansion opportunities within our existing installed base and from new customers. We plan to continue to invest in our research and development organization to maintain and strengthen our market leadership position, and we believe that attracting the best engineering talent will continue to be critical to our long-term success. As we continue to invest in our platform, we expect our research and development expenses to increase in dollar amount, and although we believe these expenses as a percentage of revenue will decrease over the longer term, these expenses as a percentage of revenue could increase in the short term.
We will continue to make strategic investments in our sales efforts to pursue attractive growth opportunities and ensure customer success, particularly with larger enterprises where we have experienced significant traction to date. We also plan to invest in our channel partners, such as independent software vendors, and resellers, to extend our reach faster than we could do on our own. As we continue to invest in our sales efforts, we expect our sales and marketing expenses to increase in dollar amount over time, and although we believe these expenses as a percentage of revenue will decrease over the longer term, these expenses as a percentage of revenue could increase in the short term.
Finally, we see opportunities to expand offices and headcount internationally to better service targeted international markets where we believe we have significant opportunity to accelerate existing traction and success. For the three and six months ended June 30, 2023, 39% of our revenue was generated outside the United States, respectively. As we seek to expand our business globally, we may be adversely affected by global economic and political instability. For example, as a result of the Russia-Ukraine war, we terminated certain relationships with customers in Russia and some of the businesses of our customers in the impacted regions have experienced disruptions that have affected their ability to pay for our services. See “Risk Factors–Risks Related to Our Business and Industry–Our operations are international in scope, and we plan further geographical expansion, creating a variety of operational challenges.”
Key Business Metrics
We review a number of operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. We are not aware of any uniform standards for calculating these key metrics, which may hinder comparability with other companies who may calculate similarly-titled metrics in a different way.
|
|
As of June 30, |
|
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
YoY Growth |
||
|
|
(dollar values in millions) |
|
|||||||
Paying Customers |
|
|
2,344 |
|
|
|
1,836 |
|
|
28% |
Annual Recurring Revenue |
|
$ |
268 |
|
|
$ |
227 |
|
|
18% |
Dollar-Based Net Retention Rate (TTM) |
|
|
108 |
% |
|
|
126 |
% |
|
|
Paying Customers
We believe our ability to grow the number of paying customers on our platform provides a key indicator of the demand for our platform, growth of our business, and our future business opportunities. Increasing awareness of our platform and its broad range of capabilities, coupled with the mainstream adoption of cloud-based technology, has expanded the diversity of our customer base to include organizations of different sizes across virtually all industries.
For purposes of customer count, a customer is defined as an entity that has a unique Dunn & Bradstreet Global Ultimate (“GULT”) Data Universal Numbering System (“DUNS”) number and an active subscription contract as of the measurement date. The DUNS number is a global standard for business identification and tracking. We make exceptions for holding companies, government entities, and other organizations for which the GULT, in our judgment, does not accurately represent the Amplitude customer or the DUNS does not exist.
24
Annual Recurring Revenue
We define annual recurring revenue (“ARR”) as the annual recurring revenue of subscription agreements, including certain premium professional services that are subject to contractual subscription terms, at a point in time based on the terms of customers’ contracts. ARR should be viewed independently of revenue, and does not represent our U.S. GAAP revenue on an annualized basis, as it is an operating metric that can be impacted by contract start and end dates and renewal rates. ARR is also not intended to be a forecast of revenue.
Dollar-Based Net Retention Rate
We calculate our dollar-based net retention rate to measure our ability to retain and expand ARR from our customers and believe it is an indicator of the value our platform delivers to customers and our future business opportunities. Our net retention rate compares our ARR from the same set of customers across comparable periods and reflects customer renewals, expansion, contraction, and attrition.
We calculate dollar-based net retention rate as of a period-end by starting with the ARR from the cohort of all customers as of 12 months prior to such period-end (the “Prior Period ARR”). We then calculate the ARR from these same customers as of the current period-end (the “Current Period ARR”). Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months but excludes ARR from new customers as well as any overage charges in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the dollar-based net retention rate (“NRR”). We then calculate the weighted average of the trailing 12-month dollar-based net retention rates, to arrive at the dollar-based net retention rate (“NRR (TTM)”).
25
Restructuring Plan
In April 2023, we authorized a restructuring plan (the “Restructuring Plan”) to reduce our global workforce by approximately 13% to improve operational efficiencies and reduce operating costs. We do not expect to incur additional expenses of any significance related to the Restructuring Plan in future periods.
Non-GAAP Financial Measures
The following table presents certain non-GAAP financial measures, along with the most directly comparable U.S. GAAP measure, for each period presented below. In addition to our results determined in accordance with U.S. GAAP, we believe these non-GAAP financial measures are useful in evaluating our operating performance. See below for a description of the non-GAAP financial measures and their limitations as an analytical tool. A reconciliation is also provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands, except percentages) |
|
|||||||||||||
Gross Profit |
|
$ |
50,587 |
|
|
$ |
41,070 |
|
|
$ |
97,877 |
|
|
$ |
78,072 |
|
Non-GAAP Gross Profit |
|
$ |
52,544 |
|
|
$ |
43,233 |
|
|
$ |
102,048 |
|
|
$ |
81,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross Margin |
|
|
75 |
% |
|
|
71 |
% |
|
|
73 |
% |
|
|
70 |
% |
Non-GAAP Gross Margin |
|
|
78 |
% |
|
|
74 |
% |
|
|
76 |
% |
|
|
73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from Operations |
|
$ |
(30,887 |
) |
|
$ |
(24,583 |
) |
|
$ |
(60,060 |
) |
|
$ |
(46,574 |
) |
Non-GAAP Loss from Operations |
|
$ |
(800 |
) |
|
$ |
(8,999 |
) |
|
$ |
(8,654 |
) |
|
$ |
(16,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from Operations Margin |
|
|
(46 |
)% |
|
|
(42 |
)% |
|
|
(45 |
)% |
|
|
(42 |
)% |
Non-GAAP Loss from Operations Margin |
|
|
(1 |
)% |
|
|
(15 |
)% |
|
|
(6 |
)% |
|
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Cash Provided by Operating Activities |
|
$ |
20,406 |
|
|
$ |
10,642 |
|
|
$ |
15,345 |
|
|
$ |
2,353 |
|
Free Cash Flow |
|
$ |
19,315 |
|
|
$ |
8,161 |
|
|
$ |
13,477 |
|
|
$ |
(1,435 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Cash Provided by Operating Activities Margin |
|
|
30 |
% |
|
|
18 |
% |
|
|
11 |
% |
|
|
2 |
% |
Free Cash Flow Margin |
|
|
29 |
% |
|
|
14 |
% |
|
|
10 |
% |
|
|
(1 |
)% |
Non-GAAP Gross Profit, Non-GAAP Gross Margin, Non-GAAP Loss from Operations, and Non-GAAP Loss from Operations Margin
We define non-GAAP gross profit and non-GAAP gross margin as U.S. GAAP gross profit and U.S. GAAP gross margin, respectively, excluding stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, and non-recurring costs such as restructuring and other related charges. Non-GAAP gross margin is calculated as non-GAAP gross profit divided by total revenue.
We define non-GAAP loss from operations and non-GAAP loss from operations margin as U.S. GAAP loss from operations and U.S. GAAP loss from operations margin, respectively, excluding stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, and non-recurring costs such as restructuring and other related charges. Non-GAAP loss from operations margin is calculated as non-GAAP loss from operations divided by total revenue.
We exclude stock-based compensation expense and related employer payroll taxes, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance. We exclude amortization of intangible assets, which is a non-cash expense, related to business combinations from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. Although we exclude these expenses from certain non-GAAP financial measures, the revenue from acquired companies subsequent to the date of acquisition is reflected in these measures and the acquired
26
intangible assets contribute to our revenue generation. We exclude non-recurring costs from certain of our non-GAAP financial measures because such expenses do not repeat period over period and are not reflective of the ongoing operation of our business.
We use non-GAAP gross margin and non-GAAP loss from operations margin in conjunction with traditional U.S. GAAP measures to evaluate our financial performance. We believe that non-GAAP gross margin and non-GAAP loss from operations margin provide our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations.
Free Cash Flow and Free Cash Flow Margin
We define free cash flow as net cash provided by operating activities, less cash used for purchases of property and equipment and capitalized internal-use software costs. Free cash flow margin is calculated as free cash flow divided by total revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors, even if negative, about the amount of cash used in our operations other than that used for investments in property and equipment and capitalized internal-use software costs.
Limitations and Reconciliations of Non-GAAP Financial Measures
Non-GAAP financial measures are presented for supplemental informational purposes only. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under U.S. GAAP. There are a number of limitations related to the use of non-GAAP financial measures versus comparable financial measures determined under U.S. GAAP. For example, other companies in our industry may calculate these non-GAAP financial measures differently or may use other measures to evaluate their performance. In addition, free cash flow does not reflect our future contractual commitments and the total increase or decrease of our cash balance for a given period. All of these limitations could reduce the usefulness of these non-GAAP financial measures as analytical tools. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures and to not rely on any single financial measure to evaluate our business.
27
The following tables reconcile the most directly comparable U.S. GAAP financial measure to each of these non-GAAP financial measures.
Non-GAAP Gross Profit and Gross Margin
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands, except percentages) |
|
|||||||||||||
Gross profit |
|
$ |
50,587 |
|
|
$ |
41,070 |
|
|
$ |
97,877 |
|
|
$ |
78,072 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation expense(1) |
|
$ |
1,687 |
|
|
$ |
1,669 |
|
|
$ |
3,479 |
|
|
$ |
2,591 |
|
Acquired intangible assets amortization |
|
$ |
270 |
|
|
$ |
494 |
|
|
$ |
692 |
|
|
$ |
983 |
|
Non-GAAP Gross Profit |
|
$ |
52,544 |
|
|
$ |
43,233 |
|
|
$ |
102,048 |
|
|
$ |
81,646 |
|
Non-GAAP Gross Margin |
|
|
78 |
% |
|
|
74 |
% |
|
|
76 |
% |
|
|
73 |
% |
Non-GAAP Loss From Operations and Loss From Operations Margin
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands, except percentages) |
|
|||||||||||||
Loss from operations |
|
$ |
(30,887 |
) |
|
$ |
(24,583 |
) |
|
$ |
(60,060 |
) |
|
$ |
(46,574 |
) |
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation expense(1) |
|
$ |
21,579 |
|
|
$ |
15,090 |
|
|
$ |
42,433 |
|
|
$ |
28,866 |
|
Acquired intangible assets amortization |
|
$ |
314 |
|
|
$ |
494 |
|
|
$ |
779 |
|
|
$ |
983 |
|
Restructuring and other related charges |
|
$ |
8,194 |
|
|
$ |
— |
|
|
$ |
8,194 |
|
|
$ |
— |
|
Non-GAAP Loss from Operations |
|
$ |
(800 |
) |
|
$ |
(8,999 |
) |
|
$ |
(8,654 |
) |
|
$ |
(16,725 |
) |
Non-GAAP Loss from Operations Margin |
|
|
(1 |
)% |
|
|
(15 |
)% |
|
|
(6 |
)% |
|
|
(15 |
)% |
Free Cash Flow and Free Cash Flow Margin
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands, except percentages) |
|
|||||||||||||
Net cash used in investing activities |
|
$ |
(1,091 |
) |
|
$ |
(2,481 |
) |
|
$ |
(1,868 |
) |
|
$ |
(3,788 |
) |
Net cash provided by financing activities |
|
|
990 |
|
|
|
1,442 |
|
|
|
2,399 |
|
|
|
4,015 |
|
Net cash provided by operating activities |
|
|
20,406 |
|
|
|
10,642 |
|
|
|
15,345 |
|
|
|
2,353 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Purchase of property and equipment |
|
$ |
(666 |
) |
|
$ |
(1,812 |
) |
|
$ |
(995 |
) |
|
$ |
(2,525 |
) |
Capitalization of internal-use software costs |
|
$ |
(425 |
) |
|
$ |
(669 |
) |
|
$ |
(873 |
) |
|
$ |
(1,263 |
) |
Free Cash Flow |
|
$ |
19,315 |
|
|
$ |
8,161 |
|
|
$ |
13,477 |
|
|
$ |
(1,435 |
) |
Free Cash Flow Margin |
|
|
29 |
% |
|
|
14 |
% |
|
|
10 |
% |
|
|
(1 |
)% |
28
Components of Results of Operations
Revenue
We generate revenue primarily from sales of subscription services for customers to access our platform. Revenue is driven primarily by the number of paying customers and the level of subscription plan. We generally recognize revenue ratably over the related contractual term beginning on the date that the platform is made available to a customer. Revenue from professional services have primarily been attributed to implementation and training services. We recognize professional services revenue as services are delivered.
Cost of Revenue
Cost of revenue consists primarily of the cost of providing our platform to our customers and consists of third-party hosting fees, personnel and related expenses for our operations and support personnel, and amortization of our capitalized internal-use software and acquired developed software. As we acquire new customers and existing customers increase their use of our platform, we expect that our cost of revenue will increase in dollar amount.
Gross Profit and Gross Margin
Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by various factors, including the timing of our acquisition of new customers, renewals of, and follow-on sales to, existing customers, costs associated with operating our platform, and the extent to which we expand our operations and customer support organizations. In the long term, we expect our gross profit to increase in dollar amount and our gross margin to improve as we optimize our system performance and leverage ingested data for new products.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel and related expenses are the most significant component of operating expenses and consist of salaries, benefits, stock-based compensation expense, and, in the case of sales and marketing expenses, sales commissions. Operating expenses also include an allocation of overhead costs for facilities and shared IT-related expenses. As we invest in our business, we expect our operating expenses to increase in dollar amount, and although we believe our operating expenses as a percentage of revenue will decrease over the longer term, operating expenses as a percentage of revenue could increase in the short term as we invest in product innovation and sales growth.
Research and Development
Research and development expenses consist primarily of personnel and related expenses. These expenses also include product design costs prior to the application development stage, third-party services and consulting expenses, software subscriptions, and allocated overhead costs for overhead used in research and development activities. A substantial portion of our research and development efforts are focused on enhancing our software, including researching ways to add new features and functionality to our platform. We anticipate continuing to invest in innovation and technology development, and as a result, we expect research and development expenses to continue to increase in dollar amount but to decrease as a percentage of revenue over the longer term, although the percentage may fluctuate from quarter to quarter depending on the extent and timing of product development initiatives. In the short term, research and development costs could increase as a percentage of revenue.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel and related expenses and expenses for performance marketing and lead generation, and brand marketing. These expenses also include allocated overhead costs and travel-related expenses. Sales commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a subscription with a customer are deferred and amortized on a straight-line basis over the expected period of benefit of five years.
We continue to make strategic investments in our sales and marketing organization, and we expect sales and marketing expenses to remain our largest operating expense in dollar amount. We expect our sales and marketing expenses to continue to increase in dollar amount but to decrease as a percentage of revenue over the longer term, although the percentage may fluctuate from quarter to quarter depending on the extent and timing of our marketing initiatives. In the short term, sales and marketing costs could increase as a percentage of revenue.
29
General and Administrative
General and administrative expenses consist primarily of personnel and related expenses for our finance, human resources, information technology, and legal organizations. These expenses also include non-personnel costs, such as outside legal, accounting, and other professional fees, software subscriptions, as well as certain tax, license, and insurance-related expenses, and allocated overhead costs.
We have also incurred certain expenses as part of operating as a publicly-traded company, including professional fees and other expenses. We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on the Nasdaq Capital Market LLC and costs related to compliance and reporting obligations pursuant to the rules and regulations of the Securities and Exchange Commission. In addition, as a public company, we incur additional costs associated with accounting, compliance, insurance, and investor relations. As a result, we expect our general and administrative expenses to continue to increase in dollar amount over time but to generally decrease as a percentage of our revenue over the longer term, although the percentage may fluctuate from period to period depending on the timing and amount of our general and administrative expenses, including in the short term.
Restructuring and Other Related Charges
Restructuring and other related charges, related to the Restructuring Plan, consist primarily of charges related to employee transition, severance payments, employee benefits, and stock-based compensation. These expenses are not expected to recur.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income on our cash, cash equivalents, and marketable securities holdings and foreign currency transaction gains and losses.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. To date, we have not recorded any U.S. federal income tax expense, and our state and foreign income tax expenses have not been material. We have recorded deferred tax assets for U.S. federal income taxes for which we provide a full valuation allowance. These deferred tax assets primarily include net operating loss carryforwards of $422.2 million and tax credit carryforwards of $9.1 million, net of reserves as of December 31, 2022, which begin expiring in 2032 and 2033, respectively. We expect to maintain this full valuation allowance in U.S. jurisdictions for the foreseeable future as it is not more likely than not the deferred tax assets will be realized based on our history of losses.
30
Results of Operations
The following tables set forth our results of operations for the periods presented and as a percentage of our 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 Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Revenue |
|
$ |
67,767 |
|
|
$ |
58,130 |
|
|
$ |
134,244 |
|
|
$ |
111,195 |
|
Cost of revenue(1) |
|
|
17,180 |
|
|
|
17,060 |
|
|
|
36,367 |
|
|
|
33,123 |
|
Gross profit |
|
|
50,587 |
|
|
|
41,070 |
|
|
|
97,877 |
|
|
|
78,072 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development(1) |
|
|
22,435 |
|
|
|
20,306 |
|
|
|
46,143 |
|
|
|
36,807 |
|
Sales and marketing(1) |
|
|
38,326 |
|
|
|
34,135 |
|
|
|
77,459 |
|
|
|
62,265 |
|
General and administrative(1) |
|
|
12,519 |
|
|
|
11,212 |
|
|
|
26,141 |
|
|
|
25,574 |
|
Restructuring and other related charges(1) |
|
|
8,194 |
|
|
|
— |
|
|
|
8,194 |
|
|
|
— |
|
Total operating expenses |
|
|
81,474 |
|
|
|
65,653 |
|
|
|
157,937 |
|
|
|
124,646 |
|
Loss from operations |
|
|
(30,887 |
) |
|
|
(24,583 |
) |
|
|
(60,060 |
) |
|
|
(46,574 |
) |
Other income (expense), net |
|
|
3,307 |
|
|
|
293 |
|
|
|
6,445 |
|
|
|
379 |
|
Loss before provision for (benefit from) income taxes |
|
|
(27,580 |
) |
|
|
(24,290 |
) |
|
|
(53,615 |
) |
|
|
(46,195 |
) |
Provision for (benefit from) income taxes |
|
|
178 |
|
|
|
278 |
|
|
|
458 |
|
|
|
593 |
|
Net loss |
|
$ |
(27,758 |
) |
|
$ |
(24,568 |
) |
|
$ |
(54,073 |
) |
|
$ |
(46,788 |
) |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||
Cost of revenue |
|
$ |
1,687 |
|
|
$ |
1,669 |
|
|
$ |
3,479 |
|
|
$ |
2,592 |
|
Research and development |
|
|
9,309 |
|
|
|
7,383 |
|
|
|
17,888 |
|
|
|
11,667 |
|
Sales and marketing |
|
|
7,466 |
|
|
|
3,206 |
|
|
|
13,834 |
|
|
|
6,445 |
|
General and administrative |
|
|
2,648 |
|
|
|
2,578 |
|
|
|
5,866 |
|
|
|
7,635 |
|
Restructuring and other related charges |
|
|
853 |
|
|
|
— |
|
|
|
853 |
|
|
|
— |
|
Total stock-based compensation expense |
|
$ |
21,963 |
|
|
$ |
14,836 |
|
|
$ |
41,920 |
|
|
$ |
28,339 |
|
31
The following table sets forth the components of our condensed consolidated statements of operations and comprehensive loss data, for each of the periods presented, as a percentage of revenue.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||
|
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
||
Revenue |
|
100% |
|
100% |
|
|
100% |
|
100% |
|
||
Cost of revenue |
|
25% |
|
29% |
|
|
27% |
|
30% |
|
||
Gross margin |
|
75% |
|
71% |
|
|
73% |
|
70% |
|
||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
||
Research and development |
|
33% |
|
35% |
|
|
34% |
|
33% |
|
||
Sales and marketing |
|
57% |
|
59% |
|
|
58% |
|
56% |
|
||
General and administrative |
|
18% |
|
19% |
|
|
19% |
|
23% |
|
||
Restructuring and other related charges |
|
12% |
|
|
— |
|
|
6% |
|
|
— |
|
Total operating expenses |
|
120% |
|
113% |
|
|
118% |
|
112% |
|
||
Loss from operations |
|
(46)% |
|
(42)% |
|
|
(45)% |
|
(42)% |
|
||
Other income (expense), net |
|
5% |
|
1% |
|
|
5% |
|
* |
|
||
Loss before provision for (benefit from) income taxes |
|
(41)% |
|
(42)% |
|
|
(40)% |
|
(42)% |
|
||
Provision for (benefit from) income taxes |
|
* |
|
* |
|
|
* |
|
1% |
|
||
Net loss |
|
(41)% |
|
(42)% |
|
|
(40)% |
|
(42)% |
|
||
* Less than 1%
Note: Certain figures may not sum due to rounding
Comparison of Three Months Ended June 30, 2023 to Three Months Ended June 30, 2022
Revenue
|
|
Three Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
||||||||||||
Revenue |
|
$ |
67,767 |
|
|
$ |
58,130 |
|
|
$ |
9,637 |
|
|
17% |
Revenue increased $9.6 million, or 17%, during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The increase in revenue was primarily due to growth of our paying customer base of 28% and revenue generated from our existing paying customers as reflected by our NRR (TTM) of 108% as of June 30, 2023.
Cost of Revenue and Gross Margin
|
|
Three Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
||||||||||||
Cost of revenue |
|
$ |
17,180 |
|
|
$ |
17,060 |
|
|
$ |
120 |
|
|
1% |
Gross margin |
|
|
75 |
% |
|
|
71 |
% |
|
N/A |
|
|
N/A |
|
Cost of revenue increased $0.1 million, or 1%, during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The increase was primarily due to an increase of $0.2 million in third-party hosting costs as we increased capacity to support paying customer usage and the growth of our paying customer base.
Gross margin increased during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 mainly due to a decrease in our third-party hosting costs as a percentage of revenue.
32
Operating Expenses
|
|
Three Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
||||||||||||
Research and development |
|
$ |
22,435 |
|
|
$ |
20,306 |
|
|
$ |
2,129 |
|
|
10% |
Sales and marketing |
|
|
38,326 |
|
|
|
34,135 |
|
|
|
4,191 |
|
|
12% |
General and administrative |
|
|
12,519 |
|
|
|
11,212 |
|
|
|
1,307 |
|
|
12% |
Restructuring and other related charges |
|
|
8,194 |
|
|
|
— |
|
|
|
8,194 |
|
|
* |
Total operating expenses |
|
$ |
81,474 |
|
|
$ |
65,653 |
|
|
$ |
15,821 |
|
|
24% |
__________
* Not meaningful
Research and Development
Research and development expenses increased $2.1 million, or 10%, during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The increase was primarily due to a $2.0 million increase in stock-based compensation expenses and related payroll taxes associated with an increase in headcount and associated new hire grants.
Sales and Marketing
Sales and marketing expenses increased $4.2 million, or 12%, during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The increase was primarily due to an increase of $4.4 million in stock-based compensation expenses and related payroll taxes and an increase of $1.7 million in personnel and related expenses, directly associated with an increase in headcount, including an increase in allocated overhead costs compared to the same period in the prior year. The increase was also attributable to an increase of $1.7 million in commissions related to an expansion of our customer base, contract value of deals, and sales team compared to the same period in the prior year. The increase was partially offset by a decrease of $3.8 million in marketing expenses related to expenses to support hosting of Amplify, our in-person and virtual product and growth conference held in the three months ended June 30, 2022 that was not repeated in the three months ended June 30, 2023.
General and Administrative
General and administrative expenses increased $1.3 million, or 12%, during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The increase was primarily attributable to an increase of $0.8 million in personnel and related expenses directly associated with an increase in headcount, including an increase in allocated overhead costs.
Restructuring and Other Related Charges
Restructuring and other related charges were $8.2 million during the three months ended June 30, 2023, related to charges related to employee transition, severance payments, employee benefits, and stock-based compensation. We did not have related expenses in the three months ended June 30, 2022.
Other Income (Expense), Net
|
|
Three Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
||||||||||||
Other income (expense), net |
|
$ |
3,307 |
|
|
$ |
293 |
|
|
$ |
3,014 |
|
|
* |
* Not meaningful
Other income (expense), net increased $3.0 million during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The increase was primarily related to a $3.0 million increase in interest income resulting from interest earned on the marketable securities held in the three months ended June 30, 2023 that were not held in the three months ended June 30, 2022.
33
Provision for (Benefit from) Income Taxes
|
|
Three Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
||||||||||||
Provision for (benefit from) income taxes |
|
$ |
178 |
|
|
$ |
278 |
|
|
$ |
(100 |
) |
|
(36)% |
Provision for (benefit from) income taxes decreased $0.1 million, or 36%, during the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to an international tax withholding tax refund that resulted in less foreign taxes.
Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022
Revenue
|
|
Six Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
|
|
|
|
||||||||
Revenue |
|
$ |
134,244 |
|
|
$ |
111,195 |
|
|
$ |
23,049 |
|
|
21% |
Revenue increased $23.0 million, or 21%, during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase in revenue was primarily due to growth of our paying customer base of 28% and revenue generated from our existing paying customers as reflected by our NRR (TTM) of 108% as of June 30, 2023.
Cost of Revenue and Gross Margin
|
|
Six Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
|
|
|
|
||||||||
Cost of revenue |
|
$ |
36,367 |
|
|
$ |
33,123 |
|
|
$ |
3,244 |
|
|
10% |
Gross margin |
|
|
73 |
% |
|
|
70 |
% |
|
N/A |
|
|
N/A |
|
Cost of revenue increased $3.2 million, or 10%, during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase was primarily due to an increase of $1.0 million in personnel and related expenses and $0.9 million in increased stock-based compensation expense directly associated with an increase in headcount, including an increase in allocated overhead costs and associated new hire grants. The increase was also related to an increase of $1.0 million in third-party hosting costs as we increased capacity to support paying customer usage and the growth of our paying customer base.
Our gross margin increased during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 mainly due to a decrease in our third-party hosting costs as a percentage of revenue.
34
Operating Expenses
|
|
Six Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
|
|
|
|
||||||||
Research and development |
|
$ |
46,143 |
|
|
$ |
36,807 |
|
|
$ |
9,336 |
|
|
25% |
Sales and marketing |
|
|
77,459 |
|
|
|
62,265 |
|
|
|
15,194 |
|
|
24% |
General and administrative |
|
|
26,141 |
|
|
|
25,574 |
|
|
|
567 |
|
|
2% |
Restructuring and other related charges |
|
|
8,194 |
|
|
|
— |
|
|
|
8,194 |
|
|
* |
Total operating expenses |
|
$ |
157,937 |
|
|
$ |
124,646 |
|
|
$ |
33,291 |
|
|
27% |
__________
* Not meaningful
Research and Development
Research and development expenses increased $9.3 million, or 25%, during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase was primarily due to a $6.5 million increase in stock-based compensation expenses and related payroll taxes associated with an increase in headcount and associated new hire grants. The increase in headcount also contributed to a $2.4 million increase in personnel and related expenses, including an increase in allocated overhead costs.
Sales and Marketing
Sales and marketing expenses increased $15.2 million, or 24%, during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase was primarily due to an increase of $6.4 million in personnel and related expenses and an increase of $7.8 million in stock-based compensation expenses and related payroll taxes directly associated with an increase in headcount, including an increase in allocated overhead costs, and associated new hire grants compared to the same period in the prior year. The increase was also attributable to an increase of $3.6 million in commissions related to an expansion of our customer base, contract value of deals, and sales team compared to the same period in the prior year. The increases were partially offset by a decrease of $3.5 million in marketing expenses related to expenses to support hosting of Amplify, our in-person and virtual product and growth conference held in the six months ended June 30, 2022 that was not repeated in the six months ended June 30, 2023.
General and Administrative
General and administrative expenses increased $0.6 million, or 2%, during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase was primarily attributable to an increase of $2.0 million in personnel and related expenses directly associated with an increase in headcount, including an increase in allocated overhead costs. The increase was partially offset by a decrease of $1.6 million in stock-based compensation expenses primarily due to non-recurring charges related to stock options incurred in the six months ended June 30, 2022 that did not recur in 2023.
Restructuring and Other Related Charges
Restructuring and other related charges were $8.2 million during the six months ended June 30, 2023, related to charges related to employee transition, severance payments, employee benefits, and stock-based compensation. We did not have related expenses in the six months ended June 30, 2022.
Other Income (Expense), Net
|
|
Six Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
|
|
|
|
||||||||
Other income (expense), net |
|
$ |
6,445 |
|
|
$ |
379 |
|
|
|
6,066 |
|
|
* |
* Not meaningful
35
Other income (expense), net increased $6.1 million during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase was primarily related to a $6.0 million increase in interest income resulting from interest earned on the marketable securities held in the six months ended June 30, 2023 that were not held in the six months ended June 30, 2022.
Provision for (Benefit from) Income Taxes
|
|
Six Months Ended |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(in thousands, except percentages) |
|
|
|
|
||||||||
Provision for (benefit from) income taxes |
|
$ |
458 |
|
|
$ |
593 |
|
|
$ |
(135 |
) |
|
(23)% |
Provision for (benefit from) income taxes decreased $0.1 million, or 23%, during the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to an international tax withholding tax refund that resulted in less foreign taxes.
Liquidity and Capital Resources
Since inception, we have financed operations primarily through the net proceeds we have received from the sales of our preferred stock and common stock as well as cash generated from the sale of subscriptions to our platform. We have generated losses from our operations as reflected in our accumulated deficit of $327.2 million as of June 30, 2023. We generated positive cash flows from operating activities for the six months ended June 30, 2023; however, we have historically generated negative cash flows from operating activities. Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support our platform, including growth in our customer base and customer usage, increased research and development expenses to support the growth of our business and related infrastructure, and increased general and administrative expenses to support being a publicly-traded company.
As of June 30, 2023, our principal sources of liquidity were cash and cash equivalents of $234.4 million and restricted cash of $0.9 million. We also had $84.4 million in marketable securities that provide additional capital resources. Additionally, a substantial source of our cash provided by operating activities is our deferred revenue, which is included on our condensed consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recorded as revenue over the term of the subscription agreement. As of June 30, 2023, we had $113.5 million of deferred revenue, all of which was recorded as a current liability. This deferred revenue will be recognized as revenue when or as the related performance obligations are met.
We assess our liquidity primarily through our cash on hand as well as the projected timing of billings under contract with our paying customers and related collection cycles. We believe our current cash and cash equivalents on hand will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. In the event that additional financing is required from outside sources, we may seek to raise additional funds at any time through equity, equity-linked arrangements, and debt. If we are unable to raise additional funds when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected. See “Risk Factors—Risks Related to Our Business and Industry—We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.”
Cash Flows
The following table shows a summary of our cash flows for the periods presented:
|
|
Six Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Net cash provided by operating activities |
|
$ |
15,345 |
|
|
$ |
2,353 |
|
Net cash used in investing activities |
|
$ |
(1,868 |
) |
|
$ |
(3,788 |
) |
Net cash provided by financing activities |
|
$ |
2,399 |
|
|
$ |
4,015 |
|
36
Operating Activities
Our largest source of operating cash is cash collection from sales of subscriptions to our paying customers. Our primary uses of cash from operating activities are for personnel and related expenses, marketing expenses, and third-party hosting-related and software expenses. For the current period we have generated positive cash flow from operating activities; however, in the last several years, we have generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from the sale of preferred stock and common stock.
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Net cash provided by operating activities of $15.3 million for the six months ended June 30, 2023 reflects our net loss of $54.1 million, adjusted by non-cash items such as stock-based compensation expense of $41.9 million, depreciation and amortization of $2.8 million, and non-cash operating lease costs of $2.0 million as well as net cash provided by changes in our operating assets and liabilities of $23.3 million. The net cash provided by changes in operating assets and liabilities primarily consisted of collections outpacing revenue recognized as evidenced through the net increase in cash of $11.5 million from changes in accounts receivable and deferred revenue. Additionally, decreases in prepaid expenses and other current and noncurrent assets of $6.4 million and an increase in accounts payable and accrued expenses of $8.5 million, also increased operating cash flows during the period.
Net cash provided by operating activities of $2.4 million for the six months ended June 30, 2022 reflects our net loss of $46.8 million, adjusted by non-cash items such as stock-based compensation expense of $28.3 million, depreciation and amortization of $1.9 million, and non-cash operating lease costs of $1.8 million as well as net cash provided by changes in our operating assets and liabilities of $17.0 million. The net cash provided by changes in operating assets and liabilities primarily consisted of a $29.1 million increase in deferred revenue, resulting from increased billings and collections for subscriptions, and decreases in prepaid expenses and other current and noncurrent assets of $2.3 million. These changes were offset by an increase in deferred commissions of $4.9 million and a $7.5 million increase in accounts receivable due to higher customer billings.
Investing Activities
Net cash used in investing activities of $1.9 million for the six months ended June 30, 2023 consisted of $0.9 million of capitalized internal-use software development costs and $1.0 million in purchases of property and equipment.
Net cash used in investing activities of $3.8 million for the six months ended June 30, 2022 consisted of $1.3 million of capitalized internal-use software development costs and $2.5 million in purchases of property and equipment.
Financing Activities
Net cash provided by financing activities of $2.4 million for the six months ended June 30, 2023 primarily consisted of $2.4 million in proceeds from the exercise of stock options.
Net cash provided by financing activities of $4.0 million for the six months ended June 30, 2022 primarily consisted of $5.2 million in proceeds from the exercise of stock options offset by $1.1 million of net cash used through sales of common stock to cover tax-related amounts that had not yet been remitted to the respective taxing jurisdictions. It is expected that cash received and paid for these amounts will be cash flow neutral over time.
Remaining Performance Obligations
Remaining performance obligations (“RPO”) as of June 30, 2023 and 2022, including the expected timing of recognition is as follows:
|
|
As of June 30, |
|
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
||
Less than or equal to 12 months |
|
$ |
191,788 |
|
|
$ |
170,173 |
|
|
13% |
Greater than 12 months |
|
|
54,559 |
|
|
|
57,413 |
|
|
(5)% |
Total remaining performance obligations |
|
$ |
246,347 |
|
|
$ |
227,586 |
|
|
8% |
Our RPO represents the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancellable contracted amounts that will be invoiced and recognized as revenue in future periods. RPO excludes performance obligations from overages. RPO is influenced by a number of factors, including the timing of renewals, the timing of purchases, average contract terms, and seasonality. Due to these factors, it is important to review RPO in conjunction with product revenue and other financial metrics disclosed elsewhere in this Quarterly Report on Form 10-Q.
Contractual Obligations and Commitments
During the six months ended June 30, 2023, there were no material changes in our contractual obligations and other commitments outside of those disclosed in the 2022 Form 10-K. For further information on our commitments and contingencies, refer to Note 9 in the consolidated financial statements contained within the 2022 Form 10-K.
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Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. Additionally, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements, and there are no claims that we are aware of that could reasonably be expected to have a material effect on our financial position, results of operations, or cash flows.
Off-Balance Sheet Arrangements
For all periods presented in this Quarterly Report on Form 10-Q, we did not have any relationships with unconsolidated organizations or financial partnerships, such 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.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. There have been no changes to our critical accounting policies and estimates, during the six months ended June 30, 2023 as compared to those disclosed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2022 Form 10-K.
Recent Accounting Pronouncements
None.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our cash and cash equivalents and marketable securities primarily consist of cash on hand and highly liquid investments in money market funds and U.S. government securities. As of June 30, 2023, we had cash and cash equivalents of $234.4 million and marketable securities, including non-current marketable securities, of $84.4 million. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and fair value of our investments. However, an immediate 10% increase or decrease in interest rates would not have a material effect on the fair value of our portfolio. We therefore do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
Foreign Currency Risk
The vast majority of our subscription agreements are denominated in U.S. dollars, with a small number of subscription agreements denominated in foreign currencies. A portion of our operating expenses are incurred outside the United States, denominated in foreign currencies, and subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, British Pound, Canadian Dollar, Singapore Dollar, Australian Dollar, and Japanese Yen. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our condensed consolidated statements of operations and comprehensive loss. As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on our operating results.
Inflation Risk
We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations, or financial condition.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal 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 Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and our principal financial officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in
40
conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
41
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
See “Legal Matters” in Note 9 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors.
Risk Factors
A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations, and growth prospects. In such an event, the trading price of our Class A common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also impair our business, financial condition, results of operations, and growth prospects.
Risks Related to Our Business and Industry
We have a limited operating history and have been growing rapidly over the last several years, which makes it difficult to forecast our future results of operations and increases the risk of your investment.
Our revenue was $238.1 million for the fiscal year ended December 31, 2022 and $134.2 million and $111.2 million for the six months ended June 30, 2023 and 2022, respectively. However, you should not rely on our historical revenue growth as an indication of our future performance.
As a result of our limited operating history and our rapid growth over the last several years, our ability to accurately forecast our future results of operations is limited and subject to a number of uncertainties, including our ability to effectively plan for and model future growth.
Our revenue growth rate may decline over time. In future periods, our revenue growth could slow or our revenue could decline for a number of reasons, including slowing demand for our Digital Analytics Platform, increased competition, changes to technology, a decrease in the growth of our overall market, or our failure, for any reason, to manage our growth effectively or to continue to take advantage of growth opportunities. We have also encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described in this Quarterly Report on Form 10-Q. If our assumptions regarding these risks and uncertainties and our future revenue growth are incorrect or change, or if we do not address these risks successfully, our financial condition and results of operations could differ materially from our expectations, and our business could be materially adversely affected.
We have a history of losses. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability.
We have experienced net losses in each period since inception. We generated net losses of $93.4 million for the fiscal year ended December 31, 2022 and $54.1 million and $46.8 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, we had an accumulated deficit of $327.2 million. We expect our costs and expenses to increase in future periods. In particular, we intend to continue to invest significant resources in:
42
In addition, part of our business strategy is to focus on our long-term growth. As a result, our profitability may be lower in the near term than it would be if our strategy was to maximize short-term profitability. Significant expenditures on sales and marketing efforts, expanding our platform, products, features, and functionality, and expanding our research and development, each of which we intend to continue to invest in, may not ultimately grow our business or result in long-term profitability. If we are ultimately unable to achieve profitability at the level anticipated by industry or financial analysts and our stockholders, the trading price of our Class A common stock may decline.
Our efforts to grow our business may be costlier than we expect, or our revenue growth rate may be slower than we expect, and we may not be able to increase our revenue enough to offset the increase in operating expenses resulting from these investments. If we are unable to continue to grow our revenue, the value of our business and Class A common stock may significantly decrease.
Our business depends on our existing customers renewing their subscriptions and purchasing additional subscriptions from us as well as attracting new customers. Any decline in our customer retention or expansion of our commercial relationships with existing customers or an inability to attract new customers would materially adversely affect our business, financial condition, and results of operations.
In order for us to maintain or improve our revenue growth and our results of operations, it is important that our customers renew their subscriptions when existing contract terms expire and that we expand our commercial relationships with our existing customers and attract new customers. We also seek to convert customers on our free-tier, self-service option to paid subscription contracts. Our customers have no obligation to renew their subscriptions, and our customers may not renew their subscriptions with similar contract periods or at all. Some of our customers have elected not to renew their agreements with us, and it is difficult to accurately predict long-term customer retention. In addition, our ability to attract new customers will depend on market acceptance of our Digital Analytics Platform and the successful implementation of our marketing strategy.
Our customer retention and expansion and the rate at which we attract new customers may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our Digital Analytics Platform; our support capabilities; our prices and pricing plans, the prices and value of competing products, reductions in our customers’ spending levels, new product releases, mergers and acquisitions affecting our customer base, or the effects of global economic conditions. We may be unable to timely address any retention issues with specific customers, which could materially adversely affect our results of operations. If our customers do not purchase additional subscriptions or renew their subscriptions, or if they renew on less favorable terms, or if we are unable to attract new customers, our revenue may decline or grow less quickly, which would materially adversely affect our business, financial condition, and results of operations.
We expect fluctuations in our financial results and key metrics, making it difficult to project future results. If we fail to meet the expectations of securities analysts or investors with respect to our results of operations, the trading price of our Class A common stock could decline.
Our results of operations and key metrics 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. In addition to the other risks described herein, other factors that may cause our results of operations or key metrics to fluctuate include:
43
Any of these and other factors, or the cumulative effect of some of these factors, may cause our results of operations to vary significantly. If our results of operations fall below the expectations of investors and securities analysts who follow our stock, the trading price of our Class A common stock could decline substantially, and we could face costly lawsuits, including securities class action litigation.
We expect to continue to focus on sales to larger organizations and may become more dependent on those relationships, which may increase the variability of our sales cycle and our results of operations.
As we continue to focus on, and may become more dependent on, sales to larger organizations, we expect our sales cycle to lengthen and become less predictable. We plan our expenses based on certain assumptions about the length and variability of our sales cycle. These assumptions are based upon historical trends for sales cycles and conversion rates associated with our existing customers. Any shift in our sales cycle may adversely affect our financial results. Factors that may influence the length and variability of our sales cycle include:
44
Our increasing dependence on sales to larger organizations may increase the variability of our financial results. If we are unable to close one or more expected significant transactions with these customers in a particular period, or if an expected transaction is delayed until a subsequent period, our results of operations for that period, and for any future periods in which revenue from such transaction would otherwise have been recognized, may be adversely affected.
We recognize revenue over the term of our customer contracts. Consequently, downturns or upturns in new sales may not be immediately reflected in our results of operations and may be difficult to discern.
We generally recognize subscription revenue from customers ratably over the contracted period. As a result, a portion of the revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in a given quarter may have a small impact on our revenue results for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our Digital Analytics Platform, including as a result of a general economic downturn, and potential changes in our pricing policies or rate of customer expansion or retention, may not be fully reflected in our results of operations until future periods. We may also be unable to reduce our cost structure in line with a significant deterioration in sales. In addition, a significant majority of our costs are expensed as incurred, while revenue is recognized over the contracted period of the agreement with our customer. As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of our customer agreements. Our subscription 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 subscription term.
Unfavorable conditions in our industry or the global economy, or reductions in software spending, could limit our ability to grow our business and materially adversely affect our business, financial condition, and results of operations.
Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers or potential customers. Our ability to grow our revenue and the profitability of our business depends, in part, on demand for software applications generally. Historically, during economic downturns there have been reductions in spending on software applications and services generally, as well as pressure for extended billing terms and other financial concessions. To the extent that economic conditions deteriorate in the United States or abroad, including as a result of inflationary pressures and the responses by central banking authorities to control such inflation, rising interest rates, debt and equity market fluctuations, recent and potential bank failures, diminished liquidity and credit availability, increased unemployment rates, decreased investor and consumer confidence, political turmoil, supply chain challenges, natural catastrophes and the effects of climate change, regional and global conflicts, and terrorist attacks on the United States, Europe, the Asia Pacific region, or elsewhere, our customers and prospective customers may go out of business or elect to decrease their budgets, which would limit our ability to grow our business and materially adversely affect our financial condition and results of operations. For example, historically high levels of inflation and rising interest rates in the United States have begun to affect businesses across many industries, including ours, by increasing the costs of labor, employee healthcare, components, and freight and shipping, which may further constrain our customers’ or prospective customers’ budgets. To the extent there is a sustained general economic downturn and our Digital Analytics Platform is perceived by customers or potential customers as costly, or too difficult to deploy or migrate to, our revenue may be disproportionately affected by delays or reductions in spending on software applications. In addition, our competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract our customers or prospective customers, and they may be less dependent on key industry events to generate sales for their products. Further, macroeconomic uncertainty may result in an increased pace of consolidation in certain industries. If this were to occur, such consolidation may result in reduced overall spending on our services, particularly if our customers are acquired by organizations that do not use our services. In connection with unfavorable macroeconomic conditions and the related impact on our customers, in April 2023, we authorized a restructuring plan to reduce our global workforce by approximately 13%. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within any particular industry. If the economic conditions of the general economy or markets in which we operate worsen from present levels, our business, financial condition, and results of operations could be adversely affected.
Our recent restructuring plan may not result in anticipated savings or operational efficiencies and could result in total costs and expenses that are greater than expected, which could materially adversely affect our business, financial condition and results of operations.
In April 2023, we authorized a restructuring plan to reduce our global workforce, which is intended to improve operational efficiencies and reduce operating costs, which we believe will allow us to scale for the future, continue our path to profitability, and deliver on our long-term vision. In connection with this reduction in our workforce, we incurred non-recurring charges of $8.2 million in the quarter ended June 30, 2023.
45
Our restructuring plan may result in unintended consequences and costs, such as the loss of institutional knowledge and expertise, decreased morale among our remaining employees, and the risk that we may not achieve the anticipated benefits and savings, in full or in part, of the workforce reduction. Moreover, if employees who were not affected by the workforce reduction seek alternative employment, this could result in unplanned additional expense to ensure adequate resourcing or harm our productivity. In addition, while positions have been eliminated, certain functions necessary to our operations remain, and we may be unsuccessful in distributing the duties and obligations of departed employees among our remaining employees. The workforce reduction could also make it difficult for us to pursue, or prevent us from pursuing, new opportunities and initiatives due to insufficient personnel, or require us to incur additional and unanticipated costs to hire new personnel to pursue such opportunities or initiatives. If we are unable to realize the anticipated benefits from our restructuring plan, or if we experience significant adverse consequences from the workforce reduction, our business, financial condition, and results of operations could be materially adversely affected.
If the market for SaaS applications develops more slowly than we expect or declines, our business would be adversely affected.
Our success will depend to a substantial extent on the widespread adoption of SaaS applications in general, and of SaaS applications that look to solve aspects of digital analytics. Many organizations have invested substantial personnel and financial resources to integrate traditional on-premise business software applications into their businesses, and therefore may be reluctant or unwilling to migrate to SaaS applications. It is difficult to predict customer adoption rates and demand for our Digital Analytics Platform, the future growth rate and size of the SaaS applications market, or the entry of competitive applications. The expansion of the SaaS applications market depends on a number of factors, including the cost, performance, and perceived value associated with SaaS, as well as the ability of SaaS providers to address data security and privacy concerns. Additionally, government agencies have adopted, or may adopt, laws and regulations, and companies have adopted and may adopt policies regarding the collection and use of personal information obtained from consumers and other individuals, or may seek to access information on our platform, either of which may reduce the overall demand for our Digital Analytics Platform. If we or other SaaS providers experience data security incidents, loss of customer data, disruptions in delivery, or other problems, the market for SaaS applications, including our Digital Analytics Platform, may be negatively affected. If SaaS applications do not continue to achieve market acceptance, or there is a reduction in demand for SaaS applications caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data security or privacy concerns, governmental regulation, competing technologies and products, or decreases in spending on SaaS applications, it would result in decreased revenue and our business, financial condition, and results of operations would be materially adversely affected.
The market in which we operate is highly competitive, and if we do not compete effectively, our business, financial condition, and results of operations could be materially adversely affected.
The market for applications that look to address digital analytics is fragmented, rapidly evolving, and highly competitive, with relatively low barriers to entry. As this market continues to mature and new technologies and competitors enter the market, we expect competition to intensify. We face competition from:
Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements. With the introduction of new technologies, the evolution of our Digital Analytics Platform, and new market entrants, we expect competition to intensify in the future. Pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of our Digital Analytics Platform to achieve or maintain more widespread market acceptance, any of which could harm our business.
Our competitors vary in size and in the breadth and scope of the products and services they offer. Further, other established SaaS providers not currently focused on digital analytics may expand their services to compete with us. Many of our current and potential competitors have established marketing relationships, access to larger customer bases, pre-existing customer relationships, and major distribution agreements with consultants, system integrators, and resellers. Certain of our competitors have partnered with, or have acquired, and may in the future partner with or acquire, other competitors to offer services, leveraging their collective
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competitive positions, which makes, or would make, it more difficult to compete with them. For all of these reasons, we may not be able to compete successfully against our current and future competitors, which would harm our business. For more information about the competitive landscape in which we operate, see “Part I, Item 1. Business—Competition” in our 2022 Form 10-K.
If we fail to innovate in response to changing customer needs and technology developments and other market requirements, our business, financial condition, and results of operations would be materially adversely affected.
Our ability to attract new customers and retain and increase revenue from existing customers depends in large part on our ability to enhance and improve our Digital Analytics Platform and to introduce new products, features, and functionality. In order to grow our business, we must develop products, features, and functionality that reflect the changing needs of customers, and we believe that the pace of innovation will continue to accelerate. The success of any enhancement to our Digital Analytics Platform depends on several factors, including timely completion, adequate quality testing, and market acceptance. Any new product, feature, or functionality that we develop may not be introduced in a timely or cost-effective manner, may contain defects, or may not achieve the market acceptance necessary to generate sufficient revenue. If we are unable to successfully develop new products, features or functionality, enhance our Digital Analytics Platform to meet customer requirements, or otherwise gain market acceptance, our business, financial condition, and results of operations could be materially adversely affected.
Because our Digital Analytics Platform is available over the internet, we need to continuously modify and enhance it to keep pace with changes in internet-related hardware, software, analytics, and database technologies and standards. In addition, we need to continue to invest in technologies, services, and partnerships that increase the types of data processed on our platform and the ease with which customers can send data into our platform. We must also continue to enhance our data sharing and data exchange capabilities so customers can share their data with internal business units, customers, and other third parties. In addition, our platform requires third-party public cloud infrastructure to operate. We must continue to innovate to optimize our offerings for these and other public clouds that our customers require, particularly as we expand internationally. Further, the markets in which we compete are subject to evolving industry standards and regulations, resulting in increasing data governance and compliance requirements for us and our customers. To the extent we expand into the public sector and other highly regulated industries, our Digital Analytics Platform may need to address additional requirements specific to those industries.
If we are unable to enhance our Digital Analytics Platform to keep pace with these rapidly evolving customer requirements, or if new technologies emerge that are able to deliver competitive products at lower prices, more efficiently, more conveniently, or more securely than our platform, our business, financial condition, and results of operations would be materially adversely affected.
If we fail to effectively manage our growth and changes to our business over time, our business, financial condition, and results of operations would be materially adversely affected.
We have experienced rapid growth in our business, personnel, and operations, which has placed, and may continue to place, significant demands on our management and operational and financial resources. Unfavorable conditions in the current macroeconomic environment have constrained growth in the economy generally, and in the software industry in particular, and many of our customers have consequently experienced a downturn in their business outlook. As a result of these factors, in April 2023, we approved a restructuring plan to reduce our global workforce to improve operational efficiencies and reduce operating cost. If economic conditions improve, we intend to continue to invest to expand our business, personnel, and operations, which may cause our margins to decline, and any investments we make will occur in advance of experiencing the benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources. As usage of our Digital Analytics Platform grows, we will need to devote additional resources to improving our platform’s features and functionality, developing or acquiring new products, and maintaining infrastructure performance. Even if we are able to upgrade our systems and expand our personnel, any such expansion will be expensive and complex, requiring management’s 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. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support, to serve our growing customer base, particularly as our customer demographics change over time. Managing these changes will require significant expenditures and allocation of valuable management resources. If we fail to successfully manage our anticipated growth and changes to our business, the quality of our products may suffer, which could negatively affect our brand and reputation and harm our ability to attract new customers and retain existing customers. As we continue to grow, we may need to implement more complex organizational management structures or adapt our corporate culture and work environments to changing circumstances, which could have an adverse impact on our corporate culture. Any failure to preserve our culture could harm our business, including our ability to retain and recruit personnel, innovate and operate effectively, and execute on our business strategy.
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Public health crises, such as pandemics or similar outbreaks, have impacted and could continue to have an adverse impact, on our business and operations, and the markets and communities in which we, our partners, and customers operate, and the impact of the pandemic is difficult to assess or predict.
Our business and operations, and the businesses and operations of our partners and customers, have been, and could in the future be, adversely impacted by public health crises, including the COVID-19 pandemic. Public health measures implemented to control COVID-19’s spread and severity substantially curtailed the movement of people, goods, and services worldwide, including regions where we and our partners and customers operate, and significantly impacted economic activity and financial markets. While we have developed and continue to develop strategies to help mitigate any continuing negative effects of the COVID-19 pandemic and other potential public health crises on our business and operations, such efforts may prove to be insufficient to adequately address the negative impacts of the COVID-19 pandemic and other potential public health crises. The duration and extent of the impact of the COVID-19 pandemic and other potential public health crises cannot be accurately assessed or predicted at this time, and could adversely impact our business, financial condition, and results of operations.
If our information technology systems are breached or there is otherwise unauthorized disclosure of or access to customer data, our data, or our platform, our platform may be perceived as insecure, we may lose customers or fail to attract new customers, our reputation and brand may be harmed, and we may incur significant liabilities.
Our platform stores, transmits, and processes our customers’ proprietary data, including personal or identifying information of their customers or employees. Unauthorized disclosure of, access to, or security breaches of our platform could result in the loss of data, loss of business, severe reputational damage adversely affecting customer or investor confidence, damage to our brand, diversion of management’s attention, regulatory investigations, and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach, and other liabilities. We have incurred, and expect to continue to incur, significant expenses to prevent security breaches, including deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants. Even though we do not control the security measures of third parties who may have access to our customer data, our data, or our platform, we may be responsible for any breach of such measures or suffer reputational harm even where we do not have recourse to the third party that caused the breach. In addition, any failure by our vendors to comply with applicable law or regulations could result in proceedings against us by governmental entities or others.
Cyberattacks, denial-of-service attacks, ransomware attacks, business email compromises, computer malware, malicious code, viruses, and social engineering (including phishing) are prevalent in our industry and our customers’ industries. In addition, we may experience attacks, unavailable systems, unauthorized access to systems or data, or disclosure due to employee theft or misuse, denial-of-service attacks, sophisticated nation-state and nation-state-supported actors, and advanced persistent threat intrusions. Electronic security attacks designed to gain access to personal, sensitive, or confidential data are constantly evolving, and such attacks continue to grow in sophistication. The techniques used to sabotage, or to obtain unauthorized access to, our platform, information technology systems, networks, or physical facilities in which data is stored or through which data is transmitted change frequently, and we may be unable to implement adequate preventative measures or stop security breaches while they are occurring. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. As a result of our continued hybrid work environment, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our and our service providers’ employees who are, and may continue, working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. We have previously been, and may in the future become, the target of cyberattacks by third parties seeking unauthorized access to our or our customers’ data or to disrupt our operations or ability to provide our services.
We and certain of our vendors are from time to time subject to cyberattacks and security incidents. While we do not believe that we have experienced any significant system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our business operations, whether due to a loss, corruption, or unauthorized disclosure of our trade secrets, personal information, or other proprietary or sensitive information or other similar disruptions. Such event could also expose us to risks, including an inability to provide our services and fulfill contractual demands, and could cause management distraction and the obligation to devote significant financial and other resources to mitigate such problems, which would increase our future information security costs, including through organizational changes, deploying additional personnel, reinforcing administrative, physical, and technical safeguards, further training of employees, changing third-party vendor control practices, and engaging third-party subject matter experts and consultants and reduce the demand for our technology and services. Because data security is a critical competitive factor in our industry, we make numerous statements in our customer contracts, privacy policies, terms of service, and marketing materials providing assurances about the security of our platform, including detailed descriptions of security measures we employ. Should any of these statements be untrue or become untrue, even in
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circumstances beyond our reasonable control, we may face claims of misrepresentation or deceptiveness by the U.S. Federal Trade Commission (the “FTC”), state, federal, and foreign regulators, and private litigants.
Further, we have contractual and legal obligations to notify relevant stakeholders of security breaches. Most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities, and others of security incidents or data breaches involving certain types of data. In addition, our agreements with certain customers may require us to notify them in the event of a security incident or data breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures, and require us to expend significant capital and other resources to respond to, or alleviate problems caused by, the actual or perceived security incident or data breach and otherwise comply with the multitude of foreign, federal, state, and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Additionally, as a result of a breach or other security incident, we could be subject to demands, claims, and litigation by private parties and investigations, related actions, and penalties by regulatory authorities. Further, if we fail to detect or remediate a security breach in a timely manner, or a breach otherwise affects a large amount of data of one or more customers, or if we suffer a cyberattack that impacts our ability to operate our platform, we may suffer damage to our reputation and our brand, and our business, financial condition, and results of operations may be materially adversely affected. Further, although we maintain insurance coverage, our insurance coverage may not be adequate for data security breaches, indemnification obligations, or other liabilities. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. Our risks are likely to increase as we continue to expand our platform, grow our customer base, and process, store, and transmit increasingly large amounts of proprietary and sensitive data.
We could suffer disruptions, outages, defects, and other performance and quality problems with our platform or with the public cloud and internet infrastructure on which it relies, which may materially adversely affect our business, financial condition, and results of operations.
Our business and continued growth depend in part on the ability of our customers and prospective customers to access our platform at any time and within an acceptable amount of time. Our agreements with customers typically provide for service-level commitments. If we are unable to meet these commitments or if we suffer unexcused periods of downtime for our platform, we may be contractually obligated to provide financial credits or extend the term of the subscription for the period of unexcused downtime, or our customers may be entitled to terminate their agreements and obtain a pro rata refund. We have in the past provided, and may in the future be required to provide, financial credits and pro rata refunds as a result of not being able to meet these commitments. We have experienced, and may in the future experience, disruptions, outages, defects, and other performance and quality problems with our platform. We have also experienced, and may in the future experience, disruptions, outages, defects, and other performance and quality problems with the public cloud and internet infrastructure on which our platform relies. These problems can be caused by a variety of factors, including infrastructure changes, introductions of new functionality, vulnerabilities, and defects in proprietary and open-source software, human error or misconduct, capacity constraints due to an overwhelming number of users accessing our platform simultaneously, design limitations, or denial-of-service attacks or other security-related incidents. The performance and availability of the cloud computing infrastructure that we use to host our platform and many of the internal tools we use to operate our business is outside our control; therefore, we are not in full control of whether we meet the service-level commitments under our customer agreements. As a result, our business, financial condition, and results of operations could be materially adversely affected if we suffer unscheduled downtime that exceeds the service-level commitments we have made to our customers. Any extended service outages could materially adversely affect our business and reputation.
Our Digital Analytics Platform is proprietary, and we rely on the expertise of members of our engineering, operations, product, and software development teams for its continued performance. It may become increasingly difficult and costly to maintain and improve the performance of our Digital Analytics Platform, especially during peak usage times and as our platform becomes more complex and our user traffic increases. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, financial condition, and results of operations may be materially adversely affected.
We depend and rely on third-party hosted cloud services and internet infrastructure in order to operate critical functions of our business. For example, our platform and internal tools use computing, storage capabilities, bandwidth, and other services provided by AWS. If these services become unavailable due to extended outages, interruptions, or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage our business could be interrupted, and our processes for managing sales of and delivering our Digital Analytics Platform could be impaired until we are able to identify, obtain,
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and implement equivalent services, if we are able to do so at all. Any of these circumstances could materially adversely affect our business, financial condition, and results of operations.
Any disruptions, outages, defects, and other performance and quality problems with our platform or with the public cloud and internet infrastructure on which it relies, or any material change in our contractual and other business relationships with any public cloud providers we contract with, could result in reduced use of our platform, increased expenses, including service credit obligations, and harm to our brand and reputation, any of which could have a material adverse effect on our business, financial condition, and results of operations.
Real or perceived errors, failures, or bugs in our platform could materially adversely affect our business and growth prospects.
Because our platform is complex, undetected errors, failures, vulnerabilities, or bugs may occur, especially when updates are deployed. We have discovered and expect we will continue to discover software errors, failures, vulnerabilities, and bugs in our platform and anticipate that certain of these errors, failures, vulnerabilities, and bugs will only be discovered and remediated after deployment to customers. Software errors, failures, vulnerabilities, and bugs in our platform could materially adversely affect our business and growth prospects.
Any failure to offer high-quality product support may adversely affect our relationships with our customers, our reputation, and our business, financial condition, and results of operations.
In using our Digital Analytics Platform, our customers depend on our product support team to resolve complex technical and operational issues. We may be unable to respond quickly enough to accommodate short-, medium-, and long-term increases in customer demand for product support. We also may be unable to modify the nature, scope, and delivery of our product support to compete with changes in product support services provided by our competitors. Increased customer demand for product support, without corresponding revenue, could increase costs and materially adversely affect our results of operations. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality product support, or a market perception that we do not maintain high-quality product support, could materially adversely affect our reputation, our ability to sell our Digital Analytics Platform to our customers and prospective customers, and our business, financial condition, and results of operations.
Incorrect or improper implementation or use of our Digital Analytics Platform could result in customer dissatisfaction and materially adversely affect our business, financial condition, and results of operations.
We often assist our customers in implementing our Digital Analytics Platform (whether through us directly or through a third-party implementation partner), and they may need training in the proper use of our Digital Analytics Platform to maximize its potential and avoid inadequate performance. If we or our implementation partners fail to train customers on how to efficiently and effectively use our Digital Analytics Platform or we fail to provide adequate product support to our customers, we may lose opportunities for additional subscriptions, customers may choose not to renew or expand the use of our Digital Analytics Platform, we may experience negative publicity or legal claims against us, and our reputation and brand may suffer. Any of these circumstances could materially adversely affect our business, financial condition, and results of operations.
If we fail to integrate our platform with a variety of operating systems, software applications, and platforms that are developed by others, our platform may become less marketable, less competitive, or obsolete, and our business, financial condition, results of operations, and growth prospects could be materially adversely affected.
Our customers and prospective customers expect our Digital Analytics Platform to integrate with a variety of software platforms, and we need to continuously modify and enhance our platform to adapt to changes in software, browser, and database technologies. We have developed our platform to be able to integrate with third-party SaaS applications through the interaction of application programming interfaces (“APIs”). In general, we rely on the fact that the providers of such software systems continue to allow us access to their APIs to enable these custom integrations. We are subject to the standard terms and conditions of such providers, or other agreements we may have with them, which govern the distribution, operation, and fees of such software systems, and which may be subject to change by such providers. As a result of limits or prohibitions by other parties, unacceptable terms, technical difficulties, our failure to recognize demand, or for other reasons, we may not successfully build, deploy, or offer the integrations needed. If we fail to offer a variety of integrations or the integrations that our customers and prospective customers expect
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and demand, then our Digital Analytics Platform may become less marketable, less competitive, or obsolete, and our business, financial condition, results of operations, and growth prospects could be materially adversely affected.
We do not have the history with our subscription or pricing models necessary to accurately predict optimal pricing necessary to attract new customers and retain existing customers.
We have limited experience with respect to determining the optimal prices for our Digital Analytics Platform and, as a result, we have in the past needed, and expect in the future that we will need, to change our pricing model from time to time. As the market for our Digital Analytics Platform matures, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically. Pricing decisions may also impact the mix of adoption among our subscription plans and negatively impact our overall revenue. Although we occasionally upsell within contract terms based on customer needs, substantially all of our customer contracts have a subscription period of one year or longer, for which we primarily bill annually in advance with no obligation to renew. As a result, potential changes in our pricing policies, or our rate of customer expansion or retention, may not be fully reflected in our results of operations until future periods. Moreover, larger organizations may demand price concessions. As a result, in the future we may be required to reduce our prices, which could materially adversely affect our business, financial condition, and results of operations.
Failure to effectively develop and expand our sales and marketing capabilities, including our relationships with channel partners, could harm our ability to increase our customer base and achieve broader market acceptance of our products and platform.
In order to increase our sales to new and existing customers, we must expand our sales and marketing operations, including our sales force and third-party channel partners, and continue to dedicate significant resources to inbound sales and marketing programs, both domestically and internationally. Our ability to increase our customer base and achieve broader market acceptance of our products will depend, in part, on our ability to effectively organize, focus, and train our sales and marketing personnel. If we are unable to increase adoption of our Digital Analytics Platform by new and existing customers, especially enterprise customers, our business, financial condition, and results of operations may be materially adversely affected.
Our efforts to develop and expand our sales and marketing capabilities will require us to invest significant financial and other resources, including in industries and sales channels in which we have limited experience to date. We may not achieve anticipated revenue growth from expanding our sales and marketing capabilities, and our business, financial condition, results of operations, and growth prospects may be materially adversely affected, if we are unable to hire, develop, integrate, and retain talented and effective sales personnel and global systems integrators, consultancies, and digital agencies; if our new and existing 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.
We may be unable to build and maintain successful relationships with our channel partners or such channel partners may fail to perform, which could materially adversely affect our business, financial condition, results of operations, and growth prospects.
We employ a go-to-market business model whereby a portion of our revenue is generated by sales through our channel partners, such as independent software vendors and resellers, that further expand the reach of our direct sales force into additional geographies, sectors, and industries. In particular, we have entered, and intend to continue to enter, into strategic sales distributor and reseller relationships in certain international markets where we do not have a local presence. We provide certain of our channel partners with specific training and programs to assist them in selling access to our Digital Analytics Platform, but there can be no assurance that these steps will be effective. In addition, if our channel partners are unsuccessful in marketing and selling access to our Digital Analytics Platform, it would limit our expansion into certain geographies, sectors, and industries. If we are unable to develop and maintain effective sales incentive programs for our channel partners, we may not be able to incentivize these partners to sell access to our Digital Analytics Platform to customers.
Some of these partners may also market, sell, and support offerings that are competitive with ours, may devote more resources to the marketing, sales, and support of such competitive offerings, may have incentives to promote our competitors’ offerings to the detriment of our own, or may cease selling access to our Digital Analytics Platform altogether. Our channel partners could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our channel partners misrepresents the functionality of our Digital Analytics Platform to customers or violates laws or our or their corporate policies. Our ability to achieve revenue growth in the future will depend, in part, on our success in maintaining successful relationships with our channel partners, identifying additional channel partners, including in new markets, and training our channel partners to independently sell access to our Digital Analytics Platform. If our channel partners are unsuccessful in selling access to our Digital Analytics Platform, or if we are unable to enter into arrangements with or retain a sufficient number of high-quality channel partners in each of the regions in which we sell access to our Digital Analytics Platform and keep them motivated to sell access to our Digital Analytics Platform, our business, financial condition, results of operations, and growth prospects could be materially adversely affected.
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If our marketing strategies are not effective in attracting new customers and retaining existing customers, our business and ability to grow our revenues would be harmed.
We rely on our marketing strategies—which consist of a combination of online and offline marketing programs such as online advertising, blogs, public relations, social media, user conferences, educational white papers and webinars, product demos, workshops, roundtables, and customer case studies, offering customers a free-tier, self-service option, and other inbound lead generation and outbound sales strategies—to drive our sales and revenue. These strategies may not continue to generate the level of sales necessary to increase our revenue. If our outbound sales efforts are unsuccessful at attracting new customers and retaining existing customers, we may be unable to grow our market share and revenue. If our customer base does not continue to grow through word-of-mouth marketing and viral adoption or outbound sales efforts, we may be required to incur significantly higher sales and marketing expenses in order to acquire new subscribers, which could materially adversely affect our business and results of operations. In addition, high levels of customer satisfaction and market adoption are central to our marketing model. Any decrease in our customers’ satisfaction with our products, including as a result of actions outside of our control, could harm word-of-mouth referrals and our brand.
Additionally, many customers never convert from our free-tier, self-service option to a paid subscription contract. Further, we often depend on individuals within an organization who initiate our free-tier, self-service option being able to convince decision-makers within their organization to convert to a subscription contract. Many of these organizations have complex and multi-layered purchasing requirements. To the extent that these free-tier customers do not become paying subscribers, we will not realize the intended benefits of this marketing strategy.
Sales efforts to larger organizations involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations.
We have experienced rapid growth in our customer base since our inception. Although our growth strategy includes acquiring new customers across industries, company size, and stages of digital maturity, we believe there is a significant opportunity to continue to penetrate the largest global organizations. Sales to larger organizations involve risks that may not be present, or that are present to a lesser extent, with sales to smaller organizations, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs, and less predictability in completing some of our sales. For example, enterprise customers, which we define as customers with more than 1,500 employees, may require considerable time to evaluate and test our Digital Analytics Platform prior to making a purchase decision and placing an order. A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our Digital Analytics Platform, the discretionary nature of purchasing and budget cycles, and the competitive nature of evaluation and purchasing approval processes. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to enterprises typically taking longer to complete. In recent periods, the average length of our sales cycle to enterprises was four to six months, as compared to one to two months to non-enterprise customers. In addition, larger organizations may demand more features and integration services. Sales to larger organizations also may increase the variability of our financial results. If we are unable to close one or more expected significant transactions with these customers in a particular period, or if an expected transaction is delayed until a subsequent period, our results of operations for that period, and for any future periods in which revenue from such transaction would otherwise have been recognized, may be adversely affected. If we fail to effectively manage these risks associated with sales cycles and sales to larger organizations, our business, financial condition, and results of operations may be materially adversely affected.
If we are unable to maintain and enhance our brand, our business, financial condition, and results of operations may be materially adversely affected.
We believe that maintaining and enhancing our reputation as a differentiated and category-defining company in digital analytics is critical to our relationships with our existing customers and to our ability to attract new customers. The successful promotion of our brand attributes will depend on a number of factors, including our marketing efforts, our ability to ensure that our platform remains reliable and secure, our ability to continue to develop high-quality software, and our ability to successfully differentiate our Digital Analytics Platform from competitive products and services. In addition, independent industry analysts often provide reviews of our Digital Analytics Platform, as well as products and services offered by our competitors, and perception of our Digital Analytics Platform in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to those of our competitors’ products and services, our brand may be adversely affected. It may also be difficult to maintain and enhance our brand in connection with sales through channel or strategic partners.
The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets, and as more sales are generated through our channel partners. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing power relative to
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competitors, and we could lose customers or fail to attract potential customers, all of which would materially adversely affect our business, financial condition, and results of operations.
Our operations are international in scope, and we plan further geographic expansion, creating a variety of operational challenges.
For the year ended December 31, 2022 and the six months ended June 30, 2023, 38% and 39% of our revenue was generated outside the United States, respectively. A component of our growth strategy involves the further expansion of our operations and customer base internationally, which will require significant dedication of management attention and financial resources. We are continuing to adapt to and develop strategies to address international markets, but there is no guarantee that such efforts will have the desired effect. Our sales organization outside the United States is substantially smaller than our sales organization in the United States, and, to date, only a very small portion of our sales has been driven by resellers or other channel partners. To the extent we are unable to effectively engage with non-U.S. customers due to our limited sales force capacity and limited channel partners, we may be unable to effectively grow in international markets.
Our current and future international business and operations involve a variety of risks, including:
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If we invest substantial time and resources to further expand our international operations and are unable to do so successfully and in a timely manner, our business, financial condition, and results of operations could be materially adversely affected.
The war in Ukraine could materially adversely affect our business, results of operations, and financial condition.
On February 24, 2022, Russian military forces invaded Ukraine, and although the length, impact, and outcome of the ongoing war in Ukraine is highly unpredictable, this war has led, and could continue to lead, to significant market and other disruptions, including instability in financial markets, supply chain interruptions, political and social instability, and changes in consumer or purchaser preferences, as well as an increase in cyberattacks, intellectual property theft, and espionage.
We are actively monitoring the situation in Ukraine and assessing its impact on our business, including our business partners and customers. Such circumstances, combined with sanctions have resulted in disruptions to our customers' businesses in the impacted regions, including, at times, their ability to pay for our services. As such, we may experience a reduction in revenue from customers in the impacted regions as long as these circumstances continue.
We have no way to predict the progress or outcome of the war in Ukraine or its impacts in Ukraine, Russia, or surrounding countries as the war, and any resulting government reactions, are rapidly developing and beyond our control. The extent and duration of the war, sanctions, and resulting market disruptions could be significant and could potentially have a substantial impact on the global economy and our business for an unknown period of time. Any of the above-mentioned factors could materially adversely affect our business, financial condition, and results of operations. Any such disruptions may also magnify the impact of other risks described in this “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q.
We derive, and expect to continue for some time to derive, substantially all of our revenue from our Amplitude Analytics product.
Although we have released our Amplitude CDP and Amplitude Experiment products, we currently derive, and expect to continue for some time to derive, substantially all of our revenue from our Amplitude Analytics product. As such, the continued growth in demand for, and market acceptance, of Amplitude Analytics is critical to our success. Demand for Amplitude Analytics and our other products and platform functionality is affected by a number of factors, many of which are beyond our control, such as continued market acceptance of our products by customers for existing and new use cases, the timing of development and release of new products, features, and functionality that are lower-cost alternatives introduced by us or our competitors, technological changes and developments within the markets we serve, and growth or contraction in our addressable markets. If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of our products, particularly our Amplitude Analytics product, our business, financial condition, and results of operations could be materially adversely affected.
We invest significantly in research and development, and to the extent our research and development investments do not translate into new products or material enhancements to our current products, or if we do not use those investments efficiently, our business, financial condition, and results of operations would be materially adversely affected.
For the year ended December 31, 2022 and the six months ended June 30, 2023 and 2022, our research and development expenses were 34%, 34%, and 33% of our revenue, respectively. If we do not spend our research and development budget efficiently or effectively on compelling innovation and technologies, our business may be harmed. Moreover, research and development projects can be technically challenging and expensive. The nature of these research and development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we are able to offer compelling products and generate revenue, if any, from such investment. Additionally, anticipated customer demand for a product or service we are developing could decrease after the development cycle has commenced, and we would nonetheless be unable to avoid substantial costs associated with the development of any such product or service. If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of products that are competitive in our current or future markets, our business, financial condition, and results of operations would be materially adversely affected.
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We agree to indemnify customers and other third parties, which exposes us to substantial potential liability.
Our contracts with customers and other third parties may include indemnification or other provisions under which we agree to indemnify or otherwise be liable to them for losses arising from alleged infringement, misappropriation, or other violation of intellectual property rights, data protection violations, breaches of representations and warranties, damage to property or persons, or other liabilities arising from our platform or such contracts. Although we attempt to limit our indemnity obligations, an event triggering our indemnity obligations could give rise to multiple claims involving multiple customers or other third parties. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers and other third parties, regardless of the merits of these claims. We may not have adequate or any insurance coverage and may be liable for up to the full amount of the indemnified claims, which could result in substantial liability or material disruption to our business or could negatively impact our relationships with customers or other third parties, reduce demand for our products, and materially adversely affect our business, financial condition, and results of operations.
We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.
We do not know when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business, which may require us to engage in debt or equity financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could materially adversely affect our business, financial condition, and results of operations. If we incur debt, the debt holders would have rights senior to holders of common stock 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 the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.
Risks Related to Our Intellectual Property
Our intellectual property rights may not protect our business or provide us with a competitive advantage, which could have a material adverse effect on our business, financial condition, and results of operations.
To be successful, we must protect our technology and brand in the United States and other jurisdictions through trademarks, trade secrets, patents, copyrights, service marks, invention assignments, contractual restrictions, and other intellectual property rights and confidentiality procedures. Despite our efforts to implement these protections, these measures may not protect our business or provide us with a competitive advantage for a variety of reasons, including:
Further, the laws of certain foreign countries, particularly certain developing countries, do not provide the same level of protection of corporate proprietary information and assets, such as intellectual property, trademarks, trade secrets, know-how, and records, as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property or proprietary rights in foreign jurisdictions. Additionally, we may also be exposed to material risks of theft or unauthorized reverse engineering of our proprietary information and other intellectual property, including technical data, data sets, or other sensitive information. Our efforts to enforce our intellectual property rights in such foreign countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop, which could have a material adverse effect on our business, financial condition, and results of operations.
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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 platform and offerings.
Further, litigation may be necessary to enforce our intellectual property or proprietary rights, protect our trade secrets, or determine the validity and scope of proprietary rights claimed by others. Any litigation, whether or not resolved in our favor, could result in significant expense to us, divert the efforts of our technical and management personnel, and result in counterclaims with respect to infringement of intellectual property rights by us. If we are unable to prevent third parties from infringing upon or misappropriating our intellectual property or are required to incur substantial expenses defending our intellectual property rights, our business, financial condition, and results of operations may be materially adversely affected.
We may become subject to intellectual property disputes, which are expensive to support and, if resolved adversely, may subject us to significant liability and increased costs of doing business, which could have a material adverse effect on us.
We compete in markets where there are a large number of patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights, as well as disputes regarding infringement of these rights. Many of the holders of patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights have extensive intellectual property portfolios and greater resources than we do to enforce their rights. As compared to our large competitors, our patent portfolio is relatively undeveloped and may not provide a material deterrent to such assertions or provide us with a strong basis to counterclaim or negotiate settlements. Further, to the extent assertions are made against us by entities that hold patents but are not operating companies, our patent portfolio may not provide deterrence because such entities are not concerned with counterclaims.
Any intellectual property litigation to which we become a party may require us to do one or more of the following:
Intellectual property litigation is typically complex, time consuming, and expensive to resolve and would divert the resources, time, and attention of our management and technical personnel, which might seriously harm our business, financial condition, and results of operations. We may be required to settle such litigation on terms that are unfavorable to us. For example, a settlement may require us to obtain a license to continue practices found to be in violation of a third party’s rights, which may not be available on reasonable terms and may significantly increase our operating expenses. A license to continue such practices may not be available to us at all. As a result, we may also be required to develop alternative, non-infringing technology or practices or discontinue the practices. The development of alternative non-infringing technology or practices would require significant effort and expense. Similarly, if any litigation to which we may be a party fails to settle and we go to trial, we may be subject to an unfavorable judgment which may not be reversible upon appeal.
Further, such litigation may also result in adverse publicity, which could harm our reputation and ability to attract or retain customers. As we grow, we may experience a heightened risk of allegations of intellectual property infringement. An adverse result in any litigation claims against us could have a material adverse effect on our business, financial condition, and results of operations.
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Our use of “open-source” software could negatively affect our ability to sell our platform and subject us to possible litigation.
We use software in our Digital Analytics Platform that is licensed from third parties pursuant to open-source licenses. Certain open-source software licenses require a user who distributes or otherwise makes available the open-source software in connection with the user’s proprietary software to disclose publicly part or all of the source code to the user’s proprietary software. The use and distribution of open-source software may entail greater risks than the use of third-party commercial software, as open-source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Additionally, certain open-source software licenses are difficult to interpret and require the user of such software to make the source code of any derivative works of the open-source code and certain related software available to third parties with few restrictions on the use or further distribution of such software by such third parties. As a result, we may face claims from others seeking to enforce the terms of an open-source license, including by demanding the release of derivative works of the open-source software and our proprietary source code that was developed or used in connection with such software. These claims could also result in litigation and require us to replace certain open-source software with proprietary software licensed under costly commercial licenses or require us to devote additional research and development resources to change our platform, any of which would have a material adverse effect on our business and results of operations. Although we have implemented policies to regulate the use and incorporation of open-source software into our platform, we cannot be certain that we have not incorporated open-source software in our platform in a manner that is inconsistent with such policies. Any use of open-source software inconsistent with our policies or licensing terms could materially adversely affect our business, financial condition, and results of operations.
Risks Related to Regulatory Compliance and Legal Matters
We are subject to government regulation, including import, export control, economic, and trade sanctions, and anti-corruption laws and regulations, which may expose us to liability and increase our costs.
Our activities must be conducted in compliance with U.S. export controls, including the U.S. Department of Commerce’s Export Administration Regulations and economic and trade sanctions regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control. These regulations may limit the export of our products and provision of our services outside of the United States, or may require export authorizations, including by license, a license exception, or other appropriate government authorizations, including annual or semi-annual reporting and the filing of an encryption registration. Export control and economic sanctions laws may also include prohibitions on the sale or supply of certain of our products to embargoed or sanctioned countries, regions, governments, persons, and entities. In addition, various countries regulate the importation of certain products, through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products. The exportation, reexportation, and importation of our products and the provision of services, including by our partners, must comply with these laws or else we may be adversely affected, through reputational harm, government investigations, penalties, and a denial or curtailment of our ability to export our products or provide services. Complying with export control and sanctions laws may be time consuming and may result in the delay or loss of sales opportunities. Although we have controls designed to prevent our services from being used in violation of such laws, we are aware of a limited number of past occasions in which persons from U.S. sanctioned countries or regions appear to have accessed our platform. We have taken measures designed to prevent such situations from reoccurring, but there can be no guarantee that such measures will be successful in every case. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for individuals working for us. Changes in export or import laws, or corresponding sanctions, may delay the introduction and sale of our services in international markets, or, in some cases, prevent the export or import of our services to certain countries, regions, governments, persons, or entities altogether, which could materially adversely affect our business, financial condition, and results of operations.
We are also subject to various domestic and international anti-corruption laws, such as the FCPA and the UK Bribery Act, as well as other similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their employees and intermediaries from directly or indirectly authorizing, promising, offering, or providing payments or benefits to government officials and other recipients for improper purposes, such as to obtain or retain business improperly or secure an improper business advantage. We rely on certain third parties to support our sales and regulatory compliance efforts and can be held liable in certain cases for their corrupt or other illegal activities, even if we do not explicitly authorize such activities. The FCPA also requires that we keep accurate books and records and maintain a system of adequate internal controls. Although we take precautions to prevent violations of these laws, we cannot provide assurance that our internal controls and compliance systems will always prevent misconduct by our employees, agents, third parties, or business partners. Our exposure for violating these laws will increase as our international presence expands and as we increase sales and operations in foreign jurisdictions.
Violations of applicable anti-corruption, export controls, or economic and trade sanctions laws could subject us to significant sanctions, including civil or criminal fines and penalties, disgorgement of profits, injunctions, and debarment from government contracts, as well as related stockholder lawsuits and other remedial measures, all of which could adversely affect our reputation, business, financial condition, and results of operations. Violations or allegations of violations could also result in whistleblower
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complaints, adverse media coverage, and investigations, any of which could have a material adverse effect on our reputation, business, and results of operations.
Our business may be affected by sanctions, export controls, and similar measures targeting Russia and other countries and territories, as well as other responses to Russia’s invasion of Ukraine.
As a result of Russia’s invasion of Ukraine, governmental authorities in the United States, the European Union, and the United Kingdom, among others, launched an expansion of coordinated sanctions and export control measures, including, for example:
As the war in Ukraine continues, there can be no certainty regarding whether the governmental authorities in the United States, the European Union, the United Kingdom, or other countries will impose additional sanctions, export controls, or other measures targeting Russia, Belarus, or other territories. Furthermore, in retaliation against new international sanctions and as part of measures to stabilize and support the volatile Russian financial and currency markets, the Russian authorities also imposed significant currency control measures aimed at restricting the outflow of foreign currency and capital from Russia, imposed various restrictions on transacting with non-Russian parties, banned exports of various products, and imposed other economic and financial restrictions.
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Our business must be conducted in compliance with applicable economic and trade sanctions laws and regulations, including those administered and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council, and other relevant governmental authorities. We must be ready to comply with the existing and any other potential additional measures imposed in connection with the war in Ukraine. The imposition of such measures could adversely impact our business, including preventing us from performing existing contracts, recognizing revenue, pursuing new business opportunities, or receiving payment for subscriptions from our existing customers.
We believe we do not currently have contracts directly with the entities or businesses on a sanctions-related list of designated persons maintained by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, any Member States of the European Union, or the United Kingdom, and we currently do not have facilities or employees in Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, or the so-called Luhansk People’s Republic. We are reviewing and monitoring our contractual relationships with suppliers and customers to establish whether any are implicated by applicable sanctions. However, given the range of possible outcomes, the full costs, burdens, and limitations on our and our customer’s and business partners’ businesses are currently unknown and may become significant. As a result, based on the extent and breadth of sanctions, export controls, and other measures that may be imposed and related effects in connection with the war in Ukraine, it is possible that our business, financial condition, and results of operations could be materially adversely affected.
Complying with evolving privacy and other data-related laws, as well as contractual and other requirements, may be expensive and force us to make adverse changes to our business, and the failure or perceived failure to comply with such laws, contracts, and other requirements could result in adverse reputational and brand damage and significant fines and liability or otherwise materially adversely affect our business and growth prospects.
We are subject to numerous federal, state, local, and foreign privacy and data protection laws, regulations, policies, and contractual obligations that apply to the collection, transmission, storage, processing, sharing, disclosure, security, and use of personal information or personal data which, among other things, impose certain requirements relating to the privacy and security of personal information and other data. Laws and regulations governing privacy and data protection, the use of the internet as a commercial medium, the use of data in artificial intelligence and machine learning, and data sovereignty requirements are rapidly evolving, extensive, complex, and include inconsistencies and uncertainties and may conflict with other rules or our practices. Further, new laws, rules, and regulations could be enacted with which we are not familiar or with which our current practices do not comply.
We may incur significant expenses to comply with the laws, regulations, and other obligations that apply to us. For example, the GDPR imposes stringent data protection requirements for processing the personal data of individuals within the European Economic Area (the “EEA”), including certain disclosure requirements, limitations on retention of personal data, mandatory data breach notification requirements, and additional obligations. Non-compliance with the GDPR can trigger fines of up to the greater of €20 million or 4% of our global annual turnover. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the E.U. and the United States remains uncertain. Case law from the Court of Justice of the European Union (“CJEU”) states that reliance on the standard contractual clauses - a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism - alone may not necessarily be sufficient in all circumstances and that transfers must be assessed on a case-by-case basis. We currently rely on the EU standard contractual clauses and the UK Addendum to the EU standard contractual clauses to transfer personal data outside the EEA and its member states, the UK, and/or Switzerland, including to the United States. Following a period of legal complexity and uncertainty regarding international personal data transfers, particularly to the United States, we expect the regulatory guidance and enforcement landscape to continue to develop, in relation to transfers to the United States and elsewhere. As a result, we may have to make certain operational changes and we will have to implement revised standard contractual clauses and other relevant documentation for existing data transfers within required time frames.
Since the beginning of 2021, companies have had to comply with both the GDPR and the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in U.K. national law. The UK GDPR mirrors the fines under the GDPR, imposing fines up to the greater of €20 million (£17.5 million) or 4% of global turnover.
In addition to the European Union and United Kingdom, a growing number of other global jurisdictions are considering, or have passed, legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our platform, particularly as we expand our operations internationally. Some of these laws, such as the General Data Protection Law in Brazil, or the Act on the Protection of Personal Information in Japan, impose similar obligations as those under the GDPR. Others, such as those in Russia, India, and China, could potentially impose more stringent obligations, including data localization requirements. If we are unable to develop and offer features that meet legal requirements or help our customers meet their obligations under the laws or regulations relating to privacy, data protection, or information security, or if we violate or are perceived to violate any laws, regulations, or other obligations relating to privacy, data
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protection, or information security, we may experience reduced demand for our Digital Analytics Platform, harm to our reputation, and could become subject to investigations, claims, and other remedies, which would expose us to significant fines, penalties, and other damages, all of which would harm our business. Further, given the breadth and depth of changes in global data protection obligations, compliance has caused us to expend significant resources, and such expenditures are likely to continue into the future as we continue our compliance efforts and respond to new interpretations and enforcement actions.
The data protection landscape is also rapidly growing and evolving in the United States. As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. For example, the California Consumer Privacy Act of 2018 (the “CCPA”) became effective on January 1, 2020. The CCPA requires companies that process information on California residents to make certain disclosures to consumers about their data collection, use, and sharing practices, allows consumers to opt out of certain data sharing with third parties and exercise certain individual rights regarding their personal information, provides a new private right of action for data breaches, and provides for penalties for noncompliance. Additionally, the California Privacy Rights Act (the “CPRA”) generally went into effect on January 1, 2023 and significantly amends the CCPA. It imposes additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It also creates a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. Additional compliance investment and potential business process changes may be required. Similar laws have been passed in other states and are continuing to be proposed at the state and federal level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws may have potentially conflicting requirements that would make compliance challenging.
Furthermore, the FTC and many state Attorneys General continue to enforce federal and state consumer protection laws against companies for online collection, use, dissemination, and security practices that appear to be unfair or deceptive. For example, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. There are a number of legislative proposals in the United States, at both the federal and state level, and in the European Union and elsewhere, that could impose new obligations in areas such as e-commerce and other related legislation or liability for copyright infringement by third parties. We cannot yet determine the impact that these future laws, regulations, and standards may have on our business.
Although we work to comply with applicable laws, regulations, and standards, our contractual obligations, and other legal obligations, these requirements are evolving and may be modified, interpreted, and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional costs and liability to us and damage to our reputation, and could adversely affect our business and results of operations. In addition, if our practices are not consistent, or viewed as not consistent, with legal and regulatory requirements, including changes in laws, regulations, and standards or new interpretations or applications of existing laws, regulations, and standards, we may also become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, or criminal or civil sanctions, all of which may harm our business, financial condition, and results of operations.
Any future litigation against us could be costly and time-consuming to defend.
We may become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes or employment claims made by our current or former employees. Litigation might result in substantial costs and may divert management’s attention and resources, which might materially adversely affect our business, financial condition, and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us (including premium increases or the imposition of large deductible or co-insurance requirements). A claim brought against us that is uninsured or underinsured could result in unanticipated costs, potentially having a material adverse effect on our business, financial condition, and results of operations. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.
Risks Related to Tax and Accounting Matters
We face exposure to foreign currency exchange rate fluctuations.
We conduct transactions, particularly intercompany transactions, in currencies other than the U.S. dollar. While we have primarily transacted with customers and vendors in U.S. dollars, we have transacted in foreign currencies for subscriptions to our
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Digital Analytics Platform, and we expect to significantly expand the number of transactions with customers for our Digital Analytics Platform that are denominated in foreign currencies. A portion of our operating expenses are incurred outside the United States, denominated in foreign currencies, and subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, British Pound, Canadian Dollar, Singapore Dollar, and Japanese Yen. In addition, our international subsidiaries maintain net assets denominated in currencies other than the functional operating currencies of these entities. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our results of operations due to transactional and translational remeasurements. As a result of these foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. To the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our Class A common stock could be adversely affected. We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of these hedging instruments may not offset any, or more than a portion of, the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place, and may introduce additional risks if they are not structured effectively.
In addition, our international subsidiaries maintain net assets denominated in currencies other than the functional operating currencies of these entities. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and results of operations due to transactional and translational remeasurements. As a result of these foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. To the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our Class A common stock could be adversely affected.
Our global operations and structure subject us to potentially adverse tax consequences.
We generally conduct our global operations through subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. A change in our global operations could result in higher effective tax rates, reduced cash flows, and lower overall profitability. In particular, our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant revenue and taxing authorities may disagree with positions we have taken generally, or our determinations as to the value of assets sold or acquired or income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations.
In addition, the Organisation for Economic Co-operation and Development has initiated a base erosion and profit shifting project that seeks to establish certain international standards for taxing the worldwide income of multinational companies. As a result of these developments, the tax laws of certain countries in which we do business could change on a prospective or retroactive basis, and any such changes could increase our liabilities for taxes, interest, and penalties, and therefore could materially adversely affect our cash flows, financial condition, and results of operations.
Our ability to use our net operating loss carryforwards may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards (“NOLs”) to offset its post-change income or taxes may be limited. We have completed a Section 382 study through December 31, 2021 and have determined that none of our NOLs generated through December 31, 2021 will expire solely due to Section 382 limitations caused by ownership changes prior to December 31, 2021. However, we may have experienced ownership changes after December 31, 2021, and may experience ownership changes as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. Such a change or changes could limit the amount of NOLs that we can utilize annually to offset future taxable income. Subsequent changes to the U.S. tax rules in respect of the utilization of NOLs may further affect the limitation in future years. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Changes in our effective tax rate or tax liability may have a material adverse effect on our results of operations.
We are subject to income taxes in the United States and various foreign jurisdictions. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. We believe that our provision for income taxes is reasonable, but the ultimate tax
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outcome may differ from the amounts recorded in our condensed consolidated financial statements and may materially affect our financial results in the period or periods in which such outcome is determined.
Our effective tax rate could increase due to several factors, including:
Any of these developments could materially adversely affect our results of operations.
In addition, we may be subject to income tax audits by many tax jurisdictions throughout the world, many of which have not established clear guidance on the tax treatment of SaaS-based companies. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material adverse effect on the results of operations for that period.
We could be required to collect additional sales or indirect taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our products and materially adversely affect our results of operations.
We currently collect and remit applicable sales and indirect taxes and other applicable transfer taxes in jurisdictions where we, through our employees or economic activity, have a presence and where we have determined, based on applicable legal precedents, that sales or licensing of our products are classified as taxable. We do not currently collect and remit state and local excise, utility user and ad valorem taxes, fees, or surcharges in jurisdictions where we believe we do not have sufficient “nexus.” There is uncertainty as to what constitutes sufficient nexus for a state or local jurisdiction to levy taxes, fees, and surcharges for sales made over the internet, and there is also uncertainty as to whether our characterization of our products as not taxable in certain jurisdictions will be accepted by state and local tax authorities.
An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. Additionally, the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. et al (“Wayfair”), that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. A successful assertion by one or more states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could have a material adverse effect on our business and results of operations.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
U.S. generally accepted accounting principles (“U.S. GAAP”) are subject to interpretation by the Financial Accounting Standards Board, the Securities and Exchange Commission (the “SEC”), and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and could affect the reporting of transactions already completed before the announcement of a change.
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If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be materially adversely affected.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” within this Quarterly Report on Form 10-Q. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve those related to revenue recognition, deferred commissions, valuation of our stock-based compensation awards, including the determination of fair value of our common stock, valuation of goodwill and intangible assets, accounting for income taxes, and useful lives of long-lived assets, among others. Our results of operations may be materially adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
We review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. An adverse change in market conditions, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fair value that could result in an impairment charge to our goodwill or intangible assets. Any such charges may have a material adverse effect on our results of operations.
Risks Related to Ownership of Our Class A Common Stock
The trading price of our Class A common stock has been, and in the future, may be, volatile, and could decline significantly and rapidly.
The trading price of our Class A common stock has fluctuated and may in the future fluctuate substantially in response to numerous factors in addition to the ones described in the preceding risk factors, many of which are beyond our control, including:
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In addition, stock markets with respect to newly public companies, particularly companies in the technology industry, have experienced significant price and volume fluctuations that have affected and continue to affect, the stock prices of these companies. Stock prices of many companies, including technology companies, have fluctuated in a manner often unrelated to the operating performance of those companies. In the past, companies that have experienced volatility in the trading price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.
Our principal stockholders have the ability to influence the outcome of director elections and other matters requiring stockholder approval.
As of the date of this Quarterly Report on Form 10-Q, our directors, executive officers, and holders of more than 5% of our capital stock and their affiliates collectively beneficially own, in the aggregate, shares representing a substantial majority of the combined voting power of our outstanding Class A and Class B common stock. These stockholders currently have, and likely will continue to have, considerable influence with respect to the election of our board of directors and approval or disapproval of all significant corporate actions. The concentrated voting power of these stockholders could have the effect of delaying or preventing a significant corporate transaction, such as a merger or other sale of our company or our assets. This concentration of ownership limits the ability of other stockholders to influence corporate matters and may cause us to make strategic decisions that could be adverse to the interests of other stockholders.
The dual class structure of our common stock has the effect of concentrating voting control with our existing stockholders, executive officers, and directors and their affiliates, which limits your ability to influence the outcome of important transactions and to influence corporate governance matters, such as electing directors, and to approve material mergers, acquisitions, or other business combination transactions that may not be aligned with your interests.
Our Class B common stock has five votes per share, whereas our Class A common stock, which is listed on the Nasdaq Capital Market, has one vote per share. Because of the five-to-one voting ratio between our Class B common stock and our Class A common stock, the holders of our Class B common stock are able to exercise considerable influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock, until the date that is six months following the date on which no founder is an employee or director of our company (unless a founder has rejoined our company during such six-month period), when all outstanding shares of Class A common stock and Class B common stock will convert automatically into shares of a single class of common stock. This concentration of ownership limits the ability of other stockholders to influence corporate matters and may cause us to make strategic decisions that could involve risks to you or that may not be aligned with your interests. This control may adversely affect the trading price of our Class A common stock.
Further, future transfers by holders of our Class B common stock will generally result in those shares converting into shares of our Class A common stock, subject to limited exceptions, such as certain transfers effected for tax- or estate-planning purposes. The conversion of shares of our Class B common stock into shares of our Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. As a result, it is possible that one or more of the persons or entities holding our Class B common stock could gain significant voting control as other holders of Class B common stock sell or otherwise convert their shares into Class A common stock.
In addition, while we do not expect to issue any additional shares of Class B common stock, any future issuances of Class B common stock would be dilutive to holders of Class A common stock.
We cannot predict the impact our dual class structure may have on the trading price of our Class A common stock.
We cannot predict whether our dual class structure, combined with the concentrated control of our stockholders who held our capital stock prior to the listing of our Class A common stock on the Nasdaq Capital Market, including our executive officers, employees, and directors and their affiliates, will result in a lower or more volatile trading price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple class share structures in certain of their indices. In July 2017, FTSE Russell and Standard & Poor’s announced that they would cease to allow most newly public companies utilizing dual or multiple class capital structures to be included in their indices. Under the announced policies, our dual class capital structure would make us ineligible for inclusion in any
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of these indices. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the trading price of our Class A common stock could be adversely affected.
None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Sales of substantial amounts of our Class A common stock in the public markets, or the perception that sales might occur, could cause the trading price of our Class A common stock to decline.
In addition to the supply and demand and volatility factors discussed above, sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur in large quantities, could cause the trading price of our Class A common stock to decline.
None of our securityholders are subject to any contractual lock-up or other contractual restriction on the transfer or sale of their shares.
Moreover, assuming the availability of certain public information about us, (i) non-affiliates who have beneficially owned our common stock for at least six months may rely on Rule 144 to sell their shares of common stock, and (ii) our directors, executive officers, and other affiliates who have beneficially owned our common stock for at least six months will be entitled to sell their shares of our Class A common stock subject to volume and other limitations under Rule 144 and various vesting agreements.
In addition, we have filed registration statements to register all shares subject to options and RSUs outstanding or reserved for future issuance under our equity compensation plans. As of June 30, 2023, we had options outstanding that, if fully exercised, would result in the issuance of 15,327,959 shares of Class A common stock, as well as 11,257,571 shares of Class A common stock subject to RSU awards.
Accordingly, these shares will be able to be freely sold in the public market upon issuance, subject to applicable vesting requirements and compliance by affiliates with Rule 144.
Further, certain of the holders of our common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon the conversion of shares of our Class B common stock into shares of our Class A common stock or to include such shares in registration statements that we may file for us or other stockholders. Any registration statement we file to register additional shares, whether as a result of registration rights or otherwise, could cause the trading price of our Class A common stock to decline or be volatile.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise will dilute all other stockholders.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors, and consultants under our equity incentive plans and issue shares of our Class A common stock under our employee stock purchase plan. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in companies, products, or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline.
We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the trading price of our Class A common stock.
We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, you may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on your investment.
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We are no longer an “emerging growth company,” and, as a result, we now must comply with increased reporting and disclosure requirements, which may increase our costs.
We no longer qualify as an “emerging growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and, as a result, are subject to various disclosure and compliance requirements that did not previously apply, such as:
We expect that the loss of emerging growth company status and compliance with these additional requirements will increase our legal and financial compliance costs and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to public company reporting requirements. In addition, if we are not able to comply with changing requirements in a timely manner, the trading price of our Class A common stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, and limit the trading price of our Class A common stock.
Provisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our restated certificate of incorporation and amended and restated bylaws include provisions that:
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203
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of the Delaware General Corporation Law, which generally, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our Class A common stock, and they could deter potential acquirers of our company, thereby reducing the likelihood that you would receive a premium for your shares of our Class A common stock in an acquisition.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and indemnification agreements that we have entered into with our directors and officers provide that:
While we have procured directors’ and officers’ liability insurance policies, such insurance policies may not be available to us in the future at a reasonable rate, may not cover all potential claims for indemnification, and may not be adequate to indemnify us for all liability that may be imposed.
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Our restated certificate of incorporation and amended and restated bylaws provide for an exclusive forum in the Court of Chancery of the State of Delaware for certain disputes between us and our stockholders, and that the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act.
Our restated certificate of incorporation and our amended and restated bylaws provide that: (i) unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware) will, to the fullest extent permitted by law, be the sole and exclusive forum for: (A) any derivative action or proceeding brought on our behalf, (B) any action asserting a claim for or based on a breach of a fiduciary duty owed by any of our current or former directors, officers, other employees, agents, or stockholders to us or our stockholders, including, without limitation, a claim alleging the aiding and abetting of such a breach of fiduciary duty, (C) any action asserting a claim against us or any of our current or former directors, officers, other employees, agents, or stockholders arising pursuant to any provision of the Delaware General Corporation Law or our restated certificate of incorporation or amended and restated bylaws or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware, or (D) any action asserting a claim related to or involving us that is governed by the internal affairs doctrine; (ii) unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act and the rules and regulations promulgated thereunder; (iii) the exclusive forum provisions are intended to benefit and may be enforced by us, our officers and directors, the financial advisors to any offering giving rise to such complaint, and any other professional or entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering; and (iv) any person or entity purchasing or otherwise acquiring or holding any interest in our shares of capital stock will be deemed to have notice of and consented to these provisions. Nothing in our restated certificate of incorporation or amended and restated bylaws precludes stockholders that assert claims under the Exchange Act from bringing such claims in federal court, to the extent that the Exchange Act confers exclusive federal jurisdiction over such claims, subject to applicable law.
We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums, and protection against the burdens of multi-forum litigation. If a court were to find the choice of forum provision contained in our restated certificate of incorporation or our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and results of operations.
General Risk Factors
Our inability to attract and retain highly skilled employees could materially adversely affect our business.
In order to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel in the San Francisco Bay Area, where our headquarters is located, and in other locations where we engage in recruiting, is intense, especially for engineers experienced in designing and developing software and for experienced sales professionals. We have, from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. The cost of living is high in the San Francisco Bay Area, which may make it harder for us to attract and retain highly skilled employees. Many of the companies with which we compete for experienced personnel may have greater resources than we do. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached their legal obligations, resulting in a diversion of our time and resources. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, it may adversely affect our ability to recruit and retain highly skilled employees.
As our company grows and evolves, we may need to implement more complex organizational management structures, adapt our corporate culture and work environments, streamline our organization, or adjust the size and structure of our workforce to scale for the future and execute our long-term growth plan. For example, in April 2023, we approved a restructuring plan to reduce our global workforce. These changes could have an adverse impact on our corporate culture and employee morale, which could, in turn, adversely affect our reputation as an employer and harm our ability to retain and recruit personnel. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and growth prospects could be materially adversely affected.
We depend on our executive officers and other key employees, and the loss of one or more of these employees could materially adversely affect our business.
Our success depends largely upon the continued services of our executive officers and other key employees. We rely on our leadership team in the areas of research and development, operations, security, marketing, sales, support, general and administrative functions, and on individual contributors in our research and development and operations. From time to time, there may be changes in
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our executive management team resulting from the hiring or departure of executives. For example, on February 15, 2023, we announced that Hoang Vuong, our Chief Financial Officer, would no longer serve as Chief Financial Officer, effective February 22, 2023. Our board of directors appointed Christopher Harms as our Chief Financial Officer, effective February 22, 2023. Our inability to successfully manage this transition, or future executive transitions, could disrupt our business, affect our culture, harm our ability to retain personnel, and adversely affect our financial condition and results of operations. We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period; therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers, especially our Chief Executive Officer, or key employees could have an adverse effect on our business.
Changes in the business, regulatory, or political climate in the San Francisco Bay Area could adversely affect our operations.
Changes in the business, regulatory, or political climate in the San Francisco Bay Area, where our headquarters is located and most of our employees live, could affect our ability to expand or continue our operations there, which could have a material adverse impact on our business, financial condition, and results of operations. For example, if we were required to move our headquarters or downsize our operations in the San Francisco Bay Area due to material adverse changes in the business, regulatory, or political climate, such as increases in local tax rates, we may lose key employees and incur significant costs of relocation.
Changes in laws and regulations related to the internet or changes in the internet infrastructure itself may diminish the demand for our Digital Analytics Platform, and could harm our business.
The future success of our business depends upon our customers’ and potential customers’ access to the internet. Federal, state, or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet. Changes in these laws or regulations could require us to modify our platform in order to comply with these changes. In addition, government agencies or private organizations may impose additional laws, regulations, standards, or protocols involving taxation, tariffs, privacy, data protection, information security, content, copyrights, distribution, electronic contracts and other communications, consumer protection, and the characteristics and quality of services, any of which could decrease the demand for our Digital Analytics Platform or result in reductions in the demand for internet-based platforms such as ours. In addition, the use of the internet as a business tool could be harmed due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease-of-use, accessibility, and quality of service. The performance of the internet and its acceptance as a business tool has been harmed by “viruses,” “worms,” and similar malicious programs, and the internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the internet is adversely affected by these issues, demand for our Digital Analytics Platform could decline.
Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of companies covered by our market opportunity estimates will purchase our Digital Analytics Platform or generate any particular level of revenue for us. Any expansion in our markets depends on a number of factors, including the cost, performance, and perceived value associated with our Digital Analytics Platform and the products of our competitors. Even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all.
Acquisitions, mergers, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and materially adversely affect our business, financial condition, and results of operations.
We have in the past sought, and intend in the future to seek, to acquire or invest in businesses, joint ventures, and platform technologies that we believe could complement or expand our Digital Analytics Platform, enhance our technology, or otherwise offer growth opportunities. Any such acquisitions or investments may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable opportunities, whether or not the transactions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, or operations of any acquired companies, particularly if the key personnel of an acquired company choose not to work for us, the acquired company’s software is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management, or otherwise. Any such transactions that we are able to complete may not result in the synergies or other benefits we expect to achieve, which could result in substantial impairment charges. These transactions could also result in dilutive issuances of equity securities, the incurrence of debt, or adverse tax consequences, which could materially adversely affect our business, financial condition, and results of operations.
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Our business could be disrupted by catastrophic occurrences and similar events.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce, and the global economy, and could harm our business. We have a large employee presence in San Francisco, California. In the event of a major earthquake, fire, power loss, telecommunications failure, cyberattack, war (including the war in Ukraine), terrorist attack, sabotage, other intentional acts of vandalism or misconduct, geopolitical event, disease, or other catastrophic occurrence, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our products, breaches of data security, and loss of critical data, all of which could materially adversely affect our business, financial condition, and results of operations.
Additionally, we rely on our network and third-party infrastructure and applications, internal technology systems, and our websites for our development, marketing, operational support, hosted services, and sales activities. If these systems were to fail or be negatively impacted as a result of a natural disaster or other catastrophic event, our ability to deliver products to our customers would be impaired.
As we grow our business, the need for business continuity planning, incident response planning, and disaster recovery plans will grow in significance. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster, and successfully execute on those plans in the event of a disaster or emergency, our business and reputation would be harmed.
If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, the trading price and trading volume of our Class A common stock could decline.
The trading price and trading volume of our Class A common stock will be heavily influenced by the way analysts interpret our financial information and other disclosures. We do not have control over these analysts. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price of our Class A common stock would be negatively affected. If securities or industry analysts do not publish research or reports about our business, downgrade our Class A common stock, or publish negative reports about our business, the trading price of our Class A common stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which could decrease the trading volume of our Class A common stock and might cause the trading price of our Class A common stock to decline.
We incur significant costs as a result of operating as a public company, and our management needs to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
As a public company, we incur significant legal, accounting, and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, Nasdaq rules, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel need to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will continue to incur as a public company or the specific timing of such costs.
As a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the trading price of our Class A common stock could decline.
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 on an annual basis. This assessment must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In addition, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting. Our compliance with Section 404 requires that we incur substantial expenses and expend significant management efforts. Such expenses and efforts have been directed to employing additional accounting and financial personnel with appropriate public company experience and technical accounting knowledge, and compiling the system and process documentation necessary to establish the compliance and controls function to comply with Section 404 of the Sarbanes-Oxley Act.
During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to certify that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective,
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or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the trading price of our Class A common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
On
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Item 6. Exhibits.
Exhibit Number |
Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed Herewith |
3.1 |
8-K |
001-40817 |
3.1 |
9/21/2021 |
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|
3.2 |
8-K |
001-40817 |
3.2 |
9/21/2021 |
|
|
4.1 |
Specimen Stock Certificate evidencing the shares of Class A Common Stock. |
S-1 |
333-259168 |
4.2 |
8/30/2021 |
|
4.2 |
Specimen Stock Certificate evidencing the shares of Class B Common Stock. |
S-8 |
333-259698 |
4.4 |
9/21/2021 |
|
4.3 |
S-1 |
333-259168 |
4.3 |
8/30/2021 |
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|
10.1# |
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|
X |
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31.1 |
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|
X |
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31.2 |
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|
X |
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32.1* |
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|
X |
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32.2* |
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|
X |
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101.INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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|
X |
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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|
X |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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|
X |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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|
X |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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|
X |
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
X |
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
X |
# Indicates management contract or compensatory plan
* The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Amplitude, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Amplitude, Inc. |
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Date: August 8, 2023 |
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By: |
/s/ Spenser Skates |
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Spenser Skates |
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Chief Executive Officer (Principal Executive Officer) |
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Date: August 8, 2023 |
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By: |
/s/ Christopher Harms |
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Christopher Harms |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
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Exhibit 10.1
AMPLITUDE, INC.
SECTION 16 BONUS PLAN
This Section 16 Bonus Plan (the “Plan”) is intended to provide an incentive for superior work and to motivate eligible employees of Amplitude, Inc. (the “Company”) and its subsidiaries toward even higher achievement and business results, to tie their goals and interests to those of the Company and its stockholders and to enable the Company to attract and retain highly qualified employees. The Plan is for the benefit of Covered Employees (as defined below) during the period commencing January 1, 2023 and ending December 31, 2023 and consecutive annual performance periods thereafter (each of calendar year 2023 and such consecutive annual performance periods, a “Performance Period”).
The Board of Directors of the Company (the “Board”) and/or the Compensation Committee of the Board (the “Compensation Committee,” collectively, the “Administrator”) shall determine which executive officers of the Company and its subsidiaries shall be eligible to participate in the Plan for a given Performance Period (the “Covered Employees”). From time to time, the Administrator may select other employees to be eligible to receive bonuses hereunder and each such employee shall be a Covered Employee for the purposes of the Plan. Participation in the Plan is in the sole discretion of the Administrator. Accordingly, a Covered Employee who is a participant in the Plan is in no way is guaranteed or assured of being selected for participation in any subsequent Plan.
The Board shall administer the Plan in all respects for Covered Employees who are Executives and, in respect of such Executives, all references to “Administrator” shall mean the Board. The Administrator shall have the sole discretion and authority to administer and interpret the Plan.
The Company reserves the right to amend or terminate the Plan at any time in its sole discretion.
The Company shall withhold all applicable taxes from any bonus payment made under the Plan, including any federal, state and local taxes (including, but not limited to, FICA and SDI obligations).
Nothing in the Plan shall interfere with or limit in any way the right of the Company or any of its affiliates to terminate any Covered Employee’s employment or service at any time, with or without cause. Except as may otherwise be provided by a binding written agreement entered into between the Company and any Covered Employee, a Covered Employee’s employment with the Company and its affiliates is on an at-will basis only. The Company expressly reserves the right, which may be exercised at any time and without regard to when during a performance period such exercise occurs, to terminate any individual’s employment with or without cause, and to treat him or her without regard to the effect that such treatment might have upon him or her as a Covered Employee.
The Plan shall become effective as of January 1, 2023, and it shall remain in effect until all payments with respect to the applicable Performance Period have been made.
The rights of Covered Employees under the Plan shall be unfunded and unsecured. Amounts payable under the Plan are not and will not be transferred into a trust or otherwise set aside. Neither the Company nor any subsidiary shall be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any bonus under the Plan.
No rights of any Covered Employee to payments of any amounts under the Plan shall be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of other than by will or by laws of descent and distribution, and any such purported sale, exchange, transfer, assignment, pledge, hypothecation or disposition shall be void.
The Plan and the rights and obligations of the parties to the Plan shall be governed by, and construed and interpreted in accordance with, the law of the State of Delaware (without regard to principles of conflicts of law).
It is intended that the payments under this Plan comply with or be exempt from Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance issued thereunder (“Section 409A”), including without limitation any such regulations or other guidance that may be issued after January 1, 2023. Accordingly, to the maximum extent permitted, this Plan shall be interpreted to be in compliance with Section 409A and any payment hereunder shall be made in compliance with or pursuant to an exemption from Section 409A.
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Spenser Skates, certify that:
Date: August 8, 2023 |
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By: |
/s/ Spenser Skates |
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Spenser Skates |
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|
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christopher Harms, certify that:
Date: August 8, 2023 |
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By: |
/s/ Christopher Harms |
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Christopher Harms |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Amplitude, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, as amended, that:
Date: August 8, 2023 |
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By: |
/s/ Spenser Skates |
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Spenser Skates |
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Amplitude, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, as amended, that:
Date: August 8, 2023 |
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By: |
/s/ Christopher Harms |
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Christopher Harms |
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Chief Financial Officer (Principal Financial and Accounting Officer) |