Index to Financial Statements

As filed with the Securities and Exchange Commission on December 28, 2016

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

APPDYNAMICS, INC.

(Exact name of Registrant as specified in its charter)

Delaware

7372

26-2357316

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

303 Second Street

North Tower, 8th Floor

San Francisco, California 94107

(415) 442-8400

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

David Wadhwani

President and Chief Executive Officer

AppDynamics, Inc.

303 Second Street

North Tower, 8th Floor

San Francisco, California 94107

(415) 442-8400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Jeffrey D. Saper

David J. Segre

Jon C. Avina

Wilson Sonsini Goodrich & Rosati

Professional Corporation

650 Page Mill Road

Palo Alto, California 94304

(650) 493-9300

Daniel J. Wright

Senior Vice President and General Counsel

AppDynamics, Inc.

303 Second Street

North Tower, 8th Floor

San Francisco, California 94107

(415) 442-8400

Richard A. Kline

Rezwan D. Pavri

Goodwin Procter LLP

135 Commonwealth Drive

Menlo Park, California 94025

(650) 752-3100

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒ (do not check if a smaller reporting company)	Smaller reporting company	☐

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price⁽¹⁾⁽²⁾	Amount of Registration Fee
Common Stock, par value $0.001 per share	$100,000,000	$11,590

(1)	Includes offering price of any additional shares that the underwriters have the option to purchase.

(2)	Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Index to Financial Statements

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated , 2016.

Shares

LOGO

Common Stock

This is an initial public offering of shares of common stock of AppDynamics, Inc.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . We have applied to list our common stock on The NASDAQ Global Select Market under the symbol “APPD.”

In a concurrent private placement, certain current existing stockholders, including General Atlantic (AD), L.P., Adage Capital Partners, LP and Altimeter Partners Fund, L.P., have indicated an interest in purchasing up to an aggregate of shares of our common stock, based on a purchase price of $ per share, which is the midpoint of the estimated offering price range. Such indications of interest are non-binding and the investors may ultimately elect not to purchase any shares in the concurrent private placement. See the section titled “Description of Capital Stock—Allocation Agreements and Concurrent Private Placement” for additional information.

We are an “emerging growth company” as defined under the federal securities laws and are subject to reduced public company reporting requirements.

Investing in our common stock involves risks. See the section titled “Risk Factors” on page 16 to read about factors you should consider before buying shares of the common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total
Initial public offering price	$	$
Underwriting discount⁽¹⁾	$	$
Proceeds, before expenses, to us	$	$

⁽¹⁾	^{See the section titled “Underwriting” for a description of the compensation payable to the underwriters.}

To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from us at the initial public offering price, less the underwriting discount.

The underwriters expect to deliver the shares of our common stock against payment in New York, New York on , 2016.


Morgan Stanley	Goldman, Sachs & Co.	J.P. Morgan

Barclays	UBS Investment Bank	Wells Fargo Securities

William Blair		JMP Securities

Prospectus dated , 2016

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LOGO

Index to Financial Statements

TABLE OF CONTENTS


	Page
Prospectus Summary		1
Risk Factors		16
Special Note Regarding Forward-Looking Statements		51
Industry and Market Data		53
Use of Proceeds		55
Dividend Policy		56
Capitalization		57
Dilution		60
Selected Consolidated Financial Data		63
Management’s Discussion and Analysis of Financial Condition and Results of Operations		67
Business		110
Management		127
Executive Compensation		136
Certain Relationships and Related Party Transactions		148
Principal Stockholders		152
Description of Capital Stock		155
Shares Eligible for Future Sale		161
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Our Common Stock		164
Underwriting		168
Legal Matters		173
Experts		173
Where You Can Find Additional Information		173
Index to Consolidated Financial Statements		F-1

Through and including , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Neither we nor the underwriters have authorized anyone to provide you with information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

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

Index to Financial Statements

PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “AppDynamics,” “our company,” “we,” “us” and “our” in this prospectus refer to AppDynamics, Inc. and its consolidated subsidiaries.

Overview

We offer an innovative, enterprise-grade application intelligence software platform that is uniquely positioned to enable enterprises to accelerate their digital transformations by actively monitoring, analyzing and optimizing complex application environments at scale. Our integrated suite of applications monitors the performance of software applications and IT infrastructures, down to the underlying code, and automatically correlates them into logical “business transactions,” such as booking a flight in a web browser, transferring money on a mobile device, getting directions through a car’s navigation system or locating physical goods in an inventory system. Real-time information about the performance of these business transactions provides our customers with actionable insights into their end-user experiences, the activities required to improve them and the business outcomes associated with them. Our integrated suite of applications enables our customers to make faster decisions that enhance end-user engagement and improve operational and business performance.

In the current digital era, where applications serve as the primary means to engage customers and increase employee productivity, software has become mission critical to an enterprise’s success. Enterprises are under increasing pressure to accelerate innovation in order to compete effectively. Enterprises need to emphasize speed of innovation and rapid deployment, while operating increasingly complex software application and IT infrastructure environments. This combination of increased velocity and IT complexity regularly impacts the reliability and performance of an enterprise’s software applications and the quality of its end users’ experiences, which in turn can adversely affect its business results and brand.

Organizations have historically deployed legacy IT operations management (ITOM) products, including those that address application performance monitoring (APM), database management systems (DBMS), log management and network management, to monitor and manage their software applications and underlying IT infrastructures. These legacy offerings are often resource-intensive, expensive and generally incapable of supporting complex, modern software applications and IT architectures, such as cloud and hybrid deployments, production-first software environments and microservices. Given the complexity, cost and performance limitations of these traditional approaches, enterprises need a unified application intelligence solution to monitor, analyze and optimize their software and IT environments in real time and at scale.

We deploy self-configuring software agents into our customers’ software application and IT infrastructure environments across their cloud, on-premises and hybrid deployments. These agents work together to rapidly discover and provide a unified, end-to-end view of our customers’ environments. Our platform then automatically maps business transactions at the code level of the underlying software applications. We then utilize machine learning to create dynamic baselines by determining the normal behavior of individual software applications and business transactions, thereby enabling our customers to automatically detect deviations from these norms. By providing visibility into and dynamically baselining the performance of business transactions in addition to underlying services, we enable our customers to align the objectives of their business, product development and IT operations teams. This provides our customers with a unified, real-time view into software

Index to Financial Statements

application and IT infrastructure performance, the quality of their end users’ experiences and the resulting impact on their businesses and brands.

Our platform processes and analyzes trillions of metrics each month and has been purpose built to address the complex needs of the world’s largest enterprises. Our integrated suite of applications includes our Application Performance Management, End-User Monitoring and Infrastructure Visibility applications, as well as a range of underlying product modules. We offer a full range of deployment options across most of our applications, including public cloud providers, such as Amazon Web Services (AWS) and Microsoft Azure, on-premises and hybrid approaches. We deliver the same core platform irrespective of the deployment option chosen, which helps ensure that our applications align with the needs of our customers. Further, our applications can be quickly and easily deployed by our customers without the need for extensive professional services. While our larger customers tend to purchase more professional services from us to address the needs of their larger and more complex enterprise software application and IT infrastructure environments, our self-configuring platform and smart code instrumentation enable our applications to be easily deployed, configured and managed at scale in such environments.

We target mid- to large-size organizations worldwide, such as Global 2000 companies, through our direct sales efforts as well as a network of distributors, resellers and managed service providers. As of October 31, 2016, we had approximately 1,975 customers, including over 275 of the Global 2000, located in over 50 countries across every major industry.

We have grown rapidly in recent periods. Our revenues for the fiscal years ended January 31, 2014, 2015 and 2016 were $23.6 million, $81.9 million and $150.6 million, respectively, representing year-over-year growth of 247% and 84%. For the nine months ended October 31, 2015 and 2016, our revenues were $102.8 million and $158.4 million, respectively, representing year-over-year growth of 54%. Our billings, which consists of our total revenues plus the change in our deferred revenue, for the fiscal years ended January 31, 2014, 2015 and 2016 were $62.1 million, $140.2 million and $258.5 million, respectively, representing year-over-year growth of 126% and 84%. For the nine months ended October 31, 2015 and 2016, our billings were $164.7 million and $237.0 million, respectively, representing year-over-year growth of 44%. Our cash provided by (used in) operating activities was $(25.0) million, $(34.8) million and $(32.5) million for the fiscal years ended January 31, 2014, 2015 and 2016, respectively, and $(39.7) million and $(2.2) million for the nine months ended October 31, 2015 and 2016, respectively. Our free cash flow was $(32.3) million, $(36.6) million and $(41.8) million for the fiscal years ended January 31, 2014, 2015 and 2016, respectively, and $(47.4) million and $(7.8) million for the nine months ended October 31, 2015 and 2016, respectively. We incurred net losses of $68.3 million, $94.2 million and $134.1 million in the fiscal years ended January 31, 2014, 2015 and 2016, respectively, and $92.4 million and $95.1 million in the nine months ended October 31, 2015 and 2016, respectively. See the section titled “Selected Consolidated Financial Data—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using billings and free cash flow as a financial measure and for a reconciliation of billings to revenue and free cash flow to cash provided by (used in) operating activities, the most directly comparable financial measures calculated in accordance with generally accepted accounting principles in the United States of America (GAAP).

Industry Background

Powerful trends are transforming the ways that enterprises manage their software application environments and underlying IT infrastructures and interact with customers. These trends include:

Enterprises are Undergoing Digital Transformations. Businesses today are increasingly dependent on software to drive their success as they grow their digital presence. Companies across all major industries worldwide, including traditional brick-and-mortar industries, such as retail, financial services and manufacturing, are

Index to Financial Statements

undergoing digital transformations in which their software applications are becoming synonymous with their businesses and brands. Due to increasing user demands, businesses are under heightened pressure to ensure peak software application performance and provide high-quality user experiences at all times. The stakes of successfully navigating a digital transformation are high and software application and IT infrastructure performance issues can have significant costs in terms of lost revenue and market share, and, as a result, enterprises are increasing their investments in digital transformations.

IT Investments are Moving to Customer-Facing Software Applications. IT investments have historically focused on systems of record such as enterprise resource planning software. However, the increasing importance of software applications as the core channel for businesses to engage their customers, partners, employees and other stakeholders is shifting the view of IT departments from a back-office, service organization to one of a company’s centers of innovation and is leading to increased investments in new strategic software application projects such as customer-facing software. With a direct channel to end users, brands are increasingly becoming defined by their customer-facing software applications.

Velocity is Critical. Traditionally, software was developed slowly with large changes occurring at each cycle and subjected to rigorous testing before its release to end users. This approach is becoming increasingly untenable as businesses in every major industry need to rapidly innovate and require more agile development methods and shorter development cycles to do so, or they risk being at a competitive disadvantage. This focus on velocity is leading more and more enterprises to move to production-first software environments, in which software updates are deployed incrementally to end users with limited testing, as well as greater adoption of APIs and microservices. Such environments allow enterprises to obtain immediate end-user feedback and test potential new business strategies in real time in order to improve end-user experiences and achieve better business results at scale.

Accelerating IT Complexity. Enterprises typically run a complex network of business-critical software applications, each of which can have hundreds of interdependent components and millions of lines of code. This already complex environment is further complicated by an increasing number of development languages, frameworks and methodologies, the need for customer-facing software applications to be architected to scale to support millions of end users, the variety of deployment options, greater adoption of microservices, APIs and containerization as well as infrastructure-as-a-service and platform-as-a-service solutions, and the rise of agile development. As more business processes are executed through software applications, and as the number of connected devices and the amount of code and data multiplies, the complexity and scale of digital information and customer interactions are growing exponentially.

Legacy Approaches Fail to Address the Needs of Modern Enterprises

Organizations have historically deployed legacy ITOM products to monitor and manage their software applications and underlying IT infrastructures. Such products are often resource-intensive, expensive and generally incapable of supporting complex, modern software applications and IT architectures, such as cloud and hybrid deployments, production-first software environments and microservices. These approaches also typically lack the ability to gather and analyze data in real time and are difficult to integrate. Moreover, enterprises have historically treated ITOM and business analytics as distinct solutions creating a lack of alignment between an enterprise’s business, product development and IT operations.

Index to Financial Statements

Enterprise Needs Driving Adoption of Application Intelligence

Enterprises need a unified application intelligence solution to monitor, analyze and optimize their software applications and IT infrastructures in real time in order to make better, faster decisions that improve end-user experiences and business results at scale. An enterprise-grade application intelligence solution must:

•

Monitor performance in real time. Enterprises need a solution that provides visibility into software application and IT infrastructure performance in real time to better inform business and operational decisions at competitive velocity.

•

Implement quickly and scale easily. Enterprises require an application intelligence solution that can facilitate integrating new technologies, IT architectures and development languages, as well as be implemented quickly and easily, migrated rapidly and scale as the enterprise grows while minimizing the need for maintenance.

•

Understand and track business processes. Enterprises need to align the objectives of their business, product development and IT operations teams by focusing them on the success of the overall business process instead of the performance of individual services.

•

Present unified, comprehensive visibility. Enterprises need a unified solution with a common user interface, architecture and data model that provides a centralized view of the varied software, hardware and network services utilized in every business process.

•

Diagnose performance issues in production without negatively impacting end-user experiences. As enterprises move to production-first software environments, they require a solution that deeply diagnoses performance issues without undermining performance when deployed in such environments, in addition to being able to analyze issues during pre-production phases.

•

Correlate software application performance to business results. Enterprises need a solution that not only identifies software application and IT infrastructure performance issues but provides visibility and context into how those performance issues are impacting the broader business in order to enable business, product development and IT operations teams to make better, more informed decisions in real time.

•

Analyze massive data sets quickly. Enterprises need a solution with automated diagnostic capabilities that is able to quickly and efficiently ingest, process and analyze massive amounts of data in real time.

•

Satisfy increasing regulatory and compliance needs. In order to face a myriad of regulatory and compliance requirements, enterprises need a solution that can be deployed in the cloud, on-premises or using a hybrid cloud approach and provides transaction audit trails and the ability to implement strict user and data access controls.

Our Opportunity

Our application intelligence software platform replaces legacy products across various well-established categories of IT spending. According to Gartner, the IT operations market in 2016 is expected to be $23.0 billion, and the business intelligence and analytics market is expected to be $17.1 billion, resulting in a total addressable market (TAM) of $40.1 billion in 2016, and is expected to grow at 7.6% annually to $53.8 billion in 2020. We believe we currently address a significant portion of those markets.

Index to Financial Statements

industry by our industry-specific average recurring contract value for customers as of October 31, 2016, which we calculated by adding the aggregate annual recurring contract value from all existing customers within each industry and dividing the total by the number of our existing customers in each such industry. We then normalized our internal TAM estimate for our recurring and non-recurring revenue mix by applying a conservative estimate that is significantly below our past experience.

Our Solution

Our solution is offered as an integrated suite of software application and IT infrastructure monitoring and analytics products comprised of three key applications and built on our application intelligence software platform. Our solution is uniquely positioned to enable enterprises to accelerate their digital transformations by actively monitoring, analyzing and optimizing complex application environments at scale. Our key applications are Application Performance Management, End-User Monitoring and Infrastructure Visibility.

Our solution uniquely addresses the enterprise needs stated above by:

•

Monitoring software application and IT infrastructure performance in real time. Using smart-code instrumentation, our solution enables our customers to monitor their software application and IT infrastructure environments in real time and automatically collect relevant data to provide actionable insights into IT operations and business outcomes.

•

Being easy to deploy, configure and manage at scale. Our solution addresses the unique size, scale and infrastructure complexity challenges faced by the world’s largest enterprises. Our solution can be easily deployed, configured and managed at scale, thereby creating fast time to value.

•

Auto-discovering and following business transactions. We allow enterprises to view the performance of their software applications and IT infrastructures through the lens of a business transaction by monitoring and analyzing all code execution to automatically discover business transactions. This provides enterprises with a powerful way to assess code performance and its impact on business activities as well as drive better cross-team collaboration by providing a single view that is relevant to business, product development and IT operations personnel. This empowers our customers to rapidly identify and isolate the root cause of performance issues, minimize the impact on end users and maximize their business outcomes.

•

Providing a unified, end-to-end view of customer environments. Our platform offers a consistent, intuitive user interface and allows our customers’ business, product development and IT operations personnel to view and understand their end-to-end software application and IT infrastructure performance, the quality of their end users’ experiences and their business performance all through a single pane of glass.

•

Diagnosing performance issues in production-first environments quickly, with low overhead. Our integrated suite of applications is able to operate in production-first environments at scale with robust monitoring and low overhead, allowing our customers to diagnose the root cause of performance issues quickly with minimal impact on performance.

•

Understanding the business context of software application performance. Our approach to unified monitoring combined with our focus on business transactions gives our customers real-time insights, which when paired with Business iQ, one of our intelligence performance engines, empowers our customers to make quicker decisions that drive real and measurable improvements to their business.

•

Analyzing massive data sets quickly. Our platform leverages machine learning to glean insights from massive data sets in real time to drill down to the root cause of performance issues and the business impact of such issues faster while providing suggestions for remediation.

Index to Financial Statements

•

Navigating increasingly complex compliance and regulatory environments. We offer our customers a full range of deployment options across most of our applications, including public cloud providers, on-premises and hybrid approaches to meet their regulatory and compliance needs.

Growth Strategy

Key elements to our growth strategy include:

•

Rapid and continued innovation. We intend to continue to invest in our research and development efforts on enhancing the functionality, breadth and scalability of our integrated suite of applications and underlying platform, addressing new use cases and developing additional, innovative monitoring and analytics technologies.

•

Helping more enterprises digitally transform. We intend to reach additional customers as well as further penetrate the industry verticals we currently address by expanding our worldwide sales and marketing capabilities.

•

Selling additional applications to our existing customers. After initially deploying our applications for a specific use case, predominantly APM, many of our customers often purchase incremental offerings from us to address new software application and IT infrastructure monitoring and analytics needs. We plan to continue to pursue cross-selling opportunities within our diverse, worldwide customer base.

•

Enhancing our strategic partner ecosystem. We will continue to seek potential strategic partnership opportunities that expand the capabilities and use cases of our integrated suite of applications, augment our sales reach, and broaden and complement our professional services and customer support capabilities.

Risks Affecting Us

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors.” These risks include, but are not limited to, the following:

•

We have incurred significant operating losses in the past, and as our expenses increase, we may not be able to generate sufficient revenue to achieve and sustain profitability;

•

We have a limited operating history and our current management team has only worked together for a limited period of time, which makes it difficult to evaluate our future prospects;

•

Market adoption of application intelligence solutions is new and unproven and may not grow;

•

Our business is dependent on overall demand for application intelligence solutions;

•

We face significant competition which may adversely affect our ability to add new customers, retain existing customers and grow our business;

•

If our customers do not expand their use of our applications or renew their existing contracts with us, our ability to grow our business and improve our operating results and financial condition may be adversely affected;

•

We have made significant investments in recent periods, and intend to continue to invest, to support our growth, and these investments may achieve delayed or lower than expected benefits;

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•

If we cannot successfully execute on our strategy and continue to develop and effectively market applications that anticipate and respond to the needs of our customers, our business, operating results and financial condition may suffer;

•

If our enterprise resource planning system proves ineffective, or we experience issues with our intended transition to a new system, we may be unable to timely or accurately prepare financial reports, make payments to our suppliers and employees, or invoice and collect from our customers;

•

Our quarterly and annual operating results may vary significantly and may be difficult to predict;

•

We expect our revenue mix to vary over time, which could harm our gross margin and operating results;

•

We rely on revenue from subscription and service contracts, and because we recognize revenue from such contracts over the term of the relevant subscription or service period, down turns or up turns in our billings are not immediately reflected in full in our operating results;

•

Incorrect deployment, implementation or use of our applications or any errors, failures or bugs in our applications could result in customer dissatisfaction and negatively affect our business, operating results and growth prospects; and

•

Our success depends, in part, on the integrity, scalability and security of our systems and infrastructure.

Corporate Information

We were incorporated in Delaware on April 1, 2008 under the name Singularity Technologies, Inc., and we changed our name to AppDynamics, Inc. on August 17, 2009. Our principal executive offices are located at 303 Second Street, North Tower, 8th Floor, San Francisco, California 94107, and our telephone number is (415) 442-8400. Our website address is www.appdynamics.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

The AppDynamics design logo and the mark “AppDynamics” are the property of AppDynamics, Inc. This prospectus contains additional trade names, trademarks and service marks of other companies which are the property of their respective holders.

Emerging Growth Company

The Jumpstart Our Business Startups Act (the JOBS Act), was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), certain requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements and the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.

In addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

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We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.

See the section titled “Risk Factors—Risks Related to Our Common Stock and this Offering—We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors” for certain risks related to our status as an emerging growth company.

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THE OFFERING

Common stock offered by us

Common stock to be sold in the concurrent private placement

Common stock to be outstanding after this offering and the concurrent private placement

Option to purchase additional shares of
common stock from us

We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional shares from us.

Use of proceeds

We estimate that the net proceeds from our sale of shares of common stock in this offering, excluding the proceeds from the concurrent private placement, will be approximately $ million, or $ million if the underwriters exercise their option to purchase additional shares in full, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range reflected on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions from this offering and estimated offering expenses payable by us. Our proceeds from the sale of common shares in the concurrent private placement will be approximately $ million, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range reflected on the cover page of this prospectus.

We intend to use a portion of the net proceeds from this offering and the concurrent private placement to fully repay our term loan under our credit facility, which, as of October 31, 2016, had an outstanding balance of $20.0 million, and to pay a cash fee owed to our lender under our credit facility that will become due as a result of the completion of this offering, which, as of October 31, 2016, we estimated to be $1.5 million. We also may use a portion of the net proceeds to satisfy tax withholding obligations related to the vesting of restricted stock units (RSUs) held by certain of our employees which will begin to vest upon expiration of the lock-up period applicable to this offering. We expect to use the remaining net proceeds for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies or assets. See the section titled “Use of Proceeds” for additional information.

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Concurrent private placement

Pursuant to existing allocation agreements with General Atlantic, Adage Capital Partners and Altimeter Partners, we have granted such investors the right, but not the obligation, to purchase shares of common stock from us, at the same per share purchase price as the assumed initial public offering price, in a private placement concurrent to this offering.

The shares of our common stock, if any, issued in the concurrent private placement will be offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506 promulgated thereunder. See the section titled “Description of Capital Stock—Allocation Agreements and Concurrent Private Placement” for additional information.

Concentration of ownership

Upon completion of this offering and the concurrent private placement, our executive officers, directors and 5% stockholders and their affiliates will beneficially own, in the aggregate, approximately % of our outstanding capital stock.

Proposed NASDAQ trading symbol

“APPD”

The number of shares of common stock that will be outstanding after this offering and the concurrent private placement is based on 108,569,006 shares of common stock (including redeemable convertible preferred stock on an as-converted basis) outstanding as of October 31, 2016, and excludes:

•

14,027,005 shares of common stock issuable upon the exercise of options to purchase common stock under our 2008 Stock Plan (2008 Plan) that were outstanding as of October 31, 2016, with a weighted-average exercise price of $3.48 per share;

•

21,638,623 shares of common stock issuable upon the vesting of RSUs under our 2008 Plan that were outstanding as of October 31, 2016;

•

42,500 shares of common stock issuable upon the exercise of options to purchase common stock under our 2008 Plan that were granted after October 31, 2016, with an exercise price of $12.70 per share;

•

1,032,866 shares of common stock issuable upon the vesting of RSUs under our 2008 Plan that were granted after October 31, 2016;

•

201,636 shares of common stock issuable upon the exercise of warrants outstanding as of October 31, 2016, with an exercise price of $1.60 per share;

•

additional shares of common stock, subject to increase on an annual basis, reserved for future issuance under our 2017 Equity Incentive Plan (2017 Plan), which will become effective one business day prior to the effectiveness of the registration statement of which this prospectus forms a part, at which time we will cease granting awards under our 2008 Plan; and

•

additional shares of common stock, subject to increase on an annual basis, reserved for future issuance under our 2017 Employee Stock Purchase Plan, which will become effective one business day prior to the effectiveness of the registration statement of which this prospectus forms a part.

Our 2017 Plan will provide for annual automatic increases in the number of shares reserved thereunder and also will provide for increases to the number of shares of common stock that may be granted thereunder based on shares underlying any awards under our 2008 Plan that expire, are forfeited or are otherwise terminated, as more fully described in the section titled “Executive Compensation—Employee Benefits and Stock Plans.”

Index to Financial Statements

Except as otherwise indicated, all information in this prospectus reflects and assumes the following:

•

the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur in connection with the completion of this offering;

•

the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into an aggregate of 74,656,115 shares of common stock immediately prior to the completion of this offering;

•

no exercise of outstanding options or warrants or the settlement of outstanding RSUs subsequent to October 31, 2016;

•

the issuance and sale by us in the concurrent private placement of shares of common stock to certain existing investors, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus; and

•

no exercise of the underwriters’ option to purchase up to an additional shares from us in this offering.

Index to Financial Statements

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables summarize our historical consolidated financial data. We have derived the consolidated statements of operations data for the fiscal years ended January 31, 2014, 2015 and 2016 from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the nine months ended October 31, 2015 and 2016 and the consolidated balance sheet data as of October 31, 2016 are derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly state the financial information set forth in those statements. Our historical results are not necessarily indicative of the results we expect in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period. The following summary of consolidated financial data should be read in conjunction with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues:
Subscription	$	18,946		$	42,971		$	87,251		$	60,605		$	110,086
License		3,682			33,954			51,516			34,801			32,608
Professional services and other		972			4,940			11,825			7,384			15,733

Total revenues		23,600			81,865			150,592			102,790			158,427
Cost of revenues:
Subscription⁽¹⁾		6,393			9,884			19,801			13,959			16,980
License		69			284			565			381			648
Professional services and other⁽¹⁾		4,807			8,478			18,347			12,399			21,061

Total cost of revenues		11,269			18,646			38,713			26,739			38,689

Gross profit		12,331			63,219			111,879			76,051			119,738
Operating expenses:
Sales and marketing⁽¹⁾		49,497			85,920			132,297			89,379			118,303
Research and development⁽¹⁾		21,719			34,072			57,743			42,505			51,499
General and administrative⁽¹⁾⁽²⁾		8,398			33,233			48,563			32,937			37,802

Total operating expenses		79,614			153,225			238,603			164,821			207,604

Operating loss		(67,283	)		(90,006	)		(126,724	)		(88,770	)		(87,866	)
Interest expense		(128	)		(1,958	)		(3,258	)		(2,173	)		(3,019	)
Other income (expense), net		(466	)		(1,999	)		(2,968	)		(872	)		(2,682	)

Loss before income taxes		(67,877	)		(93,963	)		(132,950	)		(91,815	)		(93,567	)
Provision for income taxes		461			284			1,109			581			1,510

Net loss	$	(68,338	)	$	(94,247	)	$	(134,059	)	$	(92,396	)	$	(95,077	)

Net loss per share, basic and diluted⁽³⁾	$	(3.43	)	$	(3.96	)	$	(4.85	)	$	(3.40	)	$	(3.16	)

Weighted-average shares outstanding used in calculating net loss per share, basic and diluted⁽³⁾		19,932			23,781			27,657			27,173			30,115

Pro forma net loss per share, basic and diluted⁽³⁾							$						$

Pro forma weighted-average shares outstanding used in calculating net loss per share, basic and diluted⁽³⁾

Index to Financial Statements

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


	Year Ended January 31,						Nine Months Ended October 31,
	2014		2015		2016		2015		2016
	(in thousands)
Cost of subscription revenue	$	159	$	345	$	874	$	660	$	394
Cost of professional services and other revenue		73		165		598		333		518
Sales and marketing		2,323		3,581		4,819		3,393		2,939
Research and development		753		1,393		3,185		2,283		2,172
General and administrative^(a)		346		2,569		11,918		9,684		(2,341	)

Total stock-based compensation expense	$	3,654	$	8,053	$	21,394	$	16,353	$	3,682

(a)

During the nine months ended October 31, 2016, we reversed $5.6 million of previously recognized stock-based compensation expense related to the unvested portion of certain awards that were cancelled upon one of our executive’s resignation from employment with us.

(2)	General and administrative expense for the year ended January 31, 2015 includes $10.0 million related to a one-time litigation settlement.

(3)	See Note 11 of the notes to our consolidated financial statements for a description of how we calculate net loss per share, basic and diluted, and pro forma net loss per share, basic and diluted.


	As of October 31, 2016
	Actual			Pro Forma⁽¹⁾	Pro Forma As Adjusted^(2)(3)(4)
	(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	141,959		$	$
Working capital (deficit)		(3,527	)
Total assets		277,506
Deferred revenue		301,553
Long-term debt, including current maturities		22,604
Redeemable convertible preferred stock		310,147
Total stockholders’ deficit		(406,781	)

(1)

The pro forma column in the consolidated balance sheet data table above reflects the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of October 31, 2016 into an aggregate of 74,656,115 shares of common stock which conversion will occur immediately prior to the completion of this offering.

(2)

The pro forma as adjusted column gives effect to (i) the pro forma adjustments set forth above, (ii) the receipt of $ million in proceeds from the sale and issuance by us of shares of common stock offered by this prospectus at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions from this offering and estimated offering expenses payable by us and (iii) our use of a portion of our net proceeds of this offering to fully repay our term loan under our credit facility, which had an outstanding balance of $20.0 million as of October 31, 2016, and pay a cash fee owed to our lender under our credit facility that will become due as a result of the completion of this offering which, as of October 31, 2016, we estimated to be $1.5 million.

(3)

Index to Financial Statements

capital, total assets and total stockholders’ deficit would increase or decrease, as applicable, by $ million.

(4)

Key Metrics

We monitor the following key non-GAAP financial and operating metrics to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with GAAP we believe the following non-GAAP financial and operating metrics are useful in evaluating our operating performance.

Dollar-Based Net Retention Rate. We believe that dollar-based net retention rate is a key metric to measure the long-term value of our customer relationships and is driven by our ability to retain and expand the recurring revenue generated from our existing customers. Our dollar-based net retention rate compares the recurring contract value from the same set of customers across comparable periods. Given the repeat buying pattern of our customers and the average term of our contracts, we measure this metric over a set of customers who have been with us for at least one full year. To calculate our dollar-based net retention rate for a particular trailing 12-month period, we first establish the recurring contract value for the previous trailing 12-month period. This effectively represents recurring dollars that we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without any expansion or contraction. We subsequently measure the recurring contract value in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period. Dollar-based net retention rate is then calculated by dividing the aggregate recurring contract value in the current trailing 12-month period by the previous trailing 12-month period. Recurring contracts are time-based arrangements for subscriptions and do not include perpetual license or professional services arrangements.

Our dollar-based net retention rates were as follows:


	Trailing 12 Months Ended January 31,									Trailing 12 Months Ended October 31,
	2014			2015			2016			2015			2016
Dollar-based net retention rate		121	%		134	%		123	%		122	%		127	%

Free Cash Flow. Free cash flow is a non-GAAP financial measure that we calculate as net cash (used in) provided by operating activities less purchases of property and equipment. We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business, making strategic acquisitions, and strengthening our balance sheet. See the section titled “Selected Consolidated Financial Data—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using free cash flow as a financial measure and for a

Index to Financial Statements

reconciliation of free cash flow to cash provided by (used in) operating activities, the most directly comparable financial measure calculated in accordance with GAAP.

Our free cash flows were as follows:


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
	(in thousands)
Free cash flow	$	(32,324	)	$	(36,611	)	$	(41,838	)	$	(47,429	)	$	(7,768	)

Billings. Given that we generally bill our customers at the time of sale, but typically recognize a majority of the related revenue ratably over time, we use billings to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers. Billings consists of our total revenues plus the change in our deferred revenue in a given period. Billings reflects sales to new customers plus subscription renewals and additional sales to existing customers. For subscriptions, which we define as time-based licenses and associated maintenance and support, software-as-a-service (SaaS) subscriptions and associated maintenance and support and hosting services, and software maintenance and support associated with perpetual licenses, we typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments, as applicable. Only amounts invoiced to a customer in a given period are included in billings. While we believe that billings provides valuable insight into the cash that will be generated from sales of our applications and services, this metric may vary from period-to-period for a number of reasons, and therefore has a number of limitations as a quarter to quarter or year-over-year comparative measure. These reasons include, but are not limited to, (i) a variety of customer contractual terms could result in some periods having a higher proportion of multi-year time-based licenses than other periods, (ii) as we experience an increasing number of larger sales transactions, the timing of executing these larger transactions has and will continue to vary, with some transactions occurring in quarters subsequent to or in advance of those that we anticipated and (iii) fluctuations in payment terms affecting the billings recognized in a particular period. See the section titled “Selected Consolidated Financial Data—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using billings as a financial measure and for a reconciliation of billings to revenue, the most directly comparable financial measure calculated in accordance with GAAP.

Our billings were as follows:


	Year Ended January 31,						Nine Months Ended October 31,
	2014		2015		2016		2015		2016
	(in thousands)
Billings	$	62,053	$	140,178	$	258,536	$	164,661	$	236,963

Index to Financial Statements

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, operating results, financial condition and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business

We have incurred significant operating losses in the past, and as our expenses increase, we may not be able to generate sufficient revenue to achieve and sustain profitability.

We have incurred significant net losses in each year since our inception, including net losses of $68.3 million, $94.2 million and $134.1 million in the fiscal years ended January 31, 2014, 2015 and 2016, respectively. For the nine months ended October 31, 2015 and 2016, our net losses were $92.4 million and $95.1 million, respectively. As a result, we had an accumulated deficit of $476.8 million as of October 31, 2016. We expect our operating expenses to increase over the next several years as we continue to expend substantial financial resources on, among other things: research and development, including the development of new applications and application enhancements; sales and marketing, including increasing our product and brand awareness; customer support and professional services; upgrades to our technology infrastructure, such as improvements to our SaaS architecture; and hiring of additional employees. The return on these investments, if any, will only be realized over time and may not result in increased revenue commensurate with increases in our expenses, or at all.

In addition, as a result of becoming a public company, we will incur significant additional legal, accounting and other expenses that we did not incur as a private company. We expect that our revenue growth rate will decline in the future as a result of a variety of factors, including the maturation of our business. If we are unable to maintain adequate revenue growth and manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve and sustain profitability. If we fail to achieve and sustain profitability, our business, operating results and financial condition will be harmed.

We have a limited operating history, which makes it difficult to evaluate our future prospects and increases the risk of your investment.

We were founded in April 2008 and launched our first product in September 2009. Therefore, we have a limited operating history which makes it difficult to effectively assess or forecast our future operating results, and subjects us to a number of uncertainties, including our ability to plan for and predict future growth. Our historical revenue growth should not be considered indicative of our future performance. In addition, our current management team has limited history with us. For example, David Wadhwani, our President and Chief Executive Officer, has only been serving in those roles since September 2015, and a number of other members of our senior management team have only been with us serving in such roles for a relatively short period of time, including our Chief Financial Officer – Randy Gottfried, our Chief Marketing Officer – Kendall Collins, our Chief People Officer – Susan Lovegren, Our Chief Revenue Officer – Dali Rajic, and our Senior Vice President, Customer and Strategic Operations – Danny Winokur. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, including the risks described in this prospectus. You should carefully consider our business and prospects in light of these risks and uncertainties. These risks and uncertainties include our ability to, among other things:

•

maintain and expand our customer base;

•

successfully develop and introduce new applications and application enhancements;

Index to Financial Statements

•

successfully compete with other companies that are currently in, or may in the future enter, the markets in which we compete;

•

increase sales to new and existing customers;

•

increase awareness of our company, our applications and our brand;

•

continue to enhance and improve our innovative, enterprise-grade application intelligence software platform that can efficiently and reliably provide enterprises with a unified application intelligence solution;

•

avoid interruptions or disruptions in our service or performance degradation for our applications;

•

anticipate unforeseen expenses;

•

anticipate any significant changes in the competitive environment, including the entry of new competitors, and any related discounting of applications or services;

•

successfully expand our business; and

•

defend ourselves against litigation, or regulatory, intellectual property, privacy, security or other claims.

If our assumptions regarding these risks and uncertainties are incorrect or change, or if we do not manage these risks and uncertainties successfully, our business, operating results and financial condition will be harmed. Any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.

Market adoption of application intelligence solutions is new and unproven and may not grow as we expect, which may harm our business and prospects.

We believe our future success will depend in large part on the growth, if any, in the demand for application intelligence solutions, particularly enterprise-grade solutions. We currently target the markets for IT operations management (ITOM) and business intelligence and analytics software. It is difficult to predict customer demand for our applications, customer adoption and renewal rates, the rate at which existing customers expand their usage of our integrated suite of applications, the size and growth rate of the market for our solutions, the entry of competitive products or the success of existing competitive products. The utilization of application intelligence is still relatively new. Any expansion in our addressable market depends on a number of factors, including businesses continued and growing reliance on software applications to manage and drive critical business functions and customer interactions, the continued proliferation of mobility, large data sets, cloud computing and the Internet of Things, changes in the competitive landscape, technological and IT architecture changes, budgetary constraints of our customers and unfavorable economic conditions. If our integrated suite of applications does not achieve widespread adoption or there is a reduction in demand for application intelligence solutions caused by a lack of customer acceptance, technological challenges, competing technologies and products, decreases in corporate or IT infrastructure spending, weakening economic conditions, or other factors, it could result in reduced customer purchases, reduced renewal rates and decreased revenue, any of which will adversely affect our business, operating results and financial condition.

Our business is dependent on overall demand for application intelligence solutions and therefore reduced spending on application intelligence solutions or overall adverse economic conditions may negatively affect our business, operating results and financial condition.

Our business depends on the overall demand for application intelligence solutions, particularly demand from mid- to large-size organizations worldwide, and the purchase of our applications is often discretionary. In an economic downturn, our customers may reduce their operating or IT budgets, which could cause them to defer or forego purchases of application intelligence solutions. Customers may delay or cancel IT projects or seek to

Index to Financial Statements

lower their costs by renegotiating vendor contracts. To the extent purchases of application intelligence solutions are perceived by existing customers and potential customers to be discretionary, our revenue may be disproportionately affected by delays or reductions in general IT spending. Weak global economic conditions, including the effects of the outcome of the United Kingdom’s referendum on membership in the European Union (EU), or a reduction in application intelligence spending even if general economic conditions remain unaffected, could adversely impact our business, operating results and financial condition in a number of ways, including longer sales cycles, lower prices for our applications, higher default rates among our customers and partners, reduced subscription renewals and lower billings. In addition, any negative economic effects or instability resulting from the transition to a new presidential administration in the United States, including changes in the political environment and international relations as well as resulting regulatory or tax policy changes may adversely affect our business and financial results. Furthermore, during challenging economic times our customers may face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to increase our allowance for doubtful accounts, which will adversely affect our financial results.

As the market for application intelligence solutions is new and continues to develop, trends in spending remain unpredictable and subject to reductions due to the changing technology environment and customer needs as well as uncertainties about the future. Deterioration in the demand for application intelligence solutions, as well as economic uncertainty or an economic downturn, may harm our business, operating results and financial condition in the future.

We face significant competition which may adversely affect our ability to add new customers, retain existing customers and grow our business.

The markets in which we compete are highly competitive, fragmented, evolving, complex and defined by constantly changing technology and customer demands, and we expect competition to continue to accelerate in the future. A significant number of companies have developed or are developing products and services that currently, or in the future may, compete with some or all of our applications. This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and our failure to increase, or loss of, market share, any of which could adversely affect our business, operating results and financial condition.

We compete either directly or indirectly with system management vendors, such as BMC Software, Inc. and CA, Inc., software application performance management providers, such as Dynatrace LLC and New Relic, Inc., diversified technology companies, such as Hewlett Packard Enterprise Company and Microsoft Corporation, and ITOM, business intelligence, analytics and other point solution vendors that address a portion of the issues that we solve. In addition, we face potential competition from participants in adjacent markets that may enter our markets by leveraging related technologies and partnering with or acquiring other companies, or providing alternative approaches to provide similar results. We may also face competition from companies entering our market, which has a relatively low barrier to entry in some segments, including large technology companies which could expand their platforms or acquire one of our competitors. While these companies do not currently focus on our market, they have significantly greater financial resources and longer operating histories than we do. They may be able to devote greater resources to the development and improvement of their offerings than we can and, as a result, may be able to respond more quickly to technological changes and customers’ changing needs. Additionally, in certain limited circumstances customers may elect to build in-house solutions to address their needs, particularly the world’s largest enterprise technology companies with uniquely complex and large software application and IT infrastructure environments. Any such in-house solutions could leverage open source software, and therefore be made generally available at little or no cost.

Moreover, because our market is changing rapidly, it is possible that new entrants, especially those with substantial resources, more efficient operating models, more rapid product development cycles or lower sales and marketing costs, could introduce new products that disrupt the manner in which application intelligence addresses the needs of our existing customers and potential customers.

Index to Financial Statements

Many existing and potential competitors enjoy substantial competitive advantages, such as:

•

larger sales and marketing budgets and resources;

•

access to larger customer bases which often provide incumbency advantages;

•

broader global distribution and presence;

•

greater resources to make acquisitions;

•

the ability to bundle competitive offerings with other products and services;

•

greater brand recognition and longer operating histories;

•

lower labor and development costs;

•

larger and more mature intellectual property portfolios; and

•

substantially greater financial, technical, management and other resources.

These competitive pressures in our markets or our failure to compete effectively may result in fewer customers, price reductions, fewer orders, reduced revenue and gross profits and loss of market share. Any failure to meet and address these factors could materially and adversely affect our business, operating results and financial condition. In addition, some of our larger potential competitors have substantially broader product offerings and commercial relationships than we do. These competitors could incorporate additional functionality into their competing products from their wider product offerings or leverage their commercial relationships in a manner that discourages enterprises from purchasing our applications, including through selling at zero or negative margins, product bundling or closed technology platforms. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements. These established competitors may also have longer-term and more extensive relationships with our existing and potential customers that provide them with an advantage in competing for business with those customers. Further, to the extent that one of our competitors establishes or strengthens a cooperative relationship with, or acquires one or more software application performance management, data analytics, compliance and network visibility vendors, it could adversely affect our ability to compete. Our ability to compete will depend in large part on our ability to provide applications that help our customers improve their end-user experiences, compete effectively on price and ensure a high level of customer satisfaction. We may be required to make substantial additional investments in research and development and sales and marketing in order to respond to these competitive pressures, and we may not be able to compete successfully in the future.

If our customers do not expand their use of our applications beyond the current predominant use cases and organizational deployments or renew their existing contracts with us, our ability to grow our business and improve our operating results and financial condition may be adversely affected.

Our future success depends, in part, on our ability to increase the adoption of our applications within and across our existing customers and future customers. Many of our customers initially deploy one or more of our applications in specific groups or departments within their organization. In addition, many of our customers initially deploy our applications for a specific use case, predominately application performance management. Our ability to grow our business, expand our customers’ use of our applications and platform and sell additional applications depends in part on our ability to persuade customers to expand their use of our integrated suite of applications to address additional use cases, such as operational and business analytics, and additional ITOM functions, including end-user and infrastructure monitoring. If we fail to expand existing deployments or sell additional applications to our customers, our ability to grow our business and improve our operating results and financial condition will be adversely affected.

Further, existing customers generally have no contractual obligation to renew their contracts after their initial term, and given our limited operating history, we may not be able to accurately predict our renewal rates. Our

Index to Financial Statements

customers may elect not to renew their subscriptions and services or to reduce the number of software agents that they deploy, thereby reducing our future billings and revenue. If our customers renew their contracts, they may renew for shorter contract lengths or on terms that are less economically beneficial to us. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our pricing or our applications’ functionality, features or performance, competitors’ product offerings or in-house developed products, consolidation within our customer base, customers’ ability to continue their operations and spending levels and other factors, a number of which are beyond our control. If our customers do not renew their contracts or renew on less favorable terms, our revenue may grow more slowly than expected, if at all, and our business, operating results and financial condition will be adversely affected.

We have made significant investments in recent periods, and intend to continue to invest, to support our growth, and these investments may achieve delayed or lower than expected benefits, which could adversely affect our business, operating results and financial condition.

We have experienced, and may continue to experience, rapid growth and organizational change, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. Additionally, we continue to increase the breadth and scope of our offerings and our operations. To support this growth, and to manage any future growth effectively, we must continue to improve our IT and financial infrastructures, our operating and administrative systems and our ability to manage headcount, capital and internal processes in an efficient manner. Our organizational structure is also becoming more complex as we grow our operational, financial and management infrastructure and we must continue to improve our internal controls as well as our reporting systems and procedures. We intend to continue to invest to expand our business, including investing in research and development and sales and marketing operations, hiring additional personnel, improving our internal controls, reporting systems and procedures, and upgrading our infrastructure. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected.

The market for application intelligence solutions is at an early stage of development and is characterized by constant change and innovation, and we expect it to continue to rapidly evolve. Moreover, many of our customers operate in industries characterized by changing technologies and business models, which require them to develop and manage increasingly complex software application and IT infrastructure environments. Our historical success has been based on our ability to provide our customers with a unified, real-time view into software application and IT infrastructure performance, the quality of their end users’ experiences and the resulting impact on their businesses and brands. Our success has also depended upon our ability to identify, target and reach enterprises that need our applications through sales and lead generation activities and successfully convert potential customers and users of our self-service, web-based free trials of our applications to paying customers. If we do not respond to the rapidly changing needs of our customers by developing and making available on a timely basis new applications and application enhancements that can address evolving customer needs, our competitive position and business prospects will be harmed.

Additionally, the process of developing new technology is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological trends, our business could be harmed. We believe that we must continue to dedicate significant resources to our research and development efforts, including significant resources to developing new applications and application enhancements before knowing whether the market will accept them. Our new applications and application enhancements could fail to attain sufficient market acceptance for many reasons, including:

•

delays in releasing our new applications or application enhancements to the market;

Index to Financial Statements

•

the failure to accurately predict market or customer demands;

•

defects, errors or failures in the design or performance of our new applications or application enhancements;

•

negative publicity about the performance or effectiveness of our applications;

•

the introduction or anticipated introduction of competing products by our competitors;

•

poor business conditions for our customers, causing them to delay purchases; and

•

the perceived value of our applications or enhancements relative to their cost.

To the extent we are not able to continue to execute on our business model to timely and effectively develop and market applications to address these challenges, our business, operating results and financial condition will be adversely affected.

There can be no assurance that we will successfully identify new opportunities, develop and bring new applications or application enhancements to market on a timely basis or achieve market acceptance of our applications, or that products and technologies developed by others will not render our integrated suite of applications obsolete or non-competitive. Further, we may make changes to our applications that our customers do not like or find useful. We may also discontinue certain features, begin to charge for certain features that are currently free or increase fees for any of our features or usage of our applications. If our new applications or application enhancements do not achieve adequate acceptance in the market, our competitive position will be impaired, our revenue may decline or grow more slowly than expected and the negative impact on our operating results may be particularly acute and we may not receive a return on our investment because of the upfront research and development, sales and marketing and other expenses we incur in connection with new applications or application enhancements.

We have begun the process of implementing a new enterprise resource planning system as well as other accounting and sales IT systems, including our system for tracking sales commissions, as part of our ongoing technology and process improvements. If these new systems prove ineffective, or if we experience issues with the transition from our current systems, we may be unable to timely or accurately prepare financial reports, make payments to our suppliers and employees, or invoice and collect from our customers.

We have begun the process of implementing a new enterprise resource planning (ERP) system as well as other accounting and sales IT systems, including our systems for tracking revenue recognition and sales commissions, as part of our ongoing technology and process improvements. Our ERP system is critical to our ability to accurately maintain books and records and prepare our financial statements. The implementation of our new ERP system and other technology and process improvements will require the investment of significant financial and human resources. In addition, we may not be able to successfully complete the full implementation of the ERP system or other accounting and sales IT systems without experiencing difficulties. Any delay in the implementation, or disruption in the upgrade, of our ERP system or other accounting and sales IT systems could adversely affect our ability to timely and accurately report financial information, including the filing of our quarterly or annual reports with the SEC. Such delay or disruption could also impact our ability to timely or accurately make payments to our suppliers and employees, and could also inhibit our ability to invoice and collect from our customers. Data integrity problems or other issues may be discovered which, if not corrected, could impact our business or financial results. In addition, we may experience periodic or prolonged disruption of our financial functions arising out of this conversion, general use of such system, other periodic upgrades or updates, or other external factors that are outside of our control. If we encounter unforeseen problems with our ERP system or other related systems and infrastructure, our business, operations, and financial results could be adversely affected.

We may also need to implement additional systems or transition to other new systems, including systems to recognize revenue in accordance with the new revenue accounting guidance, that require additional expenditures

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in order to function effectively as a public company. There can be no assurance that our implementation of additional systems or transition to new systems will be successful, or that such implementation or transition will not present unforeseen costs or demands on our management.

Our quarterly and annual operating results may vary significantly and may be difficult to predict. If we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.

Our annual and quarterly revenue and operating results have fluctuated significantly in the past and may vary significantly in the future due to a variety of factors, many of which are outside of our control. Our financial results in any one quarter may not be meaningful and should not be relied upon as indicative of future performance. If our billings, revenue or operating results fall below the expectations of investors or securities analysts in a particular quarter, or below any guidance that we may provide, the price of our common stock could decline. We may not be able to accurately predict our future billings, revenue or operating results. Some of the important factors that may cause our operating results to fluctuate include:

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fluctuations in the demand for our applications, and the timing of purchases by our customers, particularly larger purchases;

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our ability to attract new customers or retain existing customers;

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the budgeting cycles and internal purchasing priorities of our customers;

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changes in customer renewal rates and our ability to upsell and cross-sell additional applications to our existing customers;

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the seasonal buying patterns of our customers;

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the mix of time-based licenses, SaaS subscriptions and perpetual licenses that we sell;

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the payment terms and contract term length associated with our product sales and their effect on our billings and free cash flow;

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changes in customer requirements or market needs;

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changes in the growth rate of the market for software application monitoring and analytics solutions;

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our ability to anticipate or respond to changes in the competitive landscape;

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our ability to timely develop, introduce and gain market acceptance for new applications and application enhancements;

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our ability to successfully expand our business internationally;

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our ability to maintain and expand our strategic partner network, particularly resellers, distributors and managed service providers;

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our ability to control costs, including our operating expenses;

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our ability to efficiently complete or integrate any acquisitions that we may undertake in the future;

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general economic, industry and market conditions, both domestically and in our foreign markets;

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foreign currency exchange rate fluctuations;

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the timing of revenue recognition for our billings, and the effect of the mix of time-based licenses, SaaS subscriptions and perpetual licenses on the timing of revenue recognition;

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extraordinary expenses, such as litigation or other dispute-related settlement payments;

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future accounting pronouncements or changes in our accounting policies; and

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changes in our effective tax rate due to use of net operating loss carryovers and tax credits, changes in the mix of jurisdictions in which we earn revenue and changes in federal, state and non-U.S. tax laws and regulations.

Any one of the factors referred to above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our quarterly and annual operating results, including fluctuations in our key performance indicators. This variability and unpredictability could result in our failure to meet our business plan or the expectations of securities analysts or investors for any period. In addition, a significant percentage of our operating expenses are fixed in nature in the short term and based on forecasted revenue trends. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on margins in the short term. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.

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

We expect our revenue mix to vary over time due to a number of factors, including the mix of time-based licenses, SaaS subscriptions and perpetual licenses and the mix of applications sold. Due to the differing revenue recognition policies applicable to our time-based licenses, SaaS subscription, perpetual licenses and professional services, shifts in the mix between subscription and perpetual licenses from quarter to quarter could produce substantial variation in revenues recognized even if our billings remain consistent. In addition, transactions with our customers may switch subscriptions to perpetual licenses during the sales cycle or even after deployment. Further, our gross margins and operating results could be harmed by changes in revenue mix and costs, together with numerous other factors, including: entry into new markets or growth in lower margin markets; entry into markets with different pricing and cost structures; pricing discounts; and increased price competition. Any one of these factors or the cumulative effects of certain of these factors may result in significant fluctuations in our gross margin and operating results. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could decline.

We rely on revenue from subscriptions and service contracts, and because we recognize revenue from subscriptions and service contracts over the term of the relevant subscription or service period, downturns or upturns in our billings are not immediately reflected in full in our operating results.

Subscription revenue accounts for a significant portion of our total revenue, and we also derive a portion of our revenue from our professional services. We recognize subscription revenue and professional service and other revenue ratably over the term of the relevant service period, which is generally one or three years. As a result, much of the subscription revenue and professional service and other revenue we report each quarter are derived from subscription and professional service contracts that we entered into with customers in prior periods. Consequently, a decline in new or renewed subscription or professional service contracts in any quarter will not be fully reflected in revenue or other operating results in that quarter but will negatively affect our revenue and other operating results in future quarters. Also, it is difficult for us to rapidly increase our revenue from these sources through additional billings in a given period, as revenue from new and renewal subscription and professional service contracts is recognized ratably over the applicable service period. Furthermore, any increases in the average term of subscription and professional service contracts would result in revenue for those contracts being recognized over longer periods of time with less impact on our operating results in the near term. Additionally, if the average term of our subscription and professional service contracts with our customers shortens, our cash flow and operating results may be adversely affected.

Seasonality may cause fluctuations in our sales and operating results.

We have experienced seasonality in our sales and operating results in the past, and we believe that we will continue to experience such seasonality in the future. The first quarter of each year is usually our lowest sales

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quarter during the year. Billings and revenue during the first quarter of each year are typically lower than the prior fourth quarter. We believe that this results from the procurement, budgeting and deployment cycles of many of our customers, particularly our enterprise customers. We generally expect an increase in sales in the second half of each year as budgets of our customers for annual technology purchases are being fully utilized. Furthermore, we have experienced a seasonal slowdown in our billings growth during our second fiscal quarter, and believe it was due to a seasonal slowdown in customer orders during the later summer months. We expect that seasonality will continue to affect our sales and operating results in the future and may reduce our ability to predict cash flow and optimize the timing of our operating expenses.

We have limited experience with respect to determining the optimal prices for our applications.

We charge our customers on a per agent basis and for certain applications on a volume basis. We expect that we may need to change our pricing from time to time. In the past we have sometimes reduced our prices either for individual customers in connection with long-term agreements or for a particular application. Further, as competitors introduce new products that compete with ours or reduce their prices, we may be unable to attract new customers or retain existing customers based on our historical pricing. As we expand internationally, we also must determine the appropriate price to enable us to compete effectively internationally. Moreover, mid- to large-size enterprises may demand substantial price discounts as part of the negotiation of sales contracts. As a result, in the future we may be required or choose to reduce our prices or change our pricing model, which could adversely affect our business, operating results and financial condition.

Incorrect deployment, implementation or use of our applications could result in customer dissatisfaction and negatively affect our business, operating results and growth prospects.

If our applications are not implemented, tested or used correctly or as intended, or if our applications conflict with or disrupt our customer’s systems, then inadequate performance may result or the performance of our customers’ software applications may be adversely affected. Because our customers rely on our applications to manage their business-critical and customer-facing software applications, the incorrect or inadequate implementation, testing or use of our applications, including issues related to the deployment of our applications directly into production-first software environments, our failure, or the failure of our partners, to properly train customers on how to productively use our applications has resulted in, and may in the future, result in customer dissatisfaction or negative publicity which adversely affects our reputation and brand and could result in lost upsell and cross-sell opportunities. In addition, negative publicity related to our customer relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.

In cases where our applications have been deployed within a customer’s own datacenter, if we, our implementation partners or our customers are unable to configure or implement our software properly, or are unable to do so in a timely manner, customer perceptions of our applications may be adversely affected, our reputation and brand may suffer, and our renewal rates and sales of applications to customers may be adversely affected. In addition, our on-premises product deployment option imposes server load and data storage requirements for implementation which can impact the performance of our customers’ software applications and IT infrastructures during implementation, which could also damage customer perceptions of our applications and our renewal rates.

Our success depends, in part, on the scalability and security of our systems and infrastructure. System interruption or delays from third-party or on-site datacenter hosting facilities and the lack of integration, redundancy and scalability in our systems and infrastructures could impair the delivery of our services and harm our business.

Our success depends, in part, on our ability to maintain the scalability and security of our systems and infrastructure, including websites, information and related systems. Further, we are in the process of

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rearchitecting certain portions of our application intelligence software platform to further support the scalability and security of our integrated suite of applications. We are also leveraging cloud platforms and integrating with Amazon Web Services infrastructure and components to address scalability and resiliency risks inherent in our current architecture. If we are unable to successfully complete the rearchitecture or do not achieve the benefits we anticipate, our ability to introduce new applications and application enhancements or improve the scalability and security of our current offerings may suffer and, as a result, our business and operating results would be adversely affected. Additionally, system interruption and the lack of integration and redundancy in our information systems and infrastructures may harm our ability to operate our websites and web-based services, respond to customer inquiries and generally maintain cost-efficient operations. We may experience occasional system interruptions that make some or all systems or data unavailable or prevent us from efficiently providing services.

We currently utilize a co-located datacenter as well as Amazon Web Services. Any damage to, or failure of, these data facilities generally could result in interruptions in our service. As we continue to add third-party data facilities and add capacity in our existing third-party datacenter and our arrangements with Amazon Web Services or other cloud-based storage providers, we may move or transfer our data and our customers’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our service. We also rely on affiliate and third-party computer systems, broadband and other communications systems and service providers in connection with the provision of services generally, as well as to facilitate, process and fulfill transactions. Interruptions in our service may reduce our revenue, cause us to issue credits to our customers under our service level agreements with them, harm our reputation and renewal rates, and adversely affect our ability to attract new customers. Fire, flood, power loss, telecommunications failure, hurricanes, tornadoes, earthquakes, acts of war or terrorism, acts of god and similar events or disruptions may damage or interrupt computer, broadband or other communications systems and infrastructures at any time. Any of these events could cause system interruption, delays and loss of critical data, and could prevent us from providing services. While we have backup systems for certain aspects of our operations, disaster recovery planning by its nature cannot be sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. Additionally, our applications are accessed by a large number of customers often at the same time. As we continue to expand the number of our customers and applications available to our customers, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. If any of these events were to occur, it could harm our business, operating results and financial condition.

Real or perceived errors, failures, defects or vulnerabilities in our applications could adversely affect our financial results and growth prospects.

Our applications and underlying platform are complex, and in the past, we have discovered undetected software errors, failures, defects and vulnerabilities in our existing applications after they have been released, especially when new versions or updates are released. Our applications and our platform are often installed and used in large-scale computing environments with different operating systems, system management software and equipment and networking configurations, which have in the past, and may in the future, cause errors in, or failures of, our applications or other aspects of the computing environment into which they are deployed. In addition, deployment of our applications into complicated, large-scale computing environments have in the past exposed, and may, in the future, expose undetected errors, failures or defects in our applications. Despite testing by us, errors, failures or defects may not be found in our applications until they are released to our customers. Real or perceived errors, failures, defects or vulnerabilities in our applications could result in, among other things, negative publicity, lower renewal rates, loss of or delay in market acceptance of our applications, loss of competitive position or claims by customers for losses sustained by them or expose us to breach of contract claims and related liabilities. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem.

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Security breaches, computer malware, computer hacking attacks and other security incidents could harm our business, reputation, brand and operating results.

Security incidents have become more prevalent across industries and may occur on our systems. These security incidents may be caused by or result in but are not limited to security breaches, computer malware or malicious software, computer hacking, denial of service attacks, security system control failures in our own systems or from vendors we use, email phishing, software vulnerabilities, social engineering, sabotage and drive-by downloads. Such security incidents, whether intentional or otherwise, may result from actions of hackers, criminals, nation states, vendors, employees, customers or other threat actors.

We may in the future experience disruptions, outages and other performance problems on our systems due to service attacks, unauthorized access or other security related incidents. Any security breach or loss of system control caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss, modification or corruption of data, software, hardware or other computer equipment and the inadvertent transmission of computer malware could harm our business, operating results and financial condition.

In addition, our services involve the storage and transmission of customers’ confidential business and personal information in our facilities and on our equipment, networks and corporate systems. Security incidents could expose us to litigation, remediation costs, increased costs for security measures, loss of revenue, damage to our reputation and potential liability. Our customer data and corporate systems and security measures may be compromised due to the actions of outside parties, employee error, malfeasance, a combination of these or otherwise and, as a result, an unauthorized party may obtain access to our data or our customers’ data. Additionally, outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our customers’ data. We must continuously examine and modify our security controls and business policies to address new threats, the use of new devices and technologies, and the increasing focus by our customers and regulators on controlling and protecting confidential business, personal and user data and these efforts may be costly or distracting.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement sufficient control measures to defend against these techniques. Though it is difficult to determine what harm may directly result from any specific incident or breach, any failure to maintain confidentiality, availability, integrity, performance and reliability of our systems and infrastructure may harm our reputation and our ability to retain existing customers and attract new customers. If an actual or perceived security incident occurs, the market perception of the effectiveness of our security controls could be harmed, our brand and reputation could be damaged, we could lose customers, and we could suffer financial exposure due to such events or in connection with remediation efforts, investigation costs, regulatory fines and changed security control, system architecture and system protection measures.

We believe that our brand is integral to our success and if we fail to cost-effectively promote or protect our brand, our business and competitive position may be harmed.

We believe that maintaining and enhancing our brand and increasing market awareness of our company and our applications are critical to achieving broad market acceptance of our existing and future applications and are important elements in attracting and retaining customers, partners and employees, particularly as we continue to expand internationally. In addition, independent industry analysts, such as Gartner and Forrester, often provide reviews of our applications, as well as those of our competitors, and perception of our applications in the marketplace may be significantly influenced by these reviews. We have no control over what these industry analysts report, and because industry analysts may influence current and potential customers, our brand could be harmed if they do not provide a positive review of our applications or view us as a market leader.

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The successful promotion of our brand and the market’s awareness of our applications and platform will depend largely upon our ability to continue to offer enterprise-grade application intelligence solutions, our ability to be thought leaders in application intelligence, our marketing efforts and our ability to successfully differentiate our applications from those of our competitors. We have invested, and expect to continue to invest, substantial resources to promote and maintain our brand and generate sales leads, both domestically and internationally, but there is no guarantee that our brand development strategies will enhance the recognition of our brand or lead to increased sales. If our efforts to promote and maintain our brand are not cost-effective or successful, our operating results and our ability to attract and retain customers, partners and employees may be adversely affected. In addition, even if our brand recognition and customer loyalty increases, this may not result in increased sales of our applications or higher revenue. Moreover, if we fail to generate a sufficient volume of sales leads from these activities, their associated costs may not be offset by increased revenue and our business and operating results could be adversely affected.

Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our applications.

Our ability to increase our customer base and achieve broader market acceptance of our applications will depend to a significant extent on the ability of our sales and marketing organizations to work together to drive our sales pipeline and cultivate customer and partner relationships to drive revenue growth. We have invested in and plan to continue expanding our sales and marketing organizations, both domestically and internationally. We also plan to dedicate significant resources to sales and marketing programs, including lead generation activities and brand awareness campaigns, such as our industry events, webinars, user events and our worldwide user and partner conference, AppSphere. If we are unable to hire, develop and retain talented sales personnel or marketing personnel, if our new sales personnel or marketing personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective, our ability to increase our customer base and achieve broader market acceptance of our applications could be harmed.

Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, our billings and revenue are difficult to predict and may vary substantially from period to period, which may cause our operating results to fluctuate significantly.

Our operating results may fluctuate, in part, because of the resource intensive nature of our sales efforts to mid- and large-size enterprises, from which we derive a significant portion of our billings and revenue, the length and variability of our sales cycle and difficulty in adjusting our operating expenses in the short term. The length of our sales cycle, from identification of the opportunity to delivery of and payment for our applications and services, typically ranges from six months to one year but can be longer and may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Because the length of time required to close a sale may vary substantially from customer to customer, it is difficult to predict exactly when, or even if, we will make a sale to a potential customer. Customers often view the purchase of our applications as a significant and strategic decision and, as a result, frequently require considerable time to evaluate and test our applications and those of our competitors prior to making a purchase decision and placing an order. A number of factors influence the length and variability of our sales cycle, including, for example:

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the need to educate potential customers about the uses and benefits of our applications;

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the discretionary nature of potential customers’ purchasing and budget cycles; and

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the competitive nature of potential customers’ evaluation and purchasing approval processes.

To the extent our competitors develop products that our prospective customers view as equivalent or superior to our applications, our average sales cycle may increase. Additionally, if a key sales member leaves our employment or if our primary point of contact at a customer or potential customers leaves his or her employment, our sales cycle may be further extended or customer opportunities may be lost. As a result of the buying behavior of mid- to large-sized enterprises and the efforts of our sales force and partners to meet or exceed their sales

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objectives by the end of each fiscal quarter, we have historically received and generated a substantial portion of billings and generated a significant portion of our quarterly revenue during the last month of each quarter. These transactions may not close as expected, may switch from perpetual licenses to SaaS subscriptions or time-based licenses or may be delayed in closing. The loss or delay of one or more large transactions in a quarter could impact our operating results for that quarter and potentially future quarters. As a result of these factors, it is difficult for us to forecast our revenue accurately in any specific quarter. The unpredictability of the timing of customer purchases, particularly large purchases, could cause our billings and revenue to vary from period to period or to fall below expected levels for a given period, which will adversely affect our business, operating results and financial condition, and could cause the market price of our common stock to decline.

Our ability to sell our applications is dependent upon the quality of our professional services and customer support services, and our failure to offer high-quality professional services and customer support services could have an adverse effect on our business and operating results.

Once our applications are deployed, our customers utilize our professional services and customer support services and those of our partners to resolve any issues relating to the implementation or operation of our applications. Our sales process is highly dependent on the quality of our applications, the reputation of our business and positive recommendations from our existing customers. If a customer is not satisfied with the quality of work performed by us or our partners or with the interoperability of our applications with their IT infrastructure, then we may incur additional costs to address the situation and our customer’s dissatisfaction which could damage our ability to sell additional applications and adversely affect our revenue and operating results.

Any failure to maintain high-quality professional services and customer support services, or a market perception that we do not maintain high-quality professional services and customer support services, could adversely affect our reputation, our ability to sell our applications to existing and prospective customers, and our business, operating results and financial condition. In addition, as we further expand our operations internationally, our professional services and customer support services will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. Alleviating any of these problems could require significant capital expenditures which could adversely affect our operating results and growth prospects. Our failure or the failure of our partners to maintain high-quality professional services and customer support services could adversely affect our reputation, business, operating results and financial condition.

We typically provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our revenue and operating results.

Our customer agreements typically provide for service level commitments, which relate to uptime, response times and escalation procedures. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our applications, we may be contractually obligated to provide these customers with service credits, refunds for prepaid amounts related to unused subscription services, or we could face contract terminations. Our revenue could be harmed if we fail to meet our service level commitments under our agreements with our customers, including, but not limited to, maintenance response times and service outages. To date, our failure to meet our service commitments has caused us to provide customers with service credits which have not been material to our financial position but we cannot assure you that we will not incur material costs associated with providing service credits to our customers in the future. Additionally, any failure to meet our service level commitments could harm our reputation, business, operating results and financial condition.

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We depend on the experience and expertise of our senior management team and key technical and sales employees, and the loss of any key employee, or the inability to identify and recruit executive officers and key employees in a timely manner, could harm our business, operating results and financial condition.

Our success depends upon the continued service of our senior management team and key technical employees, as well as our ability to continue to attract and retain additional highly qualified personnel. Each member of our senior management team, key technical and sales personnel and other employees could terminate his or her relationship with us at any time. In addition, a number of key members of our senior management team have joined us recently as part of our investment in the expansion of our business, including our President and Chief Executive Officer – David Wadhwani, our Chief Financial Officer – Randy Gottfried, our Chief Marketing Officer – Kendall Collins, our Chief People Officer – Susan Lovegren and our Senior Vice President, Customer and Strategic Operations – Danny Winokur. In connection with Joe Sexton’s transition to an advisory role, we recently appointed Dali Rajic as our Chief Revenue Officer. In August 2016, our Founder, Jyoti Bansal, resigned as an executive officer and employee but continues to serve as our Chairman. As we continue to grow, other members of our senior management team may transition into new roles within AppDynamics and there may be additional changes in our senior management team resulting from the hiring or departure of executives, which could disrupt our business. If we fail to identify, recruit and integrate strategic hires, or if new members of our senior management team do not successfully transition into their new positions or fail to create effective working relationships among the other members of management, our business, operating results and financial condition could be adversely affected. Any such changes in leadership or the loss of any of our founder or other members of our senior management team or key personnel, might significantly delay or prevent the achievement of our business objectives and could harm our business and our customer relationships, especially in the event that we have not been successful in developing adequate succession plans. We do not maintain key man life insurance with respect to any officer or other employee.

We rely on highly skilled personnel and, if we are unable to attract, retain or motivate substantial numbers of qualified personnel or expand and train our sales force, we may not be able to grow effectively.

Our success largely depends on the talents and efforts of highly skilled individuals and our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry, especially in the San Francisco Bay Area is intense and often leads to increased compensation and other personnel costs. In addition, our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees. Our continued ability to compete effectively depends on our ability to attract substantial numbers of qualified new employees and to retain and motivate our existing employees. Also, to the extent we hire employees from competitors or other companies, we may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information of their former employers.

In addition, we are substantially dependent on our direct sales force to obtain new customers and increase sales to existing customers. There is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining a sufficient number of sales personnel to support our domestic and international growth. Further, due to our rapid growth, a large percentage of our sales force is new, and new hires require significant training and experience before reaching full productivity. Our recent hires and planned hires may not become productive as quickly as we expect, or at all, and we may not be able to hire or retain qualified personnel in a timely manner. If we are unable to hire, train and retain a sufficient number of qualified and productive sales personnel, our business, operating results and financial condition could be harmed.

Further, a large portion of our employee base is substantially vested in significant stock option grants and, upon the expiration of the lock-up period applicable to this offering, restricted stock units (RSUs). The ability to either exercise those options and sell their stock and vested and settled RSUs in a public market after the completion of this offering and after the completion of any applicable lock-up period may lead to a larger than normal turnover

Index to Financial Statements

rate. Additionally, subject to certain limitations, RSUs will vest upon expiration of the lock-up period applicable to this offering, assuming an expiration date of . We intend to issue stock options and RSUs as key components of our overall compensation and employee attraction and retention efforts. Further, upon the completion of this offering we will recognize a material one-time stock-based compensation expense due to the performance condition associated with a substantial majority of our RSUs, outstanding as of October 31, 2016, becoming probable.

We believe that our corporate culture and innovative research and development model are key components of our success. If we cannot maintain these key components as we grow, our business, operating results and financial condition could be harmed.

Our corporate culture, which we believe fosters innovation, encourages teamwork and prioritizes customer success, and our innovative research and development model have been critical components of our success. As we develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture and innovative research and development model. Any failure to preserve our culture and research and development model as we grow could negatively affect our future success, including our ability to attract and retain employees, encourage innovation, creativity and teamwork and effectively focus on and pursue our corporate objectives.

We generate a significant amount of revenue from sales outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.

Sales to customers located outside of the United States represented 30%, 28% and 36% of our total revenue for the fiscal years ended January 31, 2014, 2015 and 2016, respectively. In order to maintain and expand our sales internationally, we need to hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing and retaining international staff, and specifically sales management and sales personnel, we may experience difficulties in growing our international sales and operations. If we are not able to maintain successful partner and distributor relationships internationally or recruit additional companies to enter into strategic partner and distributor relationships with us, our future success in these international markets could be limited.

Additionally, our international sales and operations are subject to a number of risks, including the following:

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increased expenses associated with international sales and operations, including establishing and maintaining office space and equipment for our international operations;

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the effects and any resulting negative economic impact of the outcome of the United Kingdom’s referendum to exit the EU;

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our ability to grow our sales infrastructure and penetration in the Asian-Pacific Region as the substantial majority of our international revenue has been generated in Europe, the Middle East and Africa to date;

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unexpected costs and errors in the localization of our applications, including translation into foreign languages and adaptation for local practices and regulatory requirements;

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difficulties in managing operations and adapting to customer desires due to distance, language and cultural differences;

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management communication and integration problems resulting from cultural and geographic dispersion;

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political instability and unfavorable economic conditions in the markets in which we currently have international operations or into which our brands and businesses may expand;

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more restrictive or otherwise unfavorable government regulations, which could result in increased compliance costs and/or otherwise restrict the manner in which we provide our applications;

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•

greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;

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limitations on the enforcement of intellectual property rights, which will preclude us from building the brand recognition upon which we have come to rely in many jurisdictions;

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risks associated with trade restrictions and foreign legal requirements, including the importation, certification and localization of our applications required in foreign countries;

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limitations on the ability of foreign subsidiaries to repatriate profits or otherwise remit earnings to us;

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adverse tax consequences and multiple and possibly overlapping tax structures;

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greater risk of unexpected changes in regulatory practices, tariffs and tax laws and treaties;

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limitations on technology infrastructure, which could limit our ability to migrate international operations to our existing systems, which could result in increased costs;

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greater risk of a failure of foreign employees to comply with both U.S. and foreign laws, including export and antitrust regulations, the U.S. Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act 2010 (U.K. Bribery Act) and any trade regulations ensuring fair trade practices;

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heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements; and

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the potential for political unrest, terrorism, hostilities or war.

Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. In addition, the expansion of our existing international operations and entry into additional international markets has required and will continue to require significant management attention and financial resources. These factors and other factors could harm our ability to gain future international revenue and, consequently, materially affect our business, operating results and financial condition.

While we have primarily transacted with our customers, vendors and partners in U.S. dollars, we have transacted in foreign currencies and expect to significantly expand the number of transactions that are denominated in foreign currencies in the future. Given our volume of international sales, a substantial portion of our total revenue is subject to foreign currency risk. Further strengthening of the U.S. dollar could cause our applications to become relatively more expensive to our customers outside of the United States leading to decreased sales from certain customers and a reduction in billings and revenue from purchases not denominated in U.S. dollars. Furthermore, a portion of our operating expenses is incurred outside of the United States, is denominated in foreign currencies, and is subject to fluctuations due to changes in foreign currency exchange rates which have been volatile in recent periods. A reduction in sales, and corresponding reduction in billings and revenue, or an increase in operating expenses due to fluctuations in foreign currency exchange rates will have an adverse effect on our financial condition and operating results. As a result of such foreign currency exchange rate fluctuations, it could also be more difficult to detect underlying trends in our business and operating results. To date, we have not engaged in currency hedging activities to limit risk of exchange rate fluctuations. 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 such hedging activities 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. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments. If we are not able to successfully manage or hedge against the risks associated with currency fluctuations, our financial condition and operating results could be adversely affected.

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Assertions by third parties of infringement or other violations by us of their intellectual property rights, or other lawsuits brought against us, could result in significant costs and substantially harm our business, operating results and financial condition.

Patent and other intellectual property disputes are common in the markets in which we compete. Some companies in the markets in which we compete, including some of our competitors, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims of infringement, misappropriation or other violations of intellectual property rights against us, our partners, our technology partners or our customers. As the number of patents and competitors in our market increase, allegations of infringement, misappropriation and other violations of intellectual property rights may increase. For example, in 2013, CA, Inc. brought a patent infringement action against us in the United States District Court for the Eastern District of New York, which we settled in April 2015. Our broad application portfolio and the competition in our markets further exacerbate the risk of additional third-party intellectual property claims against us in the future. Any allegation of infringement, misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs and resources defending against the claim, could distract our management from our business, and could cause uncertainty among our customers or prospective customers, all of which could have an adverse effect on our business, operating results and financial condition.

Furthermore, from time to time, we face allegations that we, our customers or our partners have infringed, misappropriated or violated intellectual property rights. In addition, companies that bring allegations against us may have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend against similar allegations that may be brought against them than we do. We have received, and may in the future receive, notices alleging that we have misappropriated, misused or infringed other parties’ intellectual property rights, including allegations made by our competitors or by non-practicing entities, and, to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property infringement assertions. There also is a market for acquiring third-party intellectual property rights and a competitor, or other entity, could acquire third-party intellectual property rights and pursue similar assertions based on the acquired intellectual property. They may also make such assertions against our customers or partners.

Additionally, our agreements with customers and partners include indemnification provisions, under which we agree to indemnify them for losses suffered or incurred as a result of allegations of intellectual property infringement and, in some cases, for damages caused by us to property or persons or other third-party allegations. Furthermore, we have agreed in certain instances to defend our partners against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay judgments entered on such assertions. Large indemnity payments could harm our business, operating results and financial condition.

Any allegation of infringement, misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs defending against the allegation and could distract our management from our business. As an example, while we were able to settle our dispute with CA, Inc. and received a full release from all allegations, we expended substantial resources and diverted management attention to settle the lawsuit. In addition, future assertions of patent rights by third parties, and any resulting litigation, may involve non-practicing entities or other adverse patent owners who have no relevant revenue and against whom our own patents may therefore provide little or no deterrence or protection. We cannot assure you that we are not infringing or otherwise violating any third-party intellectual property rights.

An adverse outcome of a dispute may require us to take several adverse steps such as: pay substantial damages, including potentially treble damages, if we are found to have willfully infringed a third party’s patents or copyrights; cease making, using, selling, licensing, importing or otherwise commercializing applications that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to attempt to redesign our applications or otherwise to develop non-infringing technology, which may not be

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successful; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies or intellectual property rights or have royalty obligations imposed by a court; or indemnify our customers, partners and other third parties. Any damages or royalty obligations we may become subject to, any prohibition against our commercializing our applications and any third-party indemnity we may need to provide, as a result of an adverse outcome could harm our business and operating results.

Failure to protect and enforce our proprietary technology and intellectual property rights could substantially harm our business, operating results and financial condition.

The success of our business depends on our ability to protect and enforce our proprietary rights, including our patents, trademarks, copyrights, trade secrets and other intellectual property rights. We attempt to protect our intellectual property under patent, trademark, copyright and trade secret laws, and through a combination of confidentiality procedures, contractual provisions and other methods, all of which offer only limited protection. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our technology and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our technology may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. In expanding our international activities, our exposure to unauthorized copying and use of our technology and proprietary information may increase.

As of October 31, 2016, we had 15 issued patents in the United States, but this number of patents is relatively small in comparison to some of our competitors and potential competitors. Additionally, as of October 31, 2016, we had 84 pending U.S. patent applications, 14 corresponding Patent Cooperation Treaty applications and eight pending patent applications in other non-U.S. jurisdictions, and may file additional patent applications in the future. Our issued patents expire between September 2030 and July 2035. The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. Furthermore, it is possible that our patent applications may not result in issued patents, that the scope of the claims in our issued patents will be insufficient or not have the coverage originally sought, that our issued patents will not provide us with any competitive advantages, and that our issued patents and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. In addition, issuance of a patent does not guarantee that we have an absolute right to practice our patented technology, or that we have the right to exclude others from practicing our patented technology. As a result, we may not be able to obtain adequate patent protection or to enforce our issued patents effectively.

In addition to patented technology, we rely on our unpatented proprietary technology and trade secrets. Despite our efforts to protect our proprietary technology and trade secrets, unauthorized parties may attempt to misappropriate, reverse engineer or otherwise obtain and use them. The contractual provisions that we enter into with employees, consultants, partners, vendors and customers may not prevent unauthorized use or disclosure of our proprietary technology or trade secrets and may not provide an adequate remedy in the event of unauthorized use or disclosure of our proprietary technology or trade secrets.

Moreover, policing unauthorized use of our technologies, applications and intellectual property is difficult, expensive and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. We may be unable to determine the extent of any unauthorized use or infringement of our applications, technologies or intellectual property rights.

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From time to time, legal action by us may be necessary to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the intellectual property rights of others or to defend against allegations of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results, financial condition and cash flows. If we are unable to protect our intellectual property rights, our business, operating results and financial condition will be harmed.

Our use of open source technology could impose limitations on our ability to commercialize our applications and platform and application intelligence software platform.

We use open source software in our applications and platform and expect to continue to use open source software in the future. Although we monitor our use of open source software to avoid subjecting our applications and platform to conditions we do not intend, we may face allegations from others alleging ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the open source software, derivative works, or our proprietary source code that was developed using such software. These allegations could also result in litigation. The terms of many open source licenses have not been interpreted by U.S. courts. As a result, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our applications. In such an event, we could be required to seek licenses from third parties to continue offering our applications, to make our proprietary code generally available in source code form, to re-engineer our applications or to discontinue the sale of our applications if re-engineering could not be accomplished on a timely basis, any of which could adversely affect our business, operating results and financial condition. In addition, if we were to combine our proprietary software applications with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software applications.

We rely on the availability of third-party licenses for some of our applications and our inability to obtain such licenses, or obtain them on favorable terms, could adversely affect our business, operating results and financial condition.

Some of our applications include software or other intellectual property licensed from third parties. It may be necessary in the future to renew licenses relating to various aspects of these applications or to seek new licenses for existing or new applications. There can be no assurance that the necessary licenses will be available on acceptable terms, if at all. The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms, could result in delays in product releases until equivalent technology can be identified, licensed or developed, if at all, and integrated into our products and may have a material adverse effect on our business, operating results and financial condition. In addition, third parties may allege that additional licenses are required for our use of their software or intellectual property, and we may be unable to obtain such licenses on commercially reasonable terms or at all. Moreover, the inclusion in our applications of software or other intellectual property licensed from third parties on a non-exclusive basis could limit our ability to differentiate our applications from those of our competitors.

If we are unable to maintain successful relationships with our partners, or if our partners fail to perform, our ability to market, sell and distribute our applications and services will be limited, and our business, operating results and financial condition could be harmed.

In addition to our direct sales force, we rely on our distributors, resellers and managed service providers to sell and support our applications and services and generate a material portion of our billings and revenue, and we expect that sales through partners will continue to be material.

Our agreements with our partners are generally non-exclusive, meaning our partners may offer products from several different companies to their customers, including products that compete with our applications. If our partners do not effectively market and sell our applications, choose to use greater efforts to market and sell their

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own products or those of our competitors, or fail to meet the needs of our customers, our ability to grow our business and sell our applications and services will be harmed. Furthermore, our partners may cease marketing our applications with limited or no notice and with little or no penalty, and new partners require extensive training and may take several months or more to achieve productivity. The loss of a substantial number of our partners, our possible inability to replace them or the failure to recruit additional partners could harm our operating results. In addition, sales by partners are more likely than direct sales to involve collectability concerns, particularly in developing markets. Our partner structure could also subject us to lawsuits or reputational harm if, for example, a partner misrepresents the functionality of our applications to customers or violates applicable laws or our corporate policies.

Our ability to achieve revenue growth in the future will depend in part on our success in maintaining successful relationships with our partners, and our ability to train our partners to independently sell and deploy our applications. If we are unable to maintain our relationships with these partners or otherwise develop and expand our indirect sales channel, or if our partners fail to perform, our business, operating results and financial condition will be harmed.

Our sales to government entities are subject to a number of challenges and risks.

We sell to U.S. federal and state and foreign governmental agency customers, primarily through our channel partners, and we may increase sales to government entities in the future. Sales to government entities are subject to a number of challenges and risks. Selling to government entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government certification requirements may change and in doing so restrict our ability to sell into the government sector until we have attained the revised certification. Government demand and payment for our applications are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our applications. Government entities may have statutory, contractual or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely affect our future operating results.

The estimates of market opportunity and forecasts of market growth included in this prospectus 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 included in this prospectus are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, if at all. For more information regarding the estimates of market opportunity and the forecasts of market growth included in this prospectus, see the section titled “Industry and Market Data.”

We may require additional capital to support our business, and this capital might not be available on acceptable terms, if at all.

We intend to continue to make investments to support our business and may require additional funds, in particular as we seek to grow our business, including the need to develop new applications or application enhancements, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital, manage our business and pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms

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favorable to us, if at all. Additionally, our existing revolving credit facility and term loan facility with Silicon Valley Bank limits our ability to incur additional indebtedness, however, these restrictions are subject to a number of qualifications and exceptions and may be amended with the consent of Silicon Valley Bank. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our growth, scale our infrastructure, develop new applications or application enhancements and to respond to business challenges could be significantly impaired, and our business may be adversely affected.

We may acquire other businesses which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our operating results.

As part of our business strategy, we have in the past made, and may in the future make, acquisitions or investments in complementary companies, products and technologies that we believe fit within our business model and can address the needs of our customers and potential customers. With respect to our previous acquisitions, we cannot ensure that we will be able to successfully integrate the technology and resources to increase our customer base and grow revenue derived from these acquisitions. In the future, we may not be able to acquire and integrate other companies, products or technologies in a successful manner. We may not be able to find suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if at all. In addition, the pursuit of potential acquisitions may divert the attention of management and cause us to incur additional expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, including increases in revenue, and any acquisitions we complete could be viewed negatively by our customers, investors and industry analysts.

In addition, if we are unsuccessful at integrating such acquisitions, or the technologies associated with such acquisitions, our revenue and operating results could be adversely affected. Any integration process may result in unforeseen operating difficulties and require significant management attention and resources, and we may not be able to manage the process successfully. In particular, we may encounter difficulties assimilating or integrating the companies, products, technologies, personnel or operations we acquire, particularly if the key personnel of an acquired business are geographically dispersed or choose not to continue to work for us following the acquisition. Acquisitions may also disrupt our core business, divert our resources and require significant management attention that would otherwise be available for development of our business. In addition, we may not successfully evaluate or utilize the acquired products, technologies, personnel or operations, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. If we fail to properly evaluate, execute or integrate acquisitions or investments, the anticipated benefits may not be realized, we may be exposed to unknown or unanticipated liabilities, and our business, financial results, financial condition and prospects could be harmed.

Future acquisitions may reduce our cash available for operations and other uses and could result in an increase in amortization expense related to identifiable assets acquired. We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could adversely affect our financial condition or the value of our common stock. The sale or issuance of equity to finance any such acquisitions could result in dilution to our stockholders. The incurrence of indebtedness to finance any such acquisition will result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. In addition, our future operating results may be adversely affected by the dilutive effect of an acquisition, or performance earn-outs or contingent bonuses associated with an acquisition. Furthermore, acquisitions may require large, one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, additional stock-based compensation expenses, and the recording and subsequent amortization of amounts related to certain purchased intangible assets such as goodwill, any of which items could negatively affect our future operating results. We may also incur goodwill impairment charges in the future if we do not realize the value of these intangibles.

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Our business is subject to a wide range of laws and regulations and our failure to comply with those laws and regulations could harm our business, operating results and financial condition.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, privacy and data protection laws, anti-bribery laws, import and export controls, federal securities laws and tax laws and regulations. In certain foreign jurisdictions, these regulatory requirements may be more stringent than those in the United States. These laws and regulations are subject to change over time and thus we must continue to monitor and dedicate resources to ensure continued compliance. Non-compliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.

Because our applications could be used to collect and store personal information, domestic and international privacy concerns could result in additional costs and liabilities to us or inhibit sales of our applications.

Privacy and information security have become a significant issue in the United States and in many other jurisdictions where we offer our applications. The regulatory framework relating to privacy and the handling of personal information issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of personal information. In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission and state breach notification laws. In the EU, the EU Parliament recently adopted the new General Data Protection Regulation which is set to come into force in May 2018. Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with which we or our customers must comply, including the EU Data Protection Directive as transposed into national law by each member state of the EU.

As part of our efforts as a global business to comply with the obligations related to personal data under EU member state laws, we historically have relied upon adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and compliance with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks agreed to by the U.S. Department of Commerce and the EU and Switzerland. The Safe Harbor Frameworks established means for organizations operating within the EU and Switzerland to transfer personal data, as the term is used in the context of the EU Data Protection Directive, to the United States in accordance with relevant European standards for data protection. Our self-certification under the Safe Harbor Frameworks subjects us to oversight by the U.S. Federal Trade Commission, and potential non-compliance could result in an investigation and enforcement action brought by the Federal Trade Commission. In October 2015 the U.S.-EU Safe Harbor Framework was invalidated by a decision of the Court of Justice of the European Union (CJEU Ruling). As a result of the CJEU Ruling, the Swiss data protection regulator has questioned the status of the U.S.-Swiss Safe Harbor Framework. In light of these events, we have put in place measures to ensure that transfers of personal data from the European Economic Area (EEA) are carried out in compliance with EU data protection law, the guidance of data protection authorities, and evolving best practices. EU data protection law relating to transfers of personal data from the EEA to the United States is still evolving, and in the future we may find it necessary or desirable to make other changes to our personal data handling. Despite establishing procedures for our transfer of personal data from the EEA, EEA data protection regulators still have the power to find our transfers of personal data from the EEA to the United States to be in contravention of EU data protection laws and we may experience reluctance or refusal by current or prospective European customers to use our applications. In particular, we and our customers may face a risk of investigations or enforcement actions by data protection regulators in the EEA,

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and of fines and penalties. Responding to an investigation or enforcement action could divert management’s attention and resources, cause us to incur investigation, compliance and defense costs and other professional fees, and adversely affect our business, operating results, financial condition and cash flows.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. Because the interpretation and application of privacy and data protection laws are still uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our applications. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our applications, which could have an adverse effect on our business. Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business.

With respect to all of the above, any failure or perceived failure by us or our platform to comply with U.S., EU or other foreign privacy or security laws, policies, industry standards or legal obligations, or any security incident that results in the unauthorized access to, or acquisition, release or transfer of, personally identifiable information or other customer data may result in governmental investigations, inquiries, enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity. Such actions and penalties could divert management’s attention and resources, adversely affect our business, operating results, financial condition and cash flows, and cause our customers and partners to lose trust in our applications, which could have an adverse effect on our reputation and business.

We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the EU and other jurisdictions, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. Because global laws, regulations and industry standards concerning privacy, data protection and information security have continued to develop and evolve rapidly, it is possible that we or our applications may not be, or may not have been, compliant with each such applicable law, regulation, and industry standard.

Any such new laws, regulations, other legal obligations or industry standards, or any changed interpretation of existing laws, regulations or other standards may require us to incur additional costs and restrict our business operations. For instance, the outcome of the United Kingdom’s referendum to exit the EU has created uncertainty with regard to the future of data protection in the United Kingdom. If our privacy or data security measures fail to comply with current or future laws, regulations, policies, legal obligations or industry standards, we may be subject to litigation, regulatory investigations, fines or other liabilities, as well as negative publicity and a potential loss of business. Moreover, if future laws, regulations, other legal obligations or industry standards, or any changed interpretations of the foregoing limit our customers’ or partners’ ability to use and share personally identifiable information or our ability to store, process and share personally identifiable information or other data, demand for our applications could decrease, our costs could increase and our business, operating results and financial condition could be harmed.

Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our applications. Privacy and personal information security concerns, whether valid or not valid, may inhibit market adoption of our applications particularly in certain industries and foreign countries.

We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.

Our applications are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations

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administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our applications must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers. Obtaining the necessary authorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. In addition, changes in our applications or changes in applicable export or import regulations may create delays in the introduction and sale of our applications in international markets, prevent our customers with international operations from deploying our applications or, in some cases, prevent the export or import of our applications to certain countries, governments or persons altogether. Any change in export or import regulations, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could also result in decreased use of our applications, or in our decreased ability to export or sell our applications to existing or potential customers with international operations. Any decreased use of our applications or limitation on our ability to export or sell our applications will likely adversely affect our business.

Furthermore, we incorporate encryption technology into certain of our applications. Various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our applications or could limit our customers’ ability to implement our applications in those countries. Encrypted products and the underlying technology may also be subject to export control restrictions. Governmental regulation of encryption technology and regulation of imports or exports of encryption products, or our failure to obtain required import or export approval for our applications, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our applications, including with respect to new releases of our applications, may create delays in the introduction of our applications in international markets, prevent our customers with international operations from deploying our products throughout their globally-distributed systems or, in some cases, prevent the export of our applications to some countries altogether.

Moreover, U.S. export control laws and economic sanctions programs prohibit the shipment of certain applications and services to countries, governments and persons that are subject to U.S. economic embargoes and trade sanctions. Any violations of such economic embargoes and trade sanction regulations could have negative consequences, including government investigations, penalties and reputational harm.

Due to the global nature of our business, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or similar anti-bribery laws in other jurisdictions in which we operate, and various international trade and export laws.

The global nature of our business creates various domestic and local regulatory challenges. The FCPA, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit U.S.-based companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business to non-U.S. officials, or in the case of the U.K. Bribery Act, to any person. In addition, U.S. based companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. We operate in areas of the world that experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-bribery laws may conflict with local customs and practices. Our global operations require us to import and export to and from several countries, which geographically stretches our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition and operating results. We cannot assure that our employees or other software agents will not engage in prohibited conduct and render us responsible under the FCPA or the U.K. Bribery Act. If we are found to be in violation of the FCPA, the U.K. Bribery Act or other anti-bribery laws (either due to acts or inadvertence of our employees, or due to the acts or inadvertence of others), we could suffer criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

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Exposure to political developments in the United Kingdom, including the result of the June 2016 U.K. referendum on membership in the EU, could have a material adverse effect on us.

On June 23, 2016, a referendum was held on the United Kingdom’s membership in the EU, the outcome of which was a vote in favor of leaving the EU. The United Kingdom’s vote to leave the EU creates an uncertain political and economic environment in the United Kingdom and potentially across other EU member states, which may last for a number of months or years.

Article 50 of the Treaty of the European Union (Article 50) allows a member state to decide to withdraw from the EU in accordance with its own constitutional requirements. The formal process for leaving the EU will be triggered only when the United Kingdom delivers an Article 50 notice to the European Council, although informal negotiations around the terms of any exit may be held before such notice is given. Delivery of the Article 50 notice will start a two-year period for the United Kingdom to exit from the EU, although this period can be extended with the unanimous agreement of the European Council. Without any such extension (and assuming that the terms of withdrawal have not already been agreed), the United Kingdom’s membership in the EU would end automatically on the expiration of that two-year period.

The result of the referendum means that the long-term nature of the United Kingdom’s relationship with the EU is unclear and that there is considerable uncertainty as to when any such relationship will be agreed and implemented. In the interim, there is a risk of instability for both the United Kingdom and the EU, which could adversely affect our results, financial condition and prospects.

It is currently expected that the U.K. government will shortly commence negotiations in connection with any exit from the EU and will make a decision regarding the timing for giving an Article 50 notice. There is also considerable uncertainty as to whether, following any Article 50 notice being given, the arrangements for the United Kingdom to leave the EU will be agreed upon within the two-year period and, if not, whether an extension of that time period would be agreed upon. It is also possible that the EU will pressure the United Kingdom to exit prior to the end of the two-year period. There is also a risk of the United Kingdom’s exit from the EU being affected without mutually acceptable terms being agreed and that any terms of such exit could adversely affect our operating results, financial condition and prospects.

The uncertainty created by the United Kingdom’s vote to leave the EU has caused and may continue to cause significant volatility in global financial markets and the value of the British Pound or other currencies, including the Euro. For instance, we maintain a wholly-owned subsidiary in the United Kingdom as part of our operating and tax structure whose functional currency is the British Pound. Depending on the terms reached regarding any exit from the EU, it is possible that there may be adverse practical or operational implications on our business, including our operating and tax structure, and, as such, we may, in the future, need to make changes to our operating and tax structure or the functional currency of our U.K. subsidiary if such implications persist. Consequently, no assurance can be given as to the impact of the referendum outcome and, in particular, no assurance can be given that our business, operating results and financial condition will not be adversely impacted by the result.

The nature of our business requires the application of complex revenue and expense recognition rules and the current legislative and regulatory environment affecting generally accepted accounting principles is uncertain. Significant changes in current principles could affect our financial statements going forward and changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and harm our operating results.

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

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regulations are continually changing in ways that could materially impact our financial statements. For example, in May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended, which will supersede nearly all existing revenue recognition guidance. Although the new standard permits early adoption as early as the first quarter of fiscal year 2018, the effective date of the new revenue standard is our first quarter of fiscal 2019. We do not plan to early adopt, and accordingly, we will adopt the new standard effective February 1, 2018. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. We currently plan to adopt using the full retrospective approach; however, a final decision regarding the adoption method has not been finalized at this time. Our final determination will depend on a number of factors such as the significance of the impact of the new standard on our financial results, system readiness, including that of software procured from third-party providers, and our ability to accumulate and analyze the information necessary to assess the impact on prior period financial statements, as necessary. While we continue to assess the potential impacts, under the new standards there is the potential for significant impacts to the accounting for subscription revenue, particularly time-based licenses, accounting for professional services revenue, and accounting for incremental contract acquisition costs. The application of this new guidance may result in a change in the timing and pattern of revenue recognition including the retrospective recognition of revenue in historical periods that may negatively affect our future revenue trend, which, despite no change in associated cash flows, could have a material adverse effect on our net income. We cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward, which could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of the change. In addition, if we were to change our critical accounting estimates, including those related to the recognition of license revenue and other revenue sources, our operating results could be significantly affected.

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

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (GAAP) requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the results of which 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. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price. Significant judgments, estimates and assumptions used in preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition, stock-based compensation expense, sales commissions costs, long-lived assets and accounting for income taxes including deferred tax assets and liabilities.

Our international operations subject us to potentially adverse tax consequences.

As a multinational corporation, we are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file and changes to tax laws. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. From time to time, we are subject to income and

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non-income tax audits. While we believe we have complied with all applicable income tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed with additional taxes, there could be a material adverse effect on our business, operating results and financial condition.

Our future effective tax rate may be affected by such factors as changes in tax laws, regulations or rates, changing interpretation of existing laws or regulations, the impact of accounting for stock-based compensation, the impact of accounting for business combinations, changes in our international organization, and changes in overall levels of income before tax. In addition, in the ordinary course of our global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Although we believe that our tax estimates are reasonable, we cannot ensure that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.

We may not be able to repatriate our cash and undistributed earnings held in foreign jurisdictions without incurring additional tax liabilities.

As of October 31, 2016, we had $94.5 million of cash and cash equivalents on our balance sheet, $19.7 million of which was cash and cash equivalents held in foreign jurisdictions, most notably in the United Kingdom. Except as required under U.S. tax laws, we do not provide for U.S. taxes on approximately $0.1 million of cumulative undistributed earnings of foreign subsidiaries that have not been previously taxed, as we expect to invest such undistributed earnings indefinitely outside of the United States. We may not be able to repatriate cash and cash equivalents or undistributed earnings held in foreign jurisdictions without incurring additional tax liabilities and higher effective tax rates. Accordingly, our cash and cash equivalents or undistributed earnings held in foreign jurisdictions may effectively be trapped in such foreign jurisdictions unless we are willing to incur additional tax liabilities. In addition, there have been proposals to change U.S. tax laws that would significantly affect how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form this proposed legislation may pass, if enacted it could have a material adverse effect on our tax expense and cash flow.

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

As of January 31, 2016, we had federal, state and foreign net operating loss carryforwards (NOLs) of $182.1 million, $199.8 million and $94.7 million, respectively, which, subject to the following discussion, are generally available to be carried forward to offset our future taxable income, if any, until such NOLs are used or expire. Our federal, state and foreign NOLs begin to expire in 2019.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Similar rules may apply under state tax laws. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with or after this offering, our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.

Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.

We do not collect sales and use, value added and similar taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable. Sales and use, value added and similar tax laws and rates vary

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greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest or future requirements may adversely affect our results of operations.

Our facilities in California are located near known earthquake faults, and the occurrence of an earthquake or other catastrophic disaster could cause damage to our facilities, which could harm our operating results.

Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a material adverse impact on our business, operating results and financial condition. Our facilities in the San Francisco Bay Area are located near known earthquake fault zones and are vulnerable to damage from earthquakes. We are also vulnerable to damage from other types of disasters, including fire, floods, power loss, communications failures and similar events. If any disaster were to occur, our ability to operate our business at our facilities would be impaired. The insurance we maintain may not be adequate to cover and in some cases may exclude our losses resulting from disasters or other business interruptions. Accordingly, an earthquake or other disaster could harm our ability to conduct our business.

Risks Related to Our Common Stock and This Offering

An active trading market for our common stock may never develop or be sustained.

Although we have applied to list our common stock on The NASDAQ Global Select Market, we cannot assure you that an active trading market for our common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood of, or the liquidity of any trading market, your ability to sell your shares of common stock when desired or the prices that you may be able to obtain for your shares.

The price of our common stock may be volatile and the value of your investment could decline.

Technology stocks have historically experienced high levels of volatility. The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance, and this volatility may be exacerbated by the relatively small public float of our common stock. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that may cause the market price of our common stock to fluctuate include:

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announcements of new applications, services or technologies, relationships with partners, acquisitions or other events by us or our competitors;

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changes in economic conditions;

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changes in prevailing interest rates;

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

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significant volatility in the market price and trading volume of technology companies in general and of companies in our industry;

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fluctuations in the trading volume of our shares or the size of our public float;

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actual or anticipated changes in our operating results or fluctuations in our operating results;

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quarterly fluctuations in demand for our loans;

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changes in accounting standards, policies, guidelines, interpretations or principles;

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whether our operating results meet the expectations of securities analysts or investors;

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actual or anticipated changes in the expectations of investors or securities analysts;

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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

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developments or disputes concerning our intellectual property or other proprietary rights;

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

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regulatory developments in the United States, foreign countries or both;

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major catastrophic events;

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sales of large blocks of our stock; and

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departures of key personnel.

In addition, if the market for technology stocks or the overall stock market experience a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business, and this could have a material adverse effect on our business, operating results and financial condition.

Sales of substantial amounts of our common stock in the public markets, or the perception that they might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us.

Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that these sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. The effect of sales of our common stock in the public market may be exacerbated by the relatively small public float of our common stock following this offering. Based on the total number of outstanding shares of our common stock as of October 31, 2016, upon completion of this offering and the concurrent private placement, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and assuming that we sell shares of common stock in the concurrent private placement, which is the maximum number of shares that may be purchased from us in the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, we will have shares of common stock outstanding, assuming no exercise of our outstanding options. All of the shares of common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended (Securities Act), except for any shares held by our affiliates as defined in Rule 144 under the Securities Act.

Subject to certain exceptions described in the section titled “Underwriting,” we and all of our executive officers, directors and substantially all of our equity holders have agreed or will agree not to offer, sell or agree to sell, directly or indirectly, any shares of common stock without the permission of Morgan Stanley and Co. LLC and Goldman, Sachs & Co. for a period of 180 days from the date of this prospectus. All of the shares of common stock sold in the concurrent private placement will be subject to such lock-up period. When the lock-up period expires security holders will be able to sell their shares in the public market. In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements prior to the

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expiration of the lock-up period. See the section titled “Shares Eligible for Future Sale” for additional information. Sales of a substantial number of such shares upon expiration, or the perception that such sales may occur, or early release of the lock-up, could cause our share price to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

In addition, following the completion of this offering, we intend to file a registration statement to register all shares subject to options and RSUs outstanding or reserved for future issuance under our equity compensation plans. Upon effectiveness of that registration statement, subject to the satisfaction of applicable exercise periods and applicable lock-up agreements with the representatives of the underwriters referred to above, the shares of common stock issued upon exercise of outstanding options or vesting and settlement of RSUs, including the RSUs that will vest upon expiration of the lock-up period applicable to this offering, assuming an expiration date of , subject to certain limitations, will be available for immediate resale in the United States in the open market. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. See the section titled “Shares Eligible for Future Sale” for additional information.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution of $ per share, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range as set forth on the cover page of this prospectus, because the price that you pay will be substantially greater than the net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our founders and earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. In addition, investors who purchase shares in this offering will contribute approximately % of the total amount of equity capital raised by us through the date of this offering, but will only own approximately % of our outstanding shares. In addition, we have issued options to acquire our common stock at prices significantly below the initial public offering price. To the extent outstanding options and warrants are ultimately exercised and RSUs vest, there will be further dilution to investors in this offering.

If we complete a concurrent private placement with certain of our stockholders, the available public float of our common stock will be reduced.

Pursuant to existing allocation agreements with certain of our existing stockholders, General Atlantic, Adage Capital Partners and Altimeter Partners, we have granted such stockholders the right, but not the obligation, to purchase shares of common stock from us, at the same per share purchase price as the initial public offering price, in a private placement concurrent to this offering. The sale of shares to General Atlantic, Adage Capital Partners or Altimeter Partners in the concurrent private placement, if any, will not be registered in this offering. If we complete the concurrent private placement, our available public float for our common stock will be reduced because each of General Atlantic, Adage Capital Partners and Altimeter Partners will be restricted from selling the shares purchased by them in the concurrent private placement pursuant to lock-up agreements they have entered into with the underwriters in this offering. As a result, the sale of common stock in the concurrent private placement to any of General Atlantic, Adage Capital Partners and Altimeter Partners would reduce the liquidity of our common stock relative to what it would have been had these shares been sold in this offering and been purchased by investors that were not affiliated with us.

If securities analysts do not publish or cease publishing research or reports about our business, or if they downgrade our stock, the price of our stock and trading volume could decline.

The trading market for our common stock could be influenced by any research and reports that securities or industry analysts publish about us or our business. We do not currently have, and may never obtain, research

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coverage by securities analysts. If no securities analysts commence coverage of our company, the trading price for our stock will be negatively impacted. In the event securities or industry analysts cover our company and one or more of these analysts downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price will likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

The concentration of ownership among our executive officers, directors and principal stockholders will provide them, collectively, with substantial control over us after this offering and the concurrent private placement, which could limit your ability to influence the outcome of key transactions, including a change of control.

Our executive officers, directors and each of our stockholders who beneficially own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, will beneficially own approximately % of the outstanding shares of our common stock after this offering and the concurrent private placement, based on the number of shares outstanding as of October 31, 2016, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and assuming that we sell shares of common stock in the concurrent private placement, which is the maximum number of shares that may be purchased from us in the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

We have broad discretion in the use of the net proceeds that we receive in this offering and the concurrent private placement and may not use them in a manner that increases our value.

We intend to use a portion of our net proceeds that we receive from this offering and the concurrent private placement for the repayment of our term loan, which had an outstanding balance of $20.0 million as of October 31, 2016, and pay a cash fee owed to our lender under our credit facility upon the completion of this offering which, as of October 31, 2016, we estimated to be $1.5 million. We also may use a portion of the net proceeds to satisfy tax withholding obligations related to the vesting of RSUs held by certain of our employees which will begin to vest upon expiration of the lock-up period applicable to this offering. We have not yet determined the specific allocation of the remaining net proceeds that we receive in this offering and the concurrent private placement. Rather, we intend to use the net proceeds we receive from this offering and the concurrent private placement for general corporate purposes, including working capital, sales and marketing activities, application and application enhancement development, investment in our technology and analytics, general and administrative matters and capital expenditures. We also may use a portion of the net proceeds to acquire complementary businesses, products, services or technologies. Accordingly, our management will have broad discretion over the specific use of the net proceeds that we receive in this offering and the concurrent private placement and might not be able to obtain a significant return, if any, on investment of these net proceeds. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value. If we do not use the net proceeds that we receive in this offering and the concurrent private placement effectively, then our business, operating results and financial condition could be harmed. Additionally, because we have not entered into definitive agreements with General Atlantic, Adage Capital Partners or Altimeter Partners governing the purchase of shares of common stock in the concurrent private placement, there can be no guarantee that the concurrent private placement will take place or that such investors will purchase the number of shares that they have indicated that they will.

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We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of The NASDAQ Stock Market and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the JOBS Act). The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight will be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additional employees to help ensure compliance with these requirements, we may need to hire more employees in the future or engage outside consultants, which will increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

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As a result of becoming a public company, we will be obligated to continue to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We will be 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 for the first fiscal year beginning after the completion of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting and, after we cease being an “emerging growth company,” a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting.

We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. We are in the process of upgrading our ERP system as well as other accounting and sales IT systems which may materially affect our internal control reporting. While we believe that the implementation of these new systems will in the long-term improve our internal controls and financial reporting functions, there may be delays and disruptions in our internal controls over financial reporting during this implementation period that may materially adversely affect our ability to monitor our business and timely prepare our financial statements.

We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. Our current controls and any new controls that we develop may become inadequate and weaknesses in our internal control over financial reporting may occur in the future. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.

We will be required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an “emerging growth company” as defined in the JOBS Act, if we take advantage of the exemptions contained in the JOBS Act. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

Our independent registered public accounting firm is not required to report on the effectiveness of our internal control over financial reporting until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an “emerging growth company.” At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements, that are applicable to public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a

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nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will cease to be an “emerging growth company” upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of this offering, (ii) the first fiscal year after our annual gross revenues are $1.0 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) as of the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our common stock less attractive because we may rely on certain exemptions applicable to “emerging growth companies.” If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards will otherwise apply to private companies. However, we are irrevocably choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Upon the completion of this offering, our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions include:

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establishing a classified board of directors so that not all members of our board of directors are elected at one time;

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authorizing the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;

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prohibiting stockholder action by written consent, which could require all stockholder actions to be taken at a meeting of our stockholders;

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prohibiting stockholders from calling a special meeting of our stockholders;

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providing that the board of directors is expressly authorized to make, alter or repeal our bylaws; and

•

establishing advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Additionally, we will be subject to Section 203 of the Delaware General Corporation Law, which generally 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 and which may discourage, delay or prevent a change of control of our company.

Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Index to Financial Statements

Our amended and restated bylaws will designate a state or federal court located within the State of Delaware or a state or federal court located within the city and county of San Francisco, California, as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our amended and restated bylaws, as will be in effect upon the completion of this offering, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forums for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or (4) any action asserting a claim against us that is governed by the internal affairs doctrine shall be a state or federal court located within the State of Delaware or a state or federal court located within the city and county of San Francisco, California, in all cases subject to the court’s having personal jurisdiction over indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to this provision of our amended and restated bylaws. The forum selection clause in our amended and restated bylaws may have the effect of discouraging lawsuits against us or our directors and officers and may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Index to Financial Statements

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

•

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, revenue mix and ability to achieve and maintain future profitability;

•

anticipated trends, growth rates and challenges in our business and in the markets in which we operate;

•

the impact of seasonality on our business;

•

our anticipated growth and growth strategies and our ability to effectively manage that growth;

•

our ability to maintain and expand our customer base and our partner network;

•

our ability to retain our customers and broaden their use of our applications;

•

our ability to sell our applications and expand internationally;

•

our ability to anticipate market needs and develop new and enhanced solutions to meet those needs, and our ability to successfully monetize them;

•

our ability to hire and retain necessary qualified employees to grow our business and expand our operations;

•

the evolution of technology affecting our applications, platform and markets;

•

our ability to adequately protect our intellectual property;

•

our liquidity and working capital requirements;

•

our spending of the net proceeds from this offering and the concurrent private placement;

•

our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

•

our ability to successfully implement new IT systems and processes, including a new ERP system;

•

our ability to successfully complete the rearchitecture of our application intelligence software platform;

•

the estimates and estimate methodologies used in preparing our consolidated financial statements and determining option exercise prices; and

•

the future trading prices of our common stock and the impact of securities analysts’ reports on these prices.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results and growth prospects. The outcome of the events described in these forward-looking statements is subject to risks,

Index to Financial Statements

uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. 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 prospectus. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus 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.

Index to Financial Statements

INDUSTRY AND MARKET DATA

This prospectus contains estimates and other statistical data, including those relating to our industry and the market in which we operate, that we have obtained or derived from industry publications and reports, including reports from Accenture LLP (Accenture), International Data Corporation (IDC), Forrester Research, Inc. (Forrester), Gartner, Inc. (Gartner), The Board of Governors of the Federal Reserve System (U.S. Federal Reserve) and McKinsey & Company (McKinsey) and data from S&P Global Market Intelligence. These industry publications, reports, surveys and data generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Furthermore, unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information and data from various sources, including S&P Global Market Intelligence and Gartner, on assumptions that we have made that are based on that information and data and other similar sources and on our knowledge of the markets for our applications and services. This information involves a number of assumptions, limitations and estimates, and there is no assurance that any of them will be reached. Based on our industry experience, we believe that the publications, reports, surveys and data are reliable and that the conclusions contained in the publications and reports are reasonable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause our actual results to differ materially from those expressed in the industry publications, reports and estimates made by these independent third parties and by us.

The Accenture Report described herein refers to:

(1)

Accenture, Customer 2020: Are You Future-Ready or Reliving the Past?, dated as of 2014.

The Forrester Reports described herein (Forrester Reports) represents data, research, opinions or viewpoints published as part of a syndicated subscription service, by Forrester, and are not representations of fact. The Forrester Reports speak as of the original publication date (and not as of the date of this prospectus) and the opinions expressed in the Forrester Reports are subject to change without notice. The Forrester Reports consist of:

(1)

Forrester, Forrester Research eCommerce Forecast 2014 To 2019 (US), dated April 22, 2015, by Sucharita Mulpuru, Victoria Boutan, Carrie Johnson, Susan Wu and Laura Naparstek.

(2)

Forrester, Optimize Performance for Global and Mobile eCommerce, dated March 30, 2016, as updated April 7, 2016, by Mark Grannan.

(3)

Forrester, Predictions 2016: The New Breed of CIO, dated November 2, 2015, by Nigel Fenwick and Pascal Matzke.

The U.S. Federal Reserve Report described herein refers to:

(1)

U.S. Federal Reserve, Consumers and Mobile Financial Services 2016, dated March 2016, by Sam Dodini, Alejandra Lopez-Fernandini, Ellen Merry and Logan Thomas.

The IDC Reports described herein consist of:

(1)

IDC, All About Face: Digital Transformation Spurring Growth for Customer-Facing Business Processes, dated March 2015, by Eileen Smith.

(2)

IDC, DevOps and the Cost of Downtime: Fortune 1000 Best Practice Metrics Quantified, dated December 2014, by Stephen Elliot.

(3)

IDC, Service Innovation: Understanding Worldwide Digital Transformation Spending Trends, dated May 2016, by Eileen Smith and Suya Xiong.

Index to Financial Statements

The McKinsey Reports described herein consist of:

(1)

McKinsey, Beyond Agile: Reorganizing IT for Faster Software Delivery, dated September 2015, by Oliver Bossert, Chris Ip and Irina Starikova.

(2)

McKinsey, Digitizing the Value Chain, dated March 2015, by John Nanry, Subu Narayanan and Louis Rassey.

The Gartner Report(s) described herein, (the Gartner Report(s)) represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Prospectus) and the opinions expressed in the Gartner Report(s) are subject to change without notice. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. The Gartner Reports, which appear in this prospectus in the order below, consist of:

(1)

Gartner, Forecast: Enterprise Software Markets, Worldwide, 2013-2020, 4Q16 Update, dated December 16, 2016, by Matthew Cheung, Yanna Dharmasthira, Chad Eschinger, Robert P. Anderson, Bianca Francesca Granetto, April Adams, Laurie F. Wurster, Federico De Silva, Colleen Graham, Fabrizio Biscotti, Chris Pang, Hai Hong Swinehart, Bhavish Sood, Nigel Montgomery, Sid Deshpande, Michael Warrilow, Neha Kumar, Terilyn Palanca, Jim Hare, Alys Woodward, Julian Poulter, JP Corriveau, Craig Roth appearing on pages 4 and 115 of this prospectus.

(2)

Gartner, IT Market Clock for Programing Languages, 2016, dated September 19, 2016, by Mark Driver, appearing on page 113 of this prospectus.

(3)

Gartner, Magic Quadrant for Application Performance Monitoring Suites, dated December 21, 2016, by Cameron Haight, Will Cappelli and Federico De Silva, appearing on page 117 of this prospectus.

The S&P Global Market Intelligence data described herein represents proprietary data gathered by S&P Global Market Intelligence and is not a representation of fact. The S&P Global Market Intelligence data is as of October 28, 2016 (and not as of the date of this prospectus) and is subject to change without notice.

Index to Financial Statements

USE OF PROCEEDS

We estimate that the net proceeds from our sale of shares of common stock in this offering, excluding the concurrent private placement, will be approximately $ million, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions from this offering and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares of our common stock from us is exercised in full, we estimate that the net proceeds to us would be approximately $ million, after deducting estimated underwriting discounts and commissions from this offering and estimated offering expenses payable by us. A $1.00 increase or decrease in the assumed initial public offering price would increase or decrease the net proceeds to us from this offering by $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions from this offering. Each increase or decrease of one million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us from this offering by $ million, assuming that the assumed initial public offering price, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions from this offering.

Pursuant to the allocation agreements with General Atlantic, Adage Capital Partners and Altimeter Partners, we have granted such investors the right, but not the obligation, to purchase shares of our common stock from us, at the same purchase price per share as investors who participate in this offering, in a private placement concurrent to this offering. We estimate that our proceeds from the sale of common shares in the concurrent private placement will be approximately $ million, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. Because we have not entered into definitive agreements with General Atlantic, Adage Capital Partners or Altimeter Partners governing the purchase of shares of common stock in the concurrent private placement, there can be no guarantee that the concurrent private placement will take place or that such investors will purchase the number of shares that they have indicated that they will. See the section titled “Description of Capital Stock—Allocation Agreements and Concurrent Private Placement” for additional information.

The principal purposes of this offering are to repay our term loan under our credit facility, to increase our capitalization and financial flexibility, to create a public market for our stock and thereby enable access to the public equity markets for our employees and stockholders, to obtain additional capital and to increase our visibility in the marketplace. We intend to use a portion of the net proceeds from this offering and the concurrent private placement to fully repay our term loan under our credit facility (including related prepayment penalties, accrued interest and related fee payments), which had an outstanding balance of $20.0 million as of October 31, 2016, and pay a cash fee owed to our lender under our credit facility as a result of the completion of this offering which, as of October 31, 2016, we estimated to be $1.5 million. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility” for additional information regarding our term loan and the related cash fee. We also may use a portion of the net proceeds to satisfy tax withholding obligations related to the vesting of restricted stock units (RSUs) held by certain of our employees which will begin to vest upon expiration of the lock-up period applicable to this offering. We do not currently know the amount of net proceeds that may be used to satisfy these tax withholding obligations because it would be dependent on a number of factors, including our stock price on the date of vesting and the number of RSUs that vest on such date. We currently expect that the average of these withholding tax rates will be approximately 45%. Assuming an initial public offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, RSUs vesting on such date and the applicable income tax rate for certain of our employees from whom we may withhold taxes, we would use approximately $ million to satisfy these tax withholding obligations. A $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the estimated price range set forth

Index to Financial Statements

on the cover page of this prospectus, assuming no change to the applicable tax rates, would increase or decrease the amount we would be required to pay to satisfy these tax withholding obligations by approximately $ million. We expect to use the remaining proceeds for general corporate purposes, including working capital, sales and marketing activities, solution and platform development, general and administrative matters and capital expenditures, although we do not currently have any specific or preliminary plans with respect to the use of proceeds for such purposes. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments. We will have broad discretion over the uses of the net proceeds of this offering and the concurrent private placement. Pending these uses, we intend to invest the net proceeds from this offering and the concurrent private placement in short-term and long-term, investment-grade, interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, corporate bonds and guaranteed obligations of the U.S. government.

DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. In addition, our credit facility contains restrictions on our ability to declare and pay cash dividends on our capital stock.

Index to Financial Statements

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of October 31, 2016 on:

•

an actual basis;

•

a pro forma basis, giving effect to (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into 74,656,115 shares of our common stock immediately prior to the completion of this offering, and (ii) the filing of our amended and restated certificate of incorporation in Delaware, which will occur in connection with the completion of this offering; and

•

a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments set forth above, (ii) the receipt of $ million in proceeds from the sale and issuance by us of shares of common stock offered by this prospectus at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions from this offering and estimated offering expenses payable by us and (iii) our use of a portion of our net proceeds of this offering fully repay our term loan under our credit facility, which had an outstanding balance of $20.0 million as of October 31, 2016, and pay a cash fee to our lender under our credit facility that will become due as a result of the completion of this offering which, as of October 31, 2016, we estimated to be $1.5 million.

The information below is illustrative only and our capitalization following this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at pricing. You should read the information in this table together with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.


	As of October 31, 2016
	Actual			Pro Forma		Pro Forma As Adjusted⁽¹⁾⁽²⁾
	(in thousands, except share and per share data)
Cash, cash equivalents and marketable securities	$	141,959		$		$
Long-term debt, including current maturities	$	22,604		$
Redeemable convertible preferred stock, $0.001 par value, 74,656,115 shares authorized; 74,656,115 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		310,147			—
Stockholders’ deficit:
Common stock, $0.001 par value, 155,000,000 shares authorized, actual, and 1,100,000,000 shares authorized pro forma and pro forma as adjusted; 33,912,891, and shares issued and outstanding, actual, pro forma and pro forma as adjusted		34
Preferred stock, $0.001 par value, no shares authorized, issued and outstanding, actual; 100,000,000 shares authorized; no shares issued and outstanding, pro forma and pro forma as adjusted		—
Additional paid-in capital		53,717
Accumulated other comprehensive income		16,279
Accumulated deficit		(476,811	)

Total stockholders’ deficit		(406,781	)

Total capitalization	$	(96,634	)	$		$

(1)

Index to Financial Statements

set forth on the cover page of this prospectus, our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ deficit and total capitalization would be $ million, $ million, $ million and $ million, respectively.

(2)

Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, assuming that we sell shares of common stock in the concurrent private placement, which is the maximum number of shares that may be purchased from us in the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions from this offering. Similarly, each increase or decrease of one million shares in the number of shares offered by us would increase or decrease, as applicable, cash and cash equivalents, additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $ million, assuming an initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions from this offering. The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

If the underwriters’ option to purchase additional shares of our common stock from us were exercised in full, and assuming that we sell shares of common stock in the concurrent private placement, which is the maximum number of shares that may be purchased from us in the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ deficit and total capitalization as of October 31, 2016 would be $ million, $ million, $ million and $ million, respectively.

•

21,638,623 shares of common stock issuable upon the vesting of RSUs under our 2008 Plan that were outstanding as of October 31, 2016;

•

42,500 shares of common stock issuable upon the exercise of options to purchase common stock under our 2008 Plan that were granted after October 31, 2016, with an exercise price of $12.70 per share;

•

1,032,866 shares of common stock issuable upon the vesting of RSUs under our 2008 Plan that were granted after October 31, 2016;

•

201,636 shares of common stock issuable upon the exercise of warrants outstanding as of October 31, 2016, with an exercise price of $1.60 per share; and

•

Index to Financial Statements

DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to public investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after completion of this offering.

Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our historical net tangible book value as of October 31, 2016 was $(98.7) million, or $(0.91) per share. Our pro forma net tangible book value as of October 31, 2016 was $ million, or $ per share, based on the total number of shares of our common stock outstanding as of October 31, 2016, after giving effect to the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into shares of common stock, which will occur upon the completion of this offering.

After giving effect to the sale by us of shares of our common stock in this offering at the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and deducting estimated underwriting discounts and commissions from this offering and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of October 31, 2016 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to investors purchasing shares of common stock in this offering at the assumed initial public offering price.

The following table illustrates this dilution:


Assumed initial public offering price per share		$
Pro forma net tangible book value per share as of October 31, 2016	$
Increase in pro forma net tangible book value per share attributable to public investors in this offering

Pro forma net tangible book value per share immediately after this offering		$

Dilution in pro forma net tangible book value per share to public investors in this offering		$

If we sell shares of common stock in the concurrent private placement, which is the maximum number of shares that may be purchased from us in the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, the pro forma as adjusted net tangible book value per share of our common stock immediately after the offering and the concurrent private placement would be $ per share, and the dilution in pro forma net tangible book value per share to public investors in this offering would be $ per share.

Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to public investors by $ , and would increase or decrease, as applicable, dilution per share to public investors in this offering by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, assuming that we sell shares of common stock in the concurrent private placement, which is the maximum number of shares that may be purchased from us in the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions from this offering. Similarly, each increase or decrease of one million shares in the number of

Index to Financial Statements

shares offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by $ per share and increase or decrease, as applicable, the dilution to public investors by $ per share, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions from this offering. In addition, to the extent any outstanding options to purchase common stock are exercised, public investors will experience further dilution.

If the underwriters exercise their option to purchase additional shares from us in full, and assuming that we sell shares of common stock in the concurrent private placement, which is the maximum number of shares that may be purchased from us in the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering would be $ per share, and the dilution in pro forma net tangible book value per share to public investors in this offering would be $ per share.

The following table presents on a pro forma as adjusted basis as of October 31, 2016, after giving effect to the conversion of all outstanding shares of redeemable convertible preferred stock into shares of common stock in connection with the completion of this offering, the differences between the existing stockholders and the public investors purchasing shares of our common stock in this offering, with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, giving effect to the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions from this offering and estimated offering expenses payable by us.


	Shares Purchased				Total Consideration				Average Price Per Share
	Number	Percent			Amount	Percent			Average Price Per Share
Existing stockholders				%	$			%	$
Public investors

Total			100.0	%	$		100.0	%

If we sell shares of common stock in the concurrent private placement, which is the maximum number of shares that may be purchased from us in the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, our existing stockholders (including our existing investors purchasing shares in the concurrent private placement) would own %, and the public investors purchasing shares of our common stock in this offering would own % of the total number of shares of our common stock outstanding upon the completion of this offering and the concurrent private placement.

Each $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease the total consideration paid by public investors and total consideration paid by all stockholders by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, assuming that we sell shares of common stock in the concurrent private placement, which is the maximum number of shares that may be purchased from us in the concurrent private placement based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions from this offering. In addition, to the extent any outstanding options to purchase common stock are exercised, public investors will experience further dilution.

Index to Financial Statements

of this prospectus, our existing stockholders (including our existing investors purchasing shares in the concurrent private placement) would own %, and the public investors purchasing shares of our common stock in this offering would own % of the total number of shares of our common stock outstanding upon the completion of this offering and the concurrent private placement.

•

21,638,623 shares of common stock issuable upon the vesting of RSUs under our 2008 Plan that were outstanding as of October 31, 2016;

•

42,500 shares of common stock issuable upon the exercise of options to purchase common stock under our 2008 Plan that were granted after October 31, 2016, with an exercise price of $12.70 per share;

•

1,032,866 shares of common stock issuable upon the vesting of RSUs under our 2008 Plan that were granted after October 31, 2016;

•

201,636 shares of common stock issuable upon the exercise of warrants outstanding as of October 31, 2016, with an exercise price of $1.60 per share; and

•

Index to Financial Statements

SELECTED CONSOLIDATED FINANCIAL DATA

We have derived the selected consolidated statements of operations data for the fiscal years ended January 31, 2014, 2015 and 2016 and the consolidated balance sheet data as of January 31, 2015 and 2016 from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the nine months ended October 31, 2015 and 2016 and the consolidated balance sheet data as of October 31, 2016 are derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated financial data below should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes, and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period.


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues:
Subscription	$	18,946		$	42,971		$	87,251		$	60,605		$	110,086
License		3,682			33,954			51,516			34,801			32,608
Professional services and other		972			4,940			11,825			7,384			15,733

Total revenues		23,600			81,865			150,592			102,790			158,427
Cost of revenues:
Subscription⁽¹⁾		6,393			9,884			19,801			13,959			16,980
License		69			284			565			381			648
Professional services and other⁽¹⁾		4,807			8,478			18,347			12,399			21,061

Total cost of revenues		11,269			18,646			38,713			26,739			38,689

Gross profit		12,331			63,219			111,879			76,051			119,738
Operating expenses:
Sales and marketing⁽¹⁾		49,497			85,920			132,297			89,379			118,303
Research and development⁽¹⁾		21,719			34,072			57,743			42,505			51,499
General and administrative⁽¹⁾⁽²⁾		8,398			33,233			48,563			32,937			37,802

Total operating expenses		79,614			153,225			238,603			164,821			207,604

Operating loss		(67,283	)		(90,006	)		(126,724	)		(88,770	)		(87,866	)
Interest expense		(128	)		(1,958	)		(3,258	)		(2,173	)		(3,019	)
Other income (expense), net		(466	)		(1,999	)		(2,968	)		(872	)		(2,682	)

Loss before income taxes		(67,877	)		(93,963	)		(132,950	)		(91,815	)		(93,567	)
Provision for income taxes		461			284			1,109			581			1,510

Net loss	$	(68,338	)	$	(94,247	)	$	(134,059	)	$	(92,396	)	$	(95,077	)

Net loss per share, basic and diluted⁽³⁾	$	(3.43	)	$	(3.96	)	$	(4.85	)	$	(3.40	)	$	(3.16	)

Weighted-average shares outstanding used in calculating net loss per share, basic and diluted⁽³⁾		19,932			23,781			27,657			27,173			30,115

Pro forma net loss per share, basic and diluted⁽³⁾							$						$

Pro forma weighted-average shares outstanding used in calculating net loss per share, basic and diluted⁽³⁾

Index to Financial Statements

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


	Year Ended January 31,						Nine Months Ended October 31,
	2014		2015		2016		2015		2016
	(in thousands)
Cost of subscription revenue	$	159	$	345	$	874	$	660	$	394
Cost of professional services and other revenue		73		165		598		333		518
Sales and marketing		2,323		3,581		4,819		3,393		2,939
Research and development		753		1,393		3,185		2,283		2,172
General and administrative^(a)		346		2,569		11,918		9,684		(2,341	)

Total stock-based compensation expense	$	3,654	$	8,053	$	21,394	$	16,353	$	3,682

(a)

(2)	General and administrative expense for the year ended January 31, 2015 includes $10.0 million related to a one-time litigation settlement.

(3)	See Note 11 of the notes to our consolidated financial statements for a description of how we calculate net loss per share, basic and diluted, and pro forma net loss per share, basic and diluted.


	January 31,
	2015			2016			October 31, 2016
	(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	71,000		$	147,827		$	141,959
Working capital (deficit)		10,069			70,378			(3,527	)
Total assets		144,287			280,703			277,506
Deferred revenue		115,073			223,017			301,553
Long-term debt, including current maturities		22,594			23,702			22,604
Redeemable convertible preferred stock		156,137			310,147			310,147
Total stockholders’ deficit		(195,134	)		(333,119	)		(406,781	)

Key Metrics

We monitor the following key non-GAAP financial and operating metrics to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with generally accepted accounting principles in the United States of America (GAAP), we believe the following non-GAAP financial and operating metrics are useful in evaluating our operating performance.

Index to Financial Statements

recurring contract value in the current trailing 12-month period by the previous trailing 12-month period. Recurring contracts are time-based arrangements for subscriptions and do not include perpetual license or professional services arrangements.

Our dollar-based net retention rates were as follows:


	Trailing 12 Months Ended January 31,									Trailing 12 Months Ended October 31,
	2014			2015			2016			2015			2016
Dollar-based net retention rate		121	%		134	%		123	%		122	%		127	%

Free Cash Flow. Free cash flow is a non-GAAP financial measure that we calculate as net cash (used in) provided by operating activities less purchases of property and equipment. We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business, making strategic acquisitions, and strengthening our balance sheet. See the subsection below titled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using free cash flow as a financial measure and for a reconciliation of free cash flow to cash provided by (used in) operating activities, the most directly comparable financial measure calculated in accordance with GAAP.

Our free cash flows were as follows:


	Year Ended January 31,									Nine Months Ended October 31, 2016
	2014			2015			2016			2015			2016
	(in thousands)
Free cash flow	$	(32,324	)	$	(36,611	)	$	(41,838	)	$	(47,429	)	$	(7,768	)

Billings. Given that we generally bill our customers at the time of sale, but typically recognize a majority of the related revenue ratably over time, we use billings to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers. Billings consists of our total revenues plus the change in our deferred revenue in a given period. Billings reflects sales to new customers plus subscription renewals and additional sales to existing customers. For subscriptions, which we define as time-based licenses and associated maintenance and support, software-as-a-service (SaaS) subscriptions and associated maintenance and support and hosting services, and software maintenance and support associated with perpetual licenses, we typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments, as applicable. Only amounts invoiced to a customer in a given period are included in billings. While we believe that billings provides valuable insight into the cash that will be generated from sales of our applications and services, this metric may vary from period-to-period for a number of reasons, and therefore has a number of limitations as a quarter to quarter or year-over-year comparative measure. These reasons include, but are not limited to, (i) a variety of customer contractual terms could result in some periods having a higher proportion of multi-year time-based licenses than other periods, (ii) as we experience an increasing number of larger sales transactions, the timing of executing these larger transactions has and will continue to vary, with some transactions occurring in quarters subsequent to or in advance of those that we anticipated and (iii) fluctuations in payment terms affecting the billings recognized in a particular period. See the subsection below titled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using billings as a financial measure and for a reconciliation of billings to revenue, the most directly comparable financial measure calculated in accordance with GAAP.

Index to Financial Statements

Our billings were as follows:


	Year Ended January 31,						Nine Months Ended October 31,
	2014		2015		2016		2015		2016
	(in thousands)
Billings	$	62,053	$	140,178	$	258,536	$	164,661	$	236,963

Reconciliation of Non-GAAP Financial Measures

Our non-GAAP financial measures, free cash flow and billings, have limitations as analytical tools and you should not consider them in isolation or as a substitute for an analysis of our results under GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. First, free cash flow and billings are not substitutes for cash provided by operating activities and revenue, respectively. Second, other companies may calculate similar non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. Additionally, the utility of free cash flow as a measure of our financial performance and liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. Furthermore, as billings is affected by a combination of factors, including the timing of sales, the mix of subscriptions and perpetual licenses sold and the relative duration of contracts sold, and each of these elements has unique characteristics in the relationship between billings and revenue, our billings activity is not closely correlated to revenue except over longer periods of time.

The following tables reconcile the most directly comparable GAAP financial measure to each of these non-GAAP financial measures.

Free Cash Flow


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
	(in thousands)
Cash provided by (used in) operating activities	$	(25,030	)	$	(34,831	)	$	(32,492	)	$	(39,716	)	$	(2,201	)
Less: Purchases of property and equipment		(7,294	)		(1,780	)		(9,346	)		(7,713	)		(5,567	)

Free cash flow	$	(32,324	)	$	(36,611	)	$	(41,838	)	$	(47,429	)	$	(7,768	)

Billings


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
	(in thousands)
Revenues	$	23,600		$	81,865		$	150,592		$	102,790		$	158,427
Total deferred revenue, end of period		56,760			115,073			223,017			176,944			301,553
Less: Total deferred revenue, beginning of period		(18,307	)		(56,760	)		(115,073	)		(115,073	)		(223,017	)

Change in deferred revenue		38,453			58,313			107,944			61,871			78,536

Billings	$	62,053		$	140,178		$	258,536		$	164,661		$	236,963

Index to Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Consolidated Financial Data” and the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth in the section titled “Risk Factors” and in other parts of this prospectus. Our fiscal year ends on January 31. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period.

Overview

We offer an innovative, enterprise-grade application intelligence software platform that is uniquely positioned to enable enterprises to accelerate their digital transformations by actively monitoring, analyzing and optimizing complex application environments at scale. Our integrated suite of applications monitors the performance of software applications and IT infrastructures, down to the underlying code, and automatically correlates them into logical “business transactions,” such as booking a flight in a web browser, transferring money on a mobile device, getting directions through a car’s navigation system or locating physical goods in an inventory system. Real-time information about the performance of these business transactions provides our customers with actionable insights into their end-user experiences, the activities required to improve them and the business outcomes associated with them. Our integrated suite of applications enables our customers to make faster decisions that enhance customer engagement and improve operational and business performance.

We were founded in 2008 and introduced our first application in 2009, our Application Performance Management application for Java, focused on monitoring complex, distributed software applications. In 2009, we also introduced the business transaction to align the goals of our customers’ business, development and IT operations teams. In 2010, we introduced dynamic baselining and began to offer Application Performance Management as a software-as-a-service (SaaS) subscription. In 2011, we expanded our Application Performance Management solution to support modern .NET architectures as well as cloud-based software applications. In 2013, we introduced the first iterations of our Infrastructure Visibility and End-User Monitoring applications. In 2014, we expanded the capabilities of our End-User Monitoring application to monitor Android and iOS mobile applications and introduced our first analytics offering. In 2015, we further expanded our offerings to support Python and C/C++ programming languages.

We generate revenue primarily from sales of subscriptions, which we define as (i) time-based licenses and associated maintenance and support, (ii) SaaS subscriptions and associated maintenance and support and hosting services, and (iii) software maintenance and support associated with perpetual licenses. We also generate revenue from perpetual licenses of our integrated suite of applications and, to a lesser extent, from professional services and training. Our maintenance and support agreements provide customers with the right to unspecified software upgrades, maintenance releases and patches released during the term of the maintenance agreement on a when-if-and-if-available basis, and rights to technical support. When our applications are deployed within a customer’s own datacenter or private cloud, they are installed on the customer’s infrastructure, and offered as a time-based or perpetual license. When our applications are delivered as a SaaS subscription, we handle their operational needs in a third-party hosted datacenter. We also provide our customers with SaaS subscriptions the option to deploy all or a portion of our software on-premises as a time-based license.

SaaS subscriptions and time-based licenses are typically one or three years in duration, and are bundled with software updates and customer support services. We recognize revenue from SaaS subscriptions and time-based licenses ratably over the subscription term or license period, once the software has been delivered and the

Index to Financial Statements

provision of each undelivered service has commenced. Perpetual licenses are typically accompanied by separately priced annual maintenance and support arrangements. We generally recognize revenue from our perpetual licenses upon delivery, assuming all the other revenue recognition criteria are satisfied. If vendor-specific objective evidence (VSOE) of fair value of one or more undelivered elements does not exist, all revenue is deferred and recognized upon the delivery of those elements unless the undelivered element is maintenance and support services, in which case the perpetual license revenue is recognized on a straight-line basis over the term of the maintenance and support services. For arrangements that have two or more undelivered services such as maintenance and support services, hosting services or professional services for which we have not established VSOE of fair value, we use the combined services approach to recognize revenue for these transactions. Under the combined services approach, the entire fee is recognized on a straight-line basis, once the software has been delivered and the provision of each undelivered service has commenced, over the longer of the maintenance and support services period, the hosting period or the period the professional services are expected to be performed. Revenue derived from professional service contracts are generally recognized upon delivery when sold in conjunction with a perpetual license, or ratably over the term of the arrangement when sold in conjunction with a SaaS subscription or a time-based license. Customers typically pay our multi-year arrangements in full at the time they enter into the contract.

We offer three different editions of our applications: Peak, Pro and Lite. Our Pro edition provides our customers with the full functionality of our three key applications, Application Performance Management, End-User Monitoring and Infrastructure Visibility. Our Peak edition combines our Pro edition capabilities with our Business iQ, real-time business monitoring capabilities and other enhanced features and functionalities. Each of our Peak and Pro editions has an optional Test & Dev version that is restricted for use in non-production environments. Our Lite edition is a limited, free version which can be accessed and downloaded from our website. Our Peak and Pro editions are primarily sold on a per agent basis. In addition, certain applications, such as our Real-User Monitoring application module, while sold on a per agent basis, have a limit on the number of monthly active users or page views that can be monitored by each agent. We do not charge a separate variable fee based on the number of active users or page views that are monitored. The number of agents, active users or page views, as applicable, and related prices are specified in our sales orders, therefore, we consider these fees to be fixed or determinable at the outset of an arrangement. Accordingly, we recognize revenue on delivery of the license assuming all other revenue recognition criteria have been met. To support hybrid deployments, we allow our customers to switch between an on-premises deployment and a SaaS subscription deployment. When switching from an on-premises deployment to a cloud deployment, the customer pays us an additional hosting fee for handling their operational needs in a third-party hosted data center.

Each of our three key applications are offered on both a subscription and perpetual license basis. Although sales of perpetual licenses have accounted for a significant portion of our business, in recent years subscription revenue has grown as a percentage of our total revenues and represents a majority of our total revenues reflecting evolving customer preferences for subscription offerings. We believe that this shift in customer preferences from perpetual licenses to subscriptions is being driven by the powerful trends that are transforming the ways that enterprises manage their software application environments and underlying IT infrastructures, including the continued migration to the cloud. Evidencing this shift, we have seen subscription revenue increase to 69% of our total revenues in the nine months ended October 31, 2016 from 59% in the nine months ended October 31, 2015 and to 58% of our total revenues in the fiscal year ended January 31, 2016 from 52% in the fiscal year ended January 31, 2015. Recently, we have accelerated our focus and increased our sales and marketing efforts on this portion of our business as we believe that, despite certain short-term impacts on our revenue and operating margins due to the ratable nature of the revenue recognition of our subscriptions, increasing the portion of our revenue that we derive from subscriptions will lead to higher growth rates in the longer-term as well as a more predictable business model as we continue to increase our deferred revenues.

Index to Financial Statements

technical support and upselling and cross-selling for additional use cases and agent counts, as well as expanding our international sales reach.

As of October 31, 2016, we had approximately 1,975 customers, including more than 275 of the Global 2000, located in over 50 countries across every major industry. Many customers initially deploy our platform in specific groups or departments or to monitor specific applications. After realizing the benefits of our applications, many customers then broaden their deployment across the enterprise, using our applications to actively monitor, analyze and optimize additional software applications, IT infrastructure components and business transactions. In addition, our customers leverage additional capabilities from our platform through the subsequent deployment of additional applications and product modules.

We have grown rapidly in recent periods. Our revenues for the fiscal years ended January 31, 2014, 2015 and 2016 were $23.6 million, $81.9 million and $150.6 million, respectively, representing year-over-year growth of 247% and 84%. For the nine months ended October 31, 2015 and 2016, our revenue was $102.8 million and $158.4 million, respectively, representing year-over-year growth of 54%. Our billings for the fiscal years ended January 31, 2014, 2015 and 2016 were $62.1 million, $140.2 million and $258.5 million, respectively, representing year-over-year growth of 126% and 84%. For the nine months ended October 31, 2015 and 2016, our billings were $164.7 million and $237.0 million, respectively, representing year-over-year growth of 44%. Our cash provided by (used in) operating activities was $(25.0) million, $(34.8) million and $(32.5) million for the fiscal years ended January 31, 2014, 2015 and 2016, respectively, and $(39.7) million and $(2.2) million for the nine months ended October 31, 2015 and 2016, respectively. Our free cash flow was $(32.3) million, $(36.6) million and $(41.8) million for the fiscal years ended January 31, 2014, 2015 and 2016, respectively, and $(47.4) million and $(7.8) million for the nine months ended October 31, 2015 and 2016, respectively. See the section titled “Selected Consolidated Financial Data—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using billings and free cash flow as a financial measure and for a reconciliation of billings to revenue and free cash flow to cash provided by (used in) operating activities, the most directly comparable financial measures calculated in accordance with generally accepted accounting principles in the United States of America (GAAP).

We have made substantial investments in developing our platform, expanding our sales and marketing capabilities, and providing general and administrative resources to support our growth. Specifically, we have increased our headcount from 365 employees as of January 31, 2014 to 1,186 as of October 31, 2016, and we intend to continue to invest in our business to take advantage of our market opportunity. As a result, we incurred net losses of $68.3 million, $94.2 million and $134.1 million in the fiscal years ended January 31, 2014, 2015 and 2016, respectively, and $92.4 million and $95.1 million in the nine months ended October 31, 2015 and 2016, respectively.

Certain Factors Affecting Our Performance

Market Adoption of Our Platform

Our ability to grow our customer base and drive market adoption of our applications is affected by the pace at which enterprises digitally transform and leverage software applications to differentiate themselves from their competitors. We believe that, as software applications become increasingly critical to business operations, the need for application intelligence solutions, particularly an enterprise-grade integrated suite of applications such as ours, will increase and our customer base will correspondingly increase. Furthermore, we believe that we have established a leadership position in the market for monitoring software applications and IT infrastructure. We intend to continue to invest to expand our customer base and further penetrate our addressable market, while improving our operating leverage. As a result, our financial performance will depend in large part on the overall demand for application intelligence solutions, particularly demand from mid- to large-size organizations worldwide, and our ability to meet the needs of our evolving markets. Evidencing our strengthening market position in recent years, we have grown the number of our customers that generate greater than $50,000 in annual

Index to Financial Statements

recurring contract value from approximately 155 as of January 31, 2014 to more than 630 customers as of October 31, 2016. Additionally, as of October 31, 2016, we had more than 165 customers with a life-to-date total contract value greater than $1 million, an increase from just over 20 such customers as of January 31, 2014. Furthermore, our average contract value increased from approximately $64,000 in the fiscal year ended January 31, 2014 to approximately $169,000 in the three months ended October 31, 2016.

Retention of and Expansion within Our Existing Customer Base

Many of our customers initially deploy one or more of our applications in specific groups or departments or to monitor specific applications. After realizing the benefits of our applications, many customers then broaden their deployment across the enterprise, using our applications to actively monitor, analyze and optimize additional software applications and infrastructure components. As a result of this “land and expand” business model, we are able to generate significant additional revenue from our active customer base. For example, as of October 31, 2016, a customer who made their first purchase of a subscription or a perpetual license from us by or before October 31, 2013, had, on average, made additional purchases from us with aggregate total contract values of approximately five times their initial purchase. Applying that same metric to our top 25 customers by life-to-date total contract value, such customers had made, on average, additional purchases from us with aggregate total contract values of approximately 14 times their initial purchase.

In order to continue to grow our presence within our customers, we intend to devote additional sales and marketing resources to drive increased adoption within and across our existing customers. As of October 31, 2016, over 60% of our product-related total contract value was derived from transactions that included multiple applications. Furthermore, our penetration of existing customer accounts has enabled us to effectively retain existing customers, as evidenced by our dollar-based net retention rate that has consistently exceeded 120%. As a result, our financial performance will depend in part on the degree to which our upsell and cross-sell strategies are successful.

Mix of Subscription and Perpetual Licenses

We are focused on increasing subscription revenue as a percentage of our total revenues. However, because we recognize subscription revenue ratably over the duration of those arrangements, a portion of the revenue we recognize each period is derived from agreements we entered into during previous periods and therefore our revenue in a given period may not be indicative of our overall sales performance. Furthermore, the unpredictability of the timing of entering into perpetual licenses, the revenue for which we typically recognize upon entering into these arrangements, may cause significant fluctuations in our quarterly financial results.

While our preference for subscription sales will negatively impact our revenue in the short-term due to the ratable nature of subscription revenue, we believe that increasing the proportion of subscription revenue as a percentage of our total revenues will lead to higher growth rates in the longer-term as well as a more predictable business model as we continue to increase our deferred revenues. If our expectations regarding this change in strategic focus prove incorrect or we are unable to efficiently transition our resources to focus more heavily on subscription revenue, our business and operating results may suffer.

Growth in Our Worldwide Sales Capacity

We intend to invest to expand our sales capacity and improve sales productivity to drive additional revenue and support the growth of our global customer base. We have increased our sales and marketing headcount from 157, as of January 31, 2014, to 485, as of October 31, 2016, and expect to continue to increase headcount in the future. Along with growing our direct sales force, we are continuing to develop and expand our network of channel partners, including distributors, resellers and managed service providers to supplement our direct sales resources and increase our reach in our target markets. Investments we make in our sales capacity will occur in advance of any return on such investments, making it difficult for us to determine if we are efficiently allocating our resources in these areas.

Index to Financial Statements

Key Metrics

We monitor the following key non-GAAP financial and operating metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. We believe the following non-GAAP financial and operating metrics are useful in evaluating our business.

Our dollar-based net retention rates were as follows:


	Trailing 12 Months Ended January 31,									Trailing 12 Months Ended October 31,
	2014			2015			2016			2015			2016
Dollar-based net retention rate		121	%		134	%		123	%		122	%		127	%

Our free cash flows were as follows:


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
	(in thousands)
Free cash flow	$	(32,324	)	$	(36,611	)	$	(41,838	)	$	(47,429	)	$	(7,768	)

Free cash flow increased by $39.7 million in the nine months ended October 31, 2016 as compared to the nine months ended October 31, 2015 due primarily to increased collections of accounts receivable and an increase in deferred revenue. Historically, our first quarter has the highest free cash flow primarily due to collections on fourth quarter billings which are typically our highest due primarily to the buying patterns of our large enterprise customers. Our second and third quarter free cash flows tend to be weaker than the first and fourth quarters due to the seasonality of our billings and related collections.

Free cash flow decreased by $5.2 million in the fiscal year ended January 31, 2016 compared to fiscal year ended January 31, 2015 due primarily to a $7.6 million increase in the purchases of property and equipment for

Index to Financial Statements

leasehold improvements related to the expansion of our corporate headquarters and investments in our SaaS architecture. We expect the timing of purchases of property and equipment to vary from period to period based on our relevant business and industry needs.

Our billings were as follows:


	Year Ended January 31,						Nine Months Ended October 31,
	2014		2015		2016		2015		2016
	(in thousands)
Billings	$	62,053	$	140,178	$	258,536	$	164,661	$	236,963

Billings increased 44% in the nine months ended October 31, 2016 as compared to the same prior year period. The increase in the nine months ended October 31, 2016 as compared to the nine months ended October 31, 2015 was due to an increase of 26% in the number of transactions and a 19% increase in the average transaction size, while contract lengths and payment terms have remained relatively consistent. Additionally, as a material portion of our billings are recognized by our U.K. subsidiary whose functional currency is the British Pound, our billings are affected by changes in the exchange rate of the British Pound. In the nine months ended October 31, 2016, the British Pound devalued against the U.S. dollar by approximately 14% due primarily to the recent U.K. referendum on EU membership as compared to an appreciation of approximately 2% in the prior year comparable period. If the foreign currency exchange rates for each month in the nine months ended October 31, 2015 were applied to the corresponding months in the nine months ended October 31, 2016, our billings, on a constant currency basis, would have been approximately $23.2 million higher in the nine months ended October 31, 2016, including $18.0 million in change in deferred revenue. Historically, our fourth quarter has been our strongest quarter primarily due to the buying patterns of our large enterprise customers. As a result, we have experienced and expect to continue to experience seasonal fluctuations in our billings, in particular a decline in the first fiscal quarter of each year as compared to the preceding fourth fiscal quarter.

Billings increased 126% and 84% during the years ended January 31, 2015 and 2016, respectively. The increase in fiscal 2016 as compared to 2015 was due to an increase of 15% in the number of transactions and a 55% increase in the average transaction size, while contract lengths and payment terms have remained relatively consistent. The increase in fiscal 2015 as compared to 2014 was due to an increase of 44% in the number of

Index to Financial Statements

transactions and a 37% increase in the average transaction size, while contract lengths and payment terms have remained relatively consistent.

Cohort Analysis

Our business model relies on rapidly and efficiently landing new customers and expanding our relationship with them over time. As the chart below illustrates, we have a history of attracting new customers and expanding their annual spend with us over time, through upselling our platform across the enterprise and by cross-selling through the subsequent deployment of additional applications throughout the enterprise. Specifically, the chart below illustrates the total subscription contract value of each cohort amortized over the relevant respective contract terms to determine each cohort’s aggregate recurring contract value over the periods presented with each cohort representing customers who made their first purchase from us in a given fiscal year.

For example, the fiscal year 2012 cohort represents all customers who made their first purchase from us between February 1, 2011 and January 31, 2012. The total subscription contract value of this cohort, including all purchases made since the beginning of fiscal year 2012, are amortized over their respective contract terms to determine the cohort’s aggregate recurring contract value. These purchases comprise the fiscal year 2012 cohort portion of the chart below, and reflect the increase in aggregate recurring contract value from $1.2 million in fiscal year 2012 to a total of $9.0 million in fiscal year 2016, representing a compound annual growth rate in excess of 65%.

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Key Components of Results of Operations

Revenues

We generate revenue primarily through sales of subscriptions and licenses of our integrated suite of applications and maintenance and support of such applications as well as professional services. Our maintenance and support agreements provide customers with the right to unspecified software upgrades, maintenance releases and patches released during the term of the maintenance agreement on a when-if-and-if-available basis, and rights to technical support. Our revenue is comprised of the following:

Subscription Revenue. Subscription revenue is related to: (i) time-based on-premises license agreements bundled with maintenance and support, (ii) SaaS subscriptions where the license agreement is bundled with maintenance and support and hosting services, and (iii) software maintenance and support agreements associated with

Index to Financial Statements

perpetual licenses. Revenue for these arrangements is recognized on a straight-line basis over the term of the longest deliverable in the arrangement, typically one or three years. We expect subscription revenue to increase as a percentage of our total revenues as we continue to focus on increasing subscription revenue as a key strategic priority.

License Revenue. We generate license revenue through the sale of on-premises perpetual software license agreements. We generally recognize revenue from the license portion of perpetual license arrangements upon delivery, assuming all revenue recognition criteria are satisfied. If our perpetual license arrangements have elements that are not delivered when the license is delivered, where VSOE of fair value of one or more undelivered elements does not exist, all revenue is deferred and recognized upon the delivery of those elements unless the undelivered element is maintenance and support services, in which case revenue is recognized on a straight-line basis over the term of the maintenance and support services. We expect license revenue to decrease as a percentage of our total revenues as we continue to focus on increasing subscription revenue as a key strategic priority.

Professional Services and Other Revenue. Professional services and other revenue is comprised of fees from consulting services related to the implementation and configuration of our applications which do not involve significant production, modification or customization of software. Professional services arrangements are typically short term in nature and are generally completed within 180 days from the start of service. Professional services and other revenue is generally recognized upon delivery when sold in conjunction with a perpetual license, or ratably over the term of the relevant arrangement when sold in conjunction with a time-based license or SaaS subscription.

Cost of Revenues

Cost of Subscription Revenue. Cost of subscription revenue includes the direct and indirect costs related to our SaaS operations and our customer support organization. Our SaaS operations costs are driven by our SaaS datacenter operations, including third-party hosting facilities, depreciation and amortization, and allocated overhead for facilities and IT, as well as employee compensation costs. The cost of our customer support organization includes employee compensation costs and allocated overhead for facilities and IT.

Cost of License Revenue. Cost of license revenue consists primarily of the cost of royalties for third-party software and amortization of acquired intangible assets.

Cost of Professional Services and Other Revenue. Cost of professional services and other revenue includes all direct and indirect costs to deliver our professional services and training, including employee compensation for our global professional services and training personnel, travel costs and allocated overhead for facilities and IT.

Gross Profit and Gross Margin

Gross profit and gross margin, or gross profit as a percentage of total revenues, has been, and will continue to be, affected by various factors, including the mix of subscription, license and professional services and other revenues. License and subscription pricing, the costs associated with our datacenter operations, including third-party hosting facilities, depreciation and amortization, and the extent to which we expand our professional services and customer support services to support future growth will impact our gross margins. We expect our gross margin to decrease in the near term as we focus our sales efforts on increasing subscription revenue and may fluctuate from period to period based on the above factors.

Subscription Gross Margin. Subscription gross margin is primarily affected by the growth in our subscription revenue as compared to the growth in, and timing of, cost of subscription revenue. Subscription gross margin is lower than our gross margin on license revenue due to, among other things, costs associated with our customer support organization and datacenter operations. We expect to continue to invest in the customer support and SaaS operations to support the growth in the business and the timing of those investments is expected to cause gross margins to fluctuate in the short term but improve over time as the revenue growth drives more leverage in the business.

Index to Financial Statements

License Gross Margin. License gross margin is primarily affected by the cost of royalties for third-party software and amortization of acquired intangible assets which is not expected to fluctuate materially from period to period in the near term.

Professional Services and Other Gross Margin. Professional services and other gross margin is impacted by the ratable nature of a majority of our professional services and other revenue as compared to the recognition of related costs of services in the period incurred which has resulted in negative professional services and other gross margin. Professional services and other gross margin is also effected by the growth in, and timing of, the cost of our professional services organization as we continue to invest in the growth of our business. Although we expect professional services and other gross margin to improve, we expect our professional services gross margin to continue to be negative for the near term.

Operating Expenses

The most significant component of our operating expenses is personnel costs, which consist of salaries, benefits, bonuses, stock-based compensation and, with regard to sales and marketing expenses, sales commissions. In connection with the completion of this offering, we will incur a material one-time stock-based compensation expense due to the performance condition associated with a substantial majority of our restricted stock units (RSUs) becoming probable. Additionally, we expect a significant increase in our stock-based compensation expense in the periods following this offering. If the performance condition had occurred on January 31, 2016 or October 31, 2016, we would have recorded an estimated $12.3 million or $75.9 million, respectively, of stock-based compensation expense related to the performance-based RSUs. This increase in stock-based compensation will be recognized in each of the operating expense lines with a substantial portion recognized in general and administrative expense. In the quarters immediately following this offering, stock-based compensation expense is expected to be in the range of $35.0 million to $45.0 million per quarter.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, allocated overhead for facilities and IT, and expenses associated with our marketing and business development programs. Sales commissions that are incremental and directly related to acquiring customer sales contracts are deferred upon execution of a non-cancelable customer contract, and subsequently amortized to expense over the term of such contract in proportion to the revenue recognized. We plan to increase the dollar amount of our investment in sales and marketing for the foreseeable future, primarily related to increased headcount in sales and marketing, and investment in brand and product marketing efforts. However, we expect our sales and marketing expenses to decrease as a percentage of our total revenues, although they may fluctuate from period to period depending on fluctuations in our total revenues and the timing and extent of our sales and marketing expenses.

Research and Development. Research and development expenses consist primarily of personnel costs and allocated overhead for facilities and IT. All software development costs are expensed as incurred as our current software development process is essentially completed concurrent with the establishment of technological feasibility. We plan to increase the dollar amount of our investment in research and development for the foreseeable future as we focus on developing new applications and application enhancements. However, we expect our research and development expenses to decrease as a percentage of our total revenues, although they may fluctuate from period to period depending on fluctuations in our total revenues and the timing and extent of our research and development expenses.

General and Administrative. General and administrative expenses consist primarily of personnel costs for our administrative, finance and accounting, legal and human resources personnel and non-personnel costs such as legal and other professional fees. In the fiscal year ended January 31, 2015, we recognized the settlement costs of $10.0 million related to our litigation with CA, Inc. (CA) in general and administrative expenses. During the nine months ended October 31, 2016, we reversed $5.6 million of previously recognized stock-based compensation expense related to the unvested portion of certain awards that were cancelled upon one of our executive’s resignation from employment with us. We expect to increase the size of our general and administrative function

Index to Financial Statements

to support the growth of our business. Following the completion of this offering, we expect 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 a U.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC. In addition, as a public company, we expect to incur increased expenses such as insurance, investor relations and professional services. As a result, we expect the dollar amount of our general and administrative expenses to increase for the foreseeable future. However, we expect our general and administrative expenses to decrease as a percentage of our total revenues over the long term, although they may fluctuate from period to period depending on fluctuations in our revenue and the timing and extent of our general and administrative expenses.

Interest Expense

Interest expense consists of interest expense on our outstanding indebtedness and accretion of interest expense on debt issuance costs, including our outstanding warrants to our lender. In connection with this offering, we intend to repay certain of our outstanding indebtedness.

Other Income (Expense), Net

Other income (expense), net consists primarily of foreign currency exchange gains or losses, the change in fair value of the cash fee associated with our term loan facility (Contingent Lender Fee) and interest income earned on our cash, cash equivalents and marketable securities.

The functional currency of each of our legal entities is their respective local currency. All assets and liabilities denominated in a currency other than the functional currency are remeasured into the functional currency with gains and losses recognized in Other income (expense), net in our consolidated statements of operations. We are exposed to foreign currency gains and losses from both trade and intercompany receivables and payables denominated in currencies other than the functional currency. Our increased operations in the U.K. whose functional currency is the British Pound, have increased exposures to both trade and intercompany receivables and payables primarily denominated in U.S. dollars and Euros, particularly in light of increased volatility of the British Pound following the recent U.K. referendum on EU membership. We expect Other income (expense), net to fluctuate based on volatility of the British Pound relative to other major currencies.

Under the terms of our term loan facility, if we are sold or complete our initial public offering, the Contingent Lender Fee is owed to the lender. The Contingent Lender Fee can range from $0.4 million to $3.0 million, as determined by the subordinated loan and security agreement. Based on the nature of the Contingent Lender Fee arrangement, we determined that the commitment should be accounted for as a derivative instrument. As a result, we determined, with the assistance of a third-party valuation firm, the fair value of the aggregate Contingent Lender Fee to be $0.8 million, which was recorded as a debt issuance cost and a Contingent Lender Fee liability upon execution of the credit and term loan facility agreements. The Contingent Lender Fee liability is accounted for at fair value at each reporting period with corresponding changes recorded to Other income (expense), net in our consolidated statements of operations.

Provision for Income Taxes

We have incurred operating losses in all historical periods and, accordingly, have not recorded a provision for income taxes for any of the periods presented other than foreign provisions for income tax.

Since inception, we recorded a valuation allowance against our net deferred tax assets due to operating losses incurred. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets were fully offset by a valuation allowance. If not utilized, the federal, state and foreign net operating loss and tax credit carryforwards will expire between 2019 and 2037 while the foreign net operating losses do not expire. Utilization of the federal and state net operating losses and credit carryforwards is subject to annual limitations that are applicable when we experience an “ownership change”, through a change in significant stockholder allocation or equity structure.

Index to Financial Statements

Our effective tax rate has fluctuated on an annual and quarterly basis. Our effective tax rate is and can be affected by such items as disqualifying dispositions of incentive stock options, by changes in the valuation of our deferred tax assets or liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, we are subject to potential income tax audits on open tax years by any taxing jurisdiction for which we operate in. The taxing authorities of our most significant jurisdictions are the United States Internal Revenue Service, California Franchise Tax Board and HM Revenue and Customs in the United Kingdom. Since all filed U.S. federal and California franchise tax returns have shown operating losses, we do not anticipate any material adjustments to the provisions relating to these returns. The statute of limitations for U.S. federal and state and U.K. tax purposes are generally three, four and three years, respectively; however, we continue to carryover tax attributes prior to these periods for federal and state purposes, which would still be open for examination by the respective tax authorities. All years since our inception are open to tax examinations. See Note 9 of the notes to our consolidated financial statements for additional information regarding our tax provision.

Results of Operations

The following tables summarize our results of operations for the periods presented in dollars and as a percentage of our total revenues. The period-to-period comparison of results is not necessarily indicative of future periods.


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
	(in thousands)
Consolidated Statements of Operations Data:
Revenues:
Subscription	$	18,946		$	42,971		$	87,251		$	60,605		$	110,086
License		3,682			33,954			51,516			34,801			32,608
Professional services and other		972			4,940			11,825			7,384			15,733

Total revenues		23,600			81,865			150,592			102,790			158,427
Cost of revenues:
Subscription⁽¹⁾		6,393			9,884			19,801			13,959			16,980
License		69			284			565			381			648
Professional services and other⁽¹⁾		4,807			8,478			18,347			12,399			21,061

Total cost of revenues		11,269			18,646			38,713			26,739			38,689

Gross profit		12,331			63,219			111,879			76,051			119,738
Operating expenses:
Sales and marketing⁽¹⁾		49,497			85,920			132,297			89,379			118,303
Research and development⁽¹⁾		21,719			34,072			57,743			42,505			51,499
General and administrative⁽¹⁾⁽²⁾		8,398			33,233			48,563			32,937			37,802

Total operating expenses		79,614			153,225			238,603			164,821			207,604

Operating loss		(67,283	)		(90,006	)		(126,724	)		(88,770	)		(87,866	)
Interest expense		(128	)		(1,958	)		(3,258	)		(2,173	)		(3,019	)
Other income (expense), net		(466	)		(1,999	)		(2,968	)		(872	)		(2,682	)

Loss before income taxes		(67,877	)		(93,963	)		(132,950	)		(91,815	)		(93,567	)
Provision for income taxes		461			284			1,109			581			1,510

Net loss	$	(68,338	)	$	(94,247	)	$	(134,059	)	$	(92,396	)	$	(95,077	)

Index to Financial Statements

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


	Year Ended January 31,						Nine Months Ended October 31,
	2014		2015		2016		2015		2016
	(in thousands)
Cost of subscription revenue	$	159	$	345	$	874	$	660	$	394
Cost of professional services and other revenue		73		165		598		333		518
Sales and marketing		2,323		3,581		4,819		3,393		2,939
Research and development		753		1,393		3,185		2,283		2,172
General and administrative^(a)		346		2,569		11,918		9,684		(2,341	)

Total stock-based compensation expense	$	3,654	$	8,053	$	21,394	$	16,353	$	3,682

(a)

(2)	General and administrative expense for the year ended January 31, 2015 includes $10.0 million related to a one-time litigation settlement.


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
Consolidated Statements of Operations Data:
Revenues:
Subscription		80	%		52	%		58	%		59	%		69	%
License		16			42			34			34			21
Professional services and other		4			6			8			7			10

Total revenues		100			100			100			100			100
Cost of revenues:
Subscription		27			12			13			14			11
License		—			—			1			—			—
Professional services and other		21			11			12			12			13

Total cost of revenues		48			23			26			26			24

Gross profit		52			77			74			74			76
Operating expenses:
Sales and marketing		210			105			88			87			75
Research and development		92			42			38			41			32
General and administrative		35			40			32			32			24

Total operating expenses		337			187			158			160			131

Operating loss		(285	)		(110	)		(84	)		(86	)		(55	)
Interest expense		(1	)		(2	)		(2	)		(2	)		(2	)
Other income (expense), net		(2	)		(3	)		(2	)		(1	)		(2	)

Loss before income taxes		(288	)		(115	)		(88	)		(89	)		(59	)
Provision for income taxes		2			—			1			1			1

Net loss		(290	)%		(115	)%		(89	)%		(90	)%		(60	)%

Index to Financial Statements

Comparison of Nine Months Ended October 31, 2015 and 2016

Revenues

Total revenues increased $55.6 million, or 54%, in the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015, primarily due to an increase in our subscription revenue. This increase in subscription revenue was primarily attributable to expanded customer deployments, sales of additional applications to existing customers and a 20% increase in active customers, which we define as customers with at least one active subscription or support and maintenance agreement, to approximately 1,975 as of October 31, 2016.


	Nine Months Ended October 31,
	2015		2016		Change			%
	(dollars in thousands)
Revenues:
Subscription	$	60,605	$	110,086	$	49,481			82	%
License		34,801		32,608		(2,193	)		-6	%
Professional services and other		7,384		15,733		8,349			113	%

Total revenues	$	102,790	$	158,427	$	55,637			54	%

Subscription revenue increased $49.5 million, or 82%, in the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015. The increase in subscription revenue was primarily due to a 20% increase in active customers, and an increase in average subscription revenue recognized per active customer of 51% to approximately $56,000 in the nine months ended October 31, 2016, as compared to approximately $37,000 in the nine months ended October 31, 2015. Of the subscription revenue for the nine months ended October 31, 2016, $45.8 million, $42.6 million and $21.8 million was from time-based licenses, SaaS subscriptions, and maintenance and support related to perpetual licenses, respectively, representing increases of $16.8 million, $22.8 million and $9.9 million, respectively, from the nine months ended October 31, 2015.

License revenue in the nine months ended October 31, 2016 decreased by $2.2 million, or 6%, compared to the nine months ended October 31, 2015, primarily due to a 30% decrease in the average transaction size, partially offset by a 35% increase in the number of perpetual license transactions. Perpetual license revenue is significantly affected by variability in both the number of transactions and average transaction size which can fluctuate from period to period.

Professional services and other revenue increased $8.3 million, or 113%, in the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015. This increase in professional services and other revenue was primarily due to our increased focus on selling more professional services engagements to customers.

Cost of Revenues

Total cost of revenues increased $12.0 million, or 45%, in the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015, primarily due to an $8.7 million increase in cost of professional services and other revenue and, to a lesser extent, a $3.0 million increase in cost of subscription revenue.


	Nine Months Ended October 31,
	2015		2016		Change		%
	(dollars in thousands)
Cost of revenues:
Subscription	$	13,959	$	16,980	$	3,021		22	%
License		381		648		267		70	%
Professional services and other		12,399		21,061		8,662		70	%

Total cost of revenues	$	26,739	$	38,689	$	11,950		45	%

Index to Financial Statements

The cost of subscription revenue increased $3.0 million, or 22%, in the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015. The increase in cost of subscription revenue was primarily attributable to a $1.5 million increase in personnel costs primarily due to a 31% increase in customer support and SaaS operations headcount. In addition, facility and related costs increased by $1.3 million in the nine months ended October 31, 2016, primarily to support our growth and invest in our infrastructure.

The cost of license revenue did not materially change in dollar amount from period to period.

The cost of professional services and other revenue increased $8.7 million, or 70%, in the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015. The increase in cost of professional services and other revenue was primarily attributable to a $6.0 million increase in personnel costs due to a 42% increase in professional services and training headcount. Additionally, we incurred a $1.0 million increase in facility and related costs in the nine months ended October 31, 2016 to support our significant personnel growth.

Gross Profit and Gross Margin


	Nine Months Ended October 31,
	2015			2016			Change			%
	(dollars in thousands)
Gross profit:
Subscription	$	46,646		$	93,106		$	46,460			100	%
License		34,420			31,960			(2,460	)		(7	)%
Professional services and other		(5,015	)		(5,328	)		(313	)		6	%

Total gross profit	$	76,051		$	119,738		$	43,687			57	%

Gross margin:
Subscription		77	%		85	%
License		99	%		98	%
Professional services and other		(68	)%		(34	)%
Total gross margin		74	%		76	%

Total gross profit increased $43.7 million, or 57%, in the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015, primarily due to our increased total revenues that primarily reflected substantial growth in our subscription revenue.

Total gross margin increased to 76% in the nine months ended October 31, 2016 as compared to 74% in the nine months ended October 31, 2015, primarily due to improvements in each of subscription and professional services and other gross margins.

Subscription gross margin increased to 85% in the nine months ended October 31, 2016 as compared to 77% in the nine months ended October 31, 2015, primarily due to an 82% increase in subscription revenue while the cost of subscription revenue increased by 22% as the revenue growth drives more leverage in the business.

License gross margin decreased to 98% in the nine months ended October 31, 2016 as compared to 99% in the nine months ended October 31, 2015 primarily due to a slight decrease in license revenue and a small increase in the cost of license revenue.

Professional services and other gross margin improved to (34)% in the nine months ended October 31, 2016 as compared to (68)% in the nine months ended October 31, 2015, primarily due to revenue growth from an increase in active customers and the build-up effect of the ratable revenue recognition model. The continued negative professional services and other gross margin was primarily due to the fact that a majority of professional services and other revenue is recognized ratably over the term of our subscriptions, whereas the related headcount costs are recognized in the period incurred.

Index to Financial Statements

Operating Expenses


	Nine Months Ended October 31,
	2015		2016		Change		%
	(dollars in thousands)
Operating expenses
Sales and marketing	$	89,379	$	118,303	$	28,924		32	%
Research and development		42,505		51,499		8,994		21	%
General and administrative		32,937		37,802		4,865		15	%

Total operating expenses	$	164,821	$	207,604	$	42,783		26	%

Sales and Marketing

Sales and marketing expenses increased $28.9 million, or 32%, for the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015. The increase was primarily due to the substantial expansion of our sales force and marketing programs. Personnel costs increased $21.5 million primarily due to a 43% increase in sales and marketing headcount and increased sales commissions driven by our revenue growth. In addition, facility and related overhead costs increased by $4.3 million to support our headcount growth, and travel and event related costs increased $4.1 million due to increased marketing programs and selling activities.

Research and Development

Research and development expenses increased $9.0 million, or 21%, for the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015. The increase was primarily due to a $6.9 million increase in personnel costs, primarily attributable to a 22% increase in research and development headcount to support the continued development of new applications and application enhancements. Additionally, facility and related overhead costs increased $2.9 million in the nine months ended October 31, 2016 to support our headcount growth.

General and Administrative

General and administrative expenses increased $4.9 million, or 15%, for the nine months ended October 31, 2016 compared to the nine months ended October 31, 2015. The increase was primarily due to a $6.1 million increase in personnel costs primarily attributable to a 66% increase in our administrative, finance and accounting, legal and human resources headcount and higher compensation costs associated with the expansion of our senior management team, including one-time cash settled awards of $12.7 million, partially offset by a $12.0 million decrease in stock-based compensation as a result of the accelerated attribution method applied to certain performance-based RSUs and the reversal of previously recognized stock-based compensation expense of $5.6 million related to the unvested portion of certain awards that were cancelled upon one of our executive’s resignation from employment with us. In addition, litigation defense costs decreased $1.9 million in the nine months ended October 31, 2016 as compared to the same prior year period.

Interest Expense

Interest expense was $3.0 million for the nine months ended October 31, 2016, an increase of $0.8 million from the $2.2 million recognized in the nine months ended October 31, 2015. The increase in interest expense was due to the higher term debt balance partially offset by a lower outstanding balance on the revolving line of credit. The term debt has a higher interest rate as compared to the revolving credit facility. In addition, non-cash interest expense was higher due to accretion resulting from the issuance of the additional warrants to our lender in September 2015.

Index to Financial Statements

Other Income (Expense), Net

Other income (expense), net was expense of $2.7 million for the nine months ended October 31, 2016, a decrease of $1.8 million from the $0.9 million of income recognized in the nine months ended October 31, 2015. The decrease in other income (expense), net was primarily due to larger foreign exchange losses as a result of foreign currencies decreasing in value relative to the U.S. dollar.

Provision for Income Taxes

The provision for income taxes was $1.5 million in the nine months ended October 31, 2016, an increase of $0.9 million from the nine months ended October 31, 2015, primarily related to a provision for income taxes in foreign tax jurisdictions.

Comparison of Fiscal Years Ended January 31, 2015 and 2016

Revenues

Total revenues increased $68.7 million, or 84%, in the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015, primarily due to an increase in our subscription revenue. This increase in subscription revenue was primarily attributable to expanded customer deployments, sales of additional applications to existing customer, and a 28% increase in active customers to over 1,750 as of January 31, 2016.


	Year Ended January 31,
	2015		2016		$ Change		% Change
	(dollars in thousands)
Revenues:
Subscription	$	42,971	$	87,251	$	44,280		103	%
License		33,954		51,516		17,562		52	%
Professional services and other		4,940		11,825		6,885		139	%

Total revenues	$	81,865	$	150,592	$	68,727		84	%

Subscription revenue increased $44.3 million, or 103%, in the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015. The increase in subscription revenue was primarily due to a 28% increase in active customers and an increase in average subscription revenue recognized per active customer of 57% to approximately $50,000 in the year ended January 31, 2016, as compared to approximately $32,000 in the year ended January 31, 2015. Of the subscription revenue for the year ended January 31, 2016, $40.8 million, $28.9 million and $17.6 million was from time-based licenses, SaaS subscriptions and maintenance and support related to perpetual licenses, respectively, representing increases of $15.6 million, $16.6 million and $12.2 million, respectively, from the year ended January 31, 2015.

License revenue increased $17.6 million, or 52%, in the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015 primarily due to a 49% increase in the number of perpetual license transactions and a 2% increase in the average transaction size. Of the increase, approximately $10 million of revenue was recognized from perpetual licenses for which we have not established VSOE of fair value for one or more undelivered services and therefore the revenue is recognized on a straight-line basis over the term of such services.

Professional services and other revenue increased $6.9 million, or 139%, in the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015. This increase in professional services and other revenue was primarily due to our increased focus on selling more professional services engagements.

Index to Financial Statements

Cost of Revenues

Total cost of revenues increased $20.1 million, or 108%, in the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015, primarily due to a $9.9 million increase in cost of subscription revenue and a $9.9 million increase in cost of professional services and other revenue.


	Year Ended January 31,
	2015		2016		$ Change		% Change
	(dollars in thousands)
Cost of revenues:
Subscription	$	9,884	$	19,801	$	9,917		100	%
License		284		565		281		99	%
Professional services and other		8,478		18,347		9,869		116	%

Total cost of revenues	$	18,646	$	38,713	$	20,067		108	%

The cost of subscription revenue increased $9.9 million, or 100%, in the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015. The increase in cost of subscription revenue was primarily attributable to a $4.7 million increase in personnel costs due to a 94% increase in customer support and SaaS operations headcount. In addition, we incurred a $3.2 million increase in facility and related costs in the fiscal year ended January 31, 2016 primarily to support our growth and a $1.9 million increase in hosting costs based on our increased investment in costs associated with our SaaS operations platform.

The cost of license revenue did not materially change in dollar amount from period to period.

The cost of professional services and other revenue increased $9.9 million, or 116%, in the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015. The increase in cost of professional services and other revenue was primarily attributable to a $7.7 million increase in personnel costs due to a 127% increase in professional services and training headcount. Additionally, we incurred a $1.4 million increase in facility and related costs to support our significant professional services personnel growth.

Gross Profit and Gross Margin


	Year Ended January 31,
	2015			2016			$ Change			% Change
	(dollars in thousands)
Gross profit:
Subscription	$	33,087		$	67,450		$	34,363			104	%
License		33,670			50,951			17,281			51	%
Professional services and other		(3,538	)		(6,522	)		(2,984	)		84	%

Total gross profit	$	63,219		$	111,879		$	48,660			77	%

Gross margin:
Subscription		77	%		77	%
License		99	%		99	%
Professional services and other		(72	)%		(55	)%
Total gross margin		77	%		74	%

Total gross profit increased $48.7 million, or 77%, for the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015, primarily due to our increased revenues, primarily attributable to growth in subscription revenue.

Total gross margin decreased to 74% in the year ended January 31, 2016 as compared to 77% in the year ended January 31, 2015, primarily due to an improvement in professional services and other gross margin.

Index to Financial Statements

Subscription gross margin remained flat at 77% in the year ended January 31, 2016 as compared to the year ended January 31, 2015 as both subscription revenue and cost of subscription revenue grew at approximately the same rate, due to significant investments in our customer support and SaaS operations to support the growth in the business.

License gross margin remained flat at 99% in the year ended January 31, 2016 as compared to the year ended January 31, 2015.

Professional services and other gross margin increased to (55)% in the year ended January 31, 2016 as compared to (72)% in the year ended January 31, 2015 primarily due to revenue growth of 139% while the cost of professional services and other revenue increased by 116%. Professional services and other revenue increased to 8% of total revenues in the year ended January 31, 2016 as compared to 6% in the year ended January 31, 2015. Cost of professional services and other revenue continued to grow to support the business but grew at a slower rate than revenue as we continued to focus on selling more services and improving professional services margins. The continued negative professional services and other gross margin was primarily due to the fact that a majority of professional services and other revenue is recognized ratably over the term of our subscriptions, whereas the related headcount costs are recognized in the period incurred.

Operating Expenses


	Year Ended January 31,
	2015		2016		$ Change		% Change
	(dollars in thousands)
Operating expenses:
Sales and marketing	$	85,920	$	132,297	$	46,377		54	%
Research and development		34,072		57,743		23,671		69	%
General and administrative		33,233		48,563		15,330		46	%

Total operating expenses	$	153,225	$	238,603	$	85,378		56	%

Sales and Marketing

Sales and marketing expenses increased $46.4 million, or 54%, for the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015. The increase was primarily due to the substantial expansion of our sales force and marketing programs. Personnel costs increased $29.7 million primarily due to a 58% increase in sales and marketing headcount and increased sales commissions driven by our revenue growth. In addition, travel and event related costs increased $7.7 million, including costs related to our AppSphere user conference. Facility and related overhead costs increased $7.4 million to support our growth, and our marketing programs costs increased $1.6 million due to higher consulting and lead generation costs.

Research and Development

Research and development expenses increased $23.7 million, or 69%, for the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015. The increase was primarily due to a $15.4 million increase in personnel costs, primarily attributable to a 45% increase in research and development headcount to support the continued development of new applications and application enhancements. In addition, facility and related costs, including allocated overhead increased by $6.7 million to support our growth and our outsourced datacenter costs increased by $1.4 million.

General and Administrative

General and administrative expenses increased $15.3 million, or 46%, for the fiscal year ended January 31, 2016 compared to the fiscal year ended January 31, 2015. The increase was primarily due to a $21.7 million increase

Index to Financial Statements

in personnel costs, primarily attributable to a 126% increase in our administrative, finance and accounting, legal and human resources headcount, and a $3.1 million increase in facility and related costs to support our growth. Legal costs decreased by $10.6 million primarily due to the $10.0 million one-time litigation settlement and related legal expenses in the fiscal year ended January 31, 2015.

Interest Expense

Interest expense was $3.3 million for the fiscal year ended January 31, 2016, an increase of $1.3 million from the $2.0 million recognized in the fiscal year ended January 31, 2015. The increase in interest expense is due to the higher term debt balance and lower outstanding balance on the revolving line of credit. The term debt has a higher interest rate as compared to the revolver. In addition, non-cash interest expense was higher due to accretion resulting from the issuance of the additional warrants to our lender in September 2015 in connection with the increased borrowings under our term loan.

Other Income (Expense), Net

Other income (expense), net was $3.0 million of expense for the fiscal year ended January 31, 2016, an increase of $1.0 million from the $2.0 million of expense recognized in the fiscal year ended January 31, 2015. The increase in other income (expense), net was primarily due to changes in the fair value of the Contingent Lender Fee liability. In the fiscal year ended January 31, 2016, we recognized expense of $0.7 million related to a change in the fair value of the Contingent Lender Fee liability compared to income of $0.3 million related to a change in the fair value of the Contingent Lender Fee liability in the fiscal year ended January 31, 2015.

Other income (expense), net also includes gains and losses from foreign currency transactions. In both periods, we recognized foreign exchange losses of $2.3 million.

Provision for Income Taxes

The provision for income taxes was $1.1 million in the fiscal year ended January 31, 2016, an increase of $0.8 million from the fiscal year ended January 31, 2015, primarily related to a provision for income taxes in foreign tax jurisdictions.

Comparison of Fiscal Years Ended January 31, 2014 and 2015

Revenues

Total revenues increased $58.3 million, or 247%, in the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014, primarily due to an increase in our license revenue and to a lesser extent our subscription revenue primarily attributable to expanded customer deployments, sale of additional applications to existing customers, and a 43% increase in active customers to over 1,350 as of January 31, 2015.


	Year Ended January 31,
	2014		2015		$ Change		% Change
	(dollars in thousands)
Revenues:
Subscription	$	18,946	$	42,971	$	24,025		127	%
License		3,682		33,954		30,272		822	%
Professional services and other		972		4,940		3,968		408	%

Total revenues	$	23,600	$	81,865	$	58,265		247	%

Subscription revenue increased $24.0 million, or 127%, in the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014. The increase in subscription revenue was primarily due to a 43% increase

Index to Financial Statements

in active customers and an increase in average subscription revenue recognized per active customer of 68% to approximately $32,000 in the year ended January 31, 2015, as compared to approximately $19,000 in the year ended January 31, 2014. Of the subscription revenue for the fiscal year ended January 31, 2015, $25.2 million, $12.3 million and $5.4 million was from time-based licenses, SaaS subscriptions and maintenance and support related to perpetual licenses, respectively, representing increases of $12.9 million, $8.1 million and $3.1 million, respectively, from the fiscal year ended January 31, 2014.

License revenue increased $30.3 million, or 822%, in the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014 primarily due to a 149% increase in the number of perpetual license transactions and a 270% increase in the average transaction size.

Professional services and other revenue increased $4.0 million, or 408%, in the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014. This increase in professional services and other revenue was primarily due to increased professional services engagements.

Cost of Revenues

Total cost of revenues increased $7.4 million, or 65%, in the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014, primarily due to a $3.5 million increase in cost of subscription revenue and a $3.7 million increase in cost of professional services and other revenue.


	Year Ended January 31,
	2014		2015		$ Change		% Change
	(dollars in thousands)
Cost of revenues:
Subscription	$	6,393	$	9,884	$	3,491		55	%
License		69		284		215		312	%
Professional services and other		4,807		8,478		3,671		76	%

Total cost of revenues	$	11,269	$	18,646	$	7,377		65	%

The cost of subscription revenue increased $3.5 million, or 55%, in the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014. The increase in cost of subscription revenue was primarily attributable to a $2.6 million increase in personnel costs primarily due to a 55% increase in customer support and SaaS operations headcount. In addition, we incurred a $0.9 million increase in facility and related costs in the fiscal year ended January 31, 2015 primarily to support our growth.

The cost of license revenue did not materially change in dollar amount from period to period.

The cost of professional services and other revenue increased $3.7 million, or 76%, in the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014. The increase in cost of professional services and other revenue was primarily attributable to a $3.5 million increase in personnel costs primarily due to a 73% increase in professional services and training headcount, and a $0.3 million increase in facility and related costs to support our increased professional services headcount.

Index to Financial Statements

Gross Profit and Gross Margin


	Year Ended January 31,
	2014			2015			$ Change		% Change
	(dollars in thousands)
Gross profit:
Subscription	$	12,553		$	33,087		$	20,534		164	%
License		3,613			33,670			30,057		832	%
Professional services and other		(3,835	)		(3,538	)		297		(8	)%

Total gross profit	$	12,331		$	63,219		$	50,888		413	%

Gross margin:
Subscription		66	%		77	%
License		98	%		99	%
Professional services and other		(395	)%		(72	)%
Total gross margin		52	%		77	%

Total gross profit increased $50.9 million, or 413%, for the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014, primarily due to our increased revenues, including a $30.3 million increase in our higher margin license revenue.

Total gross margin increased to 77% in the year ended January 31, 2015 as compared to 52% in the year ended January 31, 2014, due to improvements in each of subscription, license and professional services and other gross margins.

Subscription gross margin increased to 77% in the year ended January 31, 2015 as compared to 66% in the year ended January 31, 2014 primarily due to an 127% increase in revenue growth while the cost of subscription revenue increased by 55%. The improvement in subscription gross margin was primarily driven by the significant increase in revenue while the costs associated with such growth increased at a lower rate as the revenue growth drives more leverage in the business.

License gross margin increased to 99% in the year ended January 31, 2015 as compared to 98% in the year ended January 31, 2014 primarily due to the significant increase in license revenue in the year ended January 31, 2015 as compared to the year ended January 31, 2014.

Professional services and other gross margin improved to (72)% in the year ended January 31, 2015 as compared to (395)% in the year ended January 31, 2014 primarily due to revenue growth of 408%, primarily driven by a 43% increase in active customers and the build-up effect of the ratable revenue recognition model, while the cost of professional services and other revenue increased by 76%. The continued negative professional services and other gross margin was primarily due to the fact that a majority of professional services and other revenue is recognized ratably over the term of our subscriptions, whereas the related headcount costs are recognized in the period incurred.

Operating Expenses


	Year Ended January 31,
	2014		2015		$ Change		% Change
	(dollars in thousands)
Operating expenses:
Sales and marketing	$	49,497	$	85,920	$	36,423		74	%
Research and development		21,719		34,072		12,353		57	%
General and administrative		8,398		33,233		24,835		296	%

Total operating expenses	$	79,614	$	153,225	$	73,611		92	%

Index to Financial Statements

Sales and Marketing

Sales and marketing expenses increased $36.4 million, or 74%, for the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014. The increase was primarily due to the substantial expansion of our sales force and marketing programs. Personnel costs increased $26.0 million primarily due to a 49% increase in sales and marketing headcount and increased sales commissions driven by our revenue growth. In addition, travel and event related costs increased $5.5 million and facility and related overhead costs increased by $4.0 million to support our growth.

Research and Development

Research and development expenses increased $12.4 million, or 57%, for the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014. The increase was primarily due to an $11.7 million increase in personnel costs, primarily attributable to a 46% increase in research and development headcount to support the continued development of new applications and application enhancements. In addition, facility and related costs, including allocated overhead increased by $1.4 million to support our growth. Partially offsetting the increase was a $1.2 million decrease in recruiting fees primarily attributable to establishing an internal recruiting function that decreased our outside recruiting agency fees.

General and Administrative

General and administrative expenses increased $24.8 million, or 296%, for the fiscal year ended January 31, 2015 compared to the fiscal year ended January 31, 2014. The increase was primarily due to a $17.4 million increase in costs from legal matters including the $10.0 million one-time litigation settlement and the related legal expenses. In addition, personnel costs increased by $3.9 million, primarily attributable to a 79% increase in our administrative, finance and accounting, legal and human resources headcount and professional fees increased by $2.3 million, primarily due to increased accounting costs to support our revenue growth.

Interest Expense

Interest expense was $2.0 million for the fiscal year ended January 31, 2015, an increase of $1.8 million from the $0.1 million recognized in the fiscal year ended January 31, 2014. Interest expense, increased primarily due to borrowings under the credit facility we entered into in February 2014.

Other Income (Expense), Net

Other income (expense), net was expense of $2.0 million for the fiscal year ended January 31, 2015, an increase of $1.5 million from the $0.5 million of expense recognized in the fiscal year ended January 31, 2014. The increase in other income (expense), net of $1.5 million was primarily due to an increase in our foreign losses of $2.3 million from an increase in the volume of transactions denominated in foreign currencies, partially offset by a loss on disposal of property and equipment recorded in the fiscal year ended January 31, 2014 of $0.4 million, and a gain in the fiscal year ended January 31, 2015 of $0.3 million due to the change in fair value of the Contingent Lender Fee liability associated with the credit facility.

Provision for Income Taxes

The provision for income taxes was $0.3 million in the fiscal year ended January 31, 2015, a decrease of $0.2 million from the fiscal year ended January 31, 2014, primarily related to a provision for income taxes in foreign tax jurisdictions.

Index to Financial Statements

Quarterly Results of Operations

The following tables set forth selected unaudited quarterly statements of operations data for each of the seven quarters in the period ended October 31, 2016. The information for each of these quarters has been prepared on the same basis as the audited annual financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results are not necessarily indicative of our operating results to be expected for the remainder of fiscal 2017 or for any future period.


	Three Months Ended
	Apr. 30, 2015			Jul. 31, 2015			Oct. 31, 2015			Jan. 31, 2016			Apr. 30, 2016			Jul. 31, 2016			Oct. 31, 2016
	(in thousands)
Revenues:
Subscription	$	17,938		$	20,111		$	22,556		$	26,646		$	30,916		$	36,607		$	42,563
License		9,528			11,482			13,791			16,715			12,080			8,832			11,696
Professional services and other		2,129			2,344			2,911			4,441			3,943			5,701			6,089

Total revenues		29,595			33,937			39,258			47,802			46,939			51,140			60,348
Cost of revenues:
Subscription⁽¹⁾		3,719			4,967			5,273			5,842			5,624			5,463			5,893
License		117			131			133			184			253			176			219
Professional services and other⁽¹⁾		3,149			4,183			5,067			5,948			6,367			6,970			7,724

Total cost of revenues		6,985			9,281			10,473			11,974			12,244			12,609			13,836

Gross profit		22,610			24,656			28,785			35,828			34,695			38,531			46,512
Operating expenses:
Sales and marketing⁽¹⁾		26,422			30,395			32,562			42,918			35,861			39,079			43,363
Research and development⁽¹⁾		13,381			14,405			14,719			15,238			16,867			16,862			17,770
General and administrative⁽¹⁾		12,641			9,346			10,950			15,626			14,069			14,842			8,891

Total operating expenses		52,444			54,146			58,231			73,782			66,797			70,783			70,024

Operating loss		(29,834	)		(29,490	)		(29,446	)		(37,954	)		(32,102	)		(32,252	)		(23,512	)
Interest expense		(600	)		(674	)		(899	)		(1,085	)		(1,052	)		(997	)		(970	)
Other income (expense), net		254			(210	)		(916	)		(2,096	)		1,862			(3,373	)		(1,171	)

Loss before income taxes		(30,180	)		(30,374	)		(31,261	)		(41,135	)		(31,292	)		(36,622	)		(25,653	)
Provision for income taxes		220			121			240			528			321			423			766

Net loss	$	(30,400	)	$	(30,495	)	$	(31,501	)	$	(41,663	)	$	(31,613	)	$	(37,045	)	$	(26,419	)

Index to Financial Statements

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


	Three Months Ended
	Apr. 30, 2015		Jul. 31, 2015		Oct. 31, 2015		Jan. 31, 2016		Apr. 30, 2016		Jul. 31, 2016		Oct. 31, 2016
	(in thousands)
Cost of subscription revenue	$	155	$	311	$	194	$	214	$	152	$	125	$	117
Cost of professional services and other revenue		86		107		140		265		207		158		153
Sales and marketing		1,145		1,122		1,126		1,426		1,113		964		862
Research and development		658		878		747		902		853		684		635
General and administrative		4,707		2,693		2,284		2,234		1,385		1,279		(5,005	)

Total stock-based compensation expense	$	6,751	$	5,111	$	4,491	$	5,041	$	3,710	$	3,210	$	(3,238	)


	Three Months Ended
	Apr. 30, 2015			Jul. 31, 2015			Oct. 31, 2015			Jan. 31, 2016			Apr. 30, 2016			Jul. 31, 2016			Oct. 31, 2016
Revenues:
Subscription		61	%		59	%		58	%		56	%		66	%		72	%		71	%
License		32			34			35			35			26			17			19
Professional services and other		7			7			7			9			8			11			10

Total revenues		100			100			100			100			100			100			100
Cost of revenues:
Subscription		13			15			14			12			12			11			10
License		—			—			—			1			—			—			—
Professional services and other		11			12			13			12			14			14			13

Total cost of revenues		24			27			27			25			26			25			23

Gross profit		76			73			73			75			74			75			77
Operating expenses:
Sales and marketing		89			90			83			90			76			76			72
Research and development		45			42			37			32			36			33			29
General and administrative		43			28			28			32			30			29			15

Total operating expenses		177			160			148			154			142			138			116

Operating loss		(101	)		(87	)		(75	)		(79	)		(68	)		(63	)		(39	)
Interest expense		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)
Other income (expense), net		1			(1	)		(3	)		(5	)		4			(6	)		(2	)

Loss before income taxes		(102	)		(90	)		(80	)		(86	)		(66	)		(71	)		(43	)
Provision for income taxes		1			—			—			1			1			1			1

Net loss		(103	)%		(90	)%		(80	)%		(87	)%		(67	)%		(72	)%		(44	)%

Index to Financial Statements

Revenues

Our quarterly revenues increased in each period presented except for the three months ended April 30, 2016. Our fourth fiscal quarter has historically been our strongest quarter primarily due to the buying patterns of our large enterprise customers. While this does not impact the recognition of subscription revenue, these seasonal buying patterns have impacted, and we expect them to continue to impact, seasonal fluctuations in our license revenue, in particular a decline in the first fiscal quarter of each year as compared to the preceding fourth fiscal quarter. Our revenues have increased in each of the other three fiscal quarters due to both increased sales to new customers as well as increased sales to existing customers.

Gross Profit and Gross Margin

Our quarterly gross profit reflects the seasonal trends noted above. Sequential fluctuations in gross margin were primarily driven by shifts in the mix of subscriptions and perpetual licenses sold to our customers as well as timing of headcount increases as we continued to build out our SaaS operations and customer support organizations.

Operating Expenses

Sales and marketing, research and development, and general and administrative expenses generally have increased sequentially over the periods presented as we increased our headcount to support the continued investment in our applications and our growth. The increase in personnel costs was related to increases in headcount, along with higher stock-based compensation expense. The sequential decrease in sales and marketing expenses for the three months ended April 30, 2016 reflected higher sales commissions in the three months ended January 31, 2016 due to seasonally higher sales in such period. The sequential decrease in general and administrative expenses for the three months ended July 31, 2015 was due to higher legal fees paid related to our litigation with CA in the three months ended April 30, 2015. The sequential increase in general and administrative expenses for the three months ended January 31, 2016 reflected increased compensation expenses associated with the expansion of our management team in the three months ended January 31, 2016. The sequential decrease in general and administrative expenses for the three months ended April 30, 2016 reflects lower stock-based compensation from performance-based awards recognized using the accelerated attribution method and from the stock-based compensation expense for the excess of the repurchase price over the fair market value of our common stock on the settlement date of our tender offer during the three months ended January 31, 2016. See Note 8 of the notes to our consolidated financial statements for additional information regarding our tender offer. The sequential decrease in general and administrative expenses for the three months ended October 31, 2016 was primarily due to the reversal of previously recognized stock-based compensation expense of $5.6 million related to the unvested portion of certain awards that were cancelled upon one of our executive’s resignation from employment with us.

In connection with the completion of this offering, we will incur a material one-time stock-based compensation expense due to the performance condition associated with a substantial majority of our RSUs becoming probable. Additionally, we expect a significant increase in our stock-based compensation expense in the periods following this offering. If the performance condition had occurred on January 31, 2016 or October 31, 2016, we would have recorded an estimated $12.3 million or $75.9 million, respectively, of stock-based compensation expense related to the performance-based RSUs. This increase in stock-based compensation will be recognized in each of the operating expense lines with a substantial portion recognized in general and administrative expense. In the quarters immediately following this offering, stock-based compensation expense is expected to be in the range of $35.0 million to $45.0 million per quarter.

Other Income (Expense), Net

Other income (expense), net includes net foreign exchange (losses) gains of $(2.1) million, $1.8 million, $(3.5) million and $(1.3) million for the quarters ended January 31, 2016, April 30, 2016, July 31, 2016 and

Index to Financial Statements

October 31, 2016, respectively, as a result of our foreign currency exposure with respect to the Euro and U.S. dollar to the British Pound.

Key Metrics

The following table sets forth our key non-GAAP financial and operating metrics that help us evaluate our business for the periods presented:


	Three Months Ended
	Apr. 30, 2015			Jul. 31, 2015			Oct. 31, 2015			Jan. 31, 2016			Apr. 30, 2016			Jul. 31, 2016			Oct. 31, 2016
	(dollars in thousands)
Free cash flow	$	(13,774	)	$	(15,619	)	$	(18,036	)	$	5,591		$	11,831		$	(2,953	)	$	(16,646	)
Dollar-based net retention rate for the trailing 12 months ended		130	%		125	%		122	%		123	%		125	%		127	%		127	%
Billings	$	46,188		$	47,018		$	71,455		$	93,875		$	72,389		$	68,925		$	95,649

The following tables reconcile the most directly comparable GAAP financial measure to each of these non-GAAP financial measures. See the section titled “Selected Consolidated Financial Data—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using free cash flow and billings as financial measures.


	Three Months Ended
	Apr. 30, 2015			Jul. 31, 2015			Oct. 31, 2015			Jan. 31, 2016			Apr. 30, 2016			Jul. 31, 2016			Oct. 31, 2016
	(in thousands)
Cash (used in) provided by operating activities	$	(10,135	)	$	(12,459	)	$	(17,122	)	$	7,224		$	13,706		$	(936	)	$	(14,971	)
Less: Purchases of property and equipment	$	(3,639	)		(3,160	)		(914	)		(1,633	)		(1,875	)		(2,017	)		(1,675	)

Free cash flow	$	(13,774	)	$	(15,619	)	$	(18,036	)	$	5,591		$	11,831		$	(2,953	)	$	(16,646	)


	Three Months Ended
	Apr. 30, 2015			Jul. 31, 2015			Oct. 31, 2015			Jan. 31, 2016			Apr. 30, 2016			Jul. 31, 2016			Oct. 31, 2016
	(in thousands)
Revenues	$	29,595		$	33,937		$	39,258		$	47,802		$	46,939		$	51,140		$	60,348
Total deferred revenue, end of period		131,666			144,747			176,944			223,017			248,467			266,252			301,553
Less: Total deferred revenue, beginning of period		(115,073	)		(131,666	)		(144,747	)		(176,944	)		(223,017	)		(248,467	)		(266,252	)

Change in deferred revenue		16,593			13,081			32,197			46,073			25,450			17,785			35,301

Billings	$	46,188		$	47,018		$	71,455		$	93,875		$	72,389		$	68,925		$	95,649

From a free cash flow perspective, our second and third fiscal quarters tend to be weaker than the first and fourth quarters driven by the seasonality of billings and related collections. We have not traditionally experienced any seasonal trends in our dollar-based net retention rate. Our quarterly billings reflect the seasonal trends noted above with respect to revenue. Our billings typically decrease, quarter-over-quarter, from the fourth quarter to the first quarter of the following year and we expect this trend to continue. Our sales, and correspondingly our billings, have increased in each of the other three fiscal quarters due to both increased sales to new customers as well as increased sales to existing customers.

Index to Financial Statements

Liquidity and Capital Resources

As of October 31, 2016, we had cash and cash equivalents of $94.5 million and marketable securities of $47.5 million. Cash and cash equivalents are comprised of money market accounts and certificates of deposit. Marketable securities are comprised of commercial paper and corporate bonds. To date, we have financed our operations primarily through proceeds from sales of our solutions, the net proceeds from the issuance of our redeemable convertible preferred stock and debt financing. From our inception through October 31, 2016, we completed several rounds of equity financing through the sale of shares of our redeemable convertible preferred stock for net cash proceeds to us of $310.1 million. In February 2014, we entered into a credit facility with a lender for a revolving credit line and a term loan. We have the ability to borrow up to $20.0 million on the revolving line of credit, which could increase to $30.0 million under certain conditions, and up to $20.0 million on the term loan. As of October 31, 2016, we had no amount outstanding under the revolving line of credit and $20.0 million outstanding under the term loan.

We have generated significant operating losses and negative cash flows from operating activities. As of January 31, 2016 and October 31, 2016, we had an accumulated deficit of $381.7 million and $476.8 million, respectively.

As of October 31, 2016, we had $19.7 million of cash and cash equivalents held in foreign jurisdictions, most notably in the United Kingdom. Additionally, except as required under U.S. tax laws, we do not provide for U.S. taxes on approximately $0.1 million of cumulative undistributed earnings of foreign subsidiaries that have not been previously taxed, as we expect to invest such undistributed earnings indefinitely outside of the United States. We may not be able to repatriate cash and cash equivalents or undistributed earnings held in foreign jurisdictions without incurring additional tax liabilities and higher effective tax rates. Accordingly, $0.1 million of our cash and cash equivalents or undistributed earnings held in foreign jurisdictions may effectively be trapped in such foreign jurisdictions unless we are willing to incur additional tax liabilities. If we were to elect to repatriate certain of our cash and cash equivalents or undistributed earnings held in foreign jurisdictions and incur the associated additional tax liabilities, we may be able to offset such tax liabilities through our use of our existing federal, state and foreign net operating loss carryforwards (NOLs) which, as of January 31, 2016, were $182.1 million, $199.8 million and $94.7 million, respectively, and which begin to expire in 2019. In addition, we had federal research and development tax credits of $5.2 million as of January 31, 2016, which expire beginning in 2030, and California research and development tax credits of $6.1 million as of January 31, 2016, which can be carried forward indefinitely.

A substantial majority of RSUs vest upon the satisfaction of both a service-based vesting condition and a performance-based vesting condition. The performance-based vesting condition will be satisfied upon the first to occur of a “change in control” (as defined in the 2008 Plan) or the first date the recipient would be permitted to sell the Company’s securities following the completion of the offering. We expect that a portion of these RSUs will be settled on a date approximately six months after our initial public offering. On the settlement date, we plan to withhold income taxes at applicable minimum statutory rates based on the then-current value of the underlying shares by withholding shares in net settlement. In connection with this net settlement, we expect to withhold and remit the tax liabilities on behalf of the RSU holders to the relevant tax authorities in cash. We currently expect that the average of these withholding tax rates will be approximately 45%. If the price of our common stock at the time of settlement were equal to the midpoint of the estimated offering price range set forth on the cover page of this prospectus, we estimate that this tax obligation would use approximately $ million of cash in the aggregate.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the introduction of new solutions and solution enhancements, and the continued market acceptance of our applications. We expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business. We believe that current cash, cash equivalents and

Index to Financial Statements

marketable securities will be sufficient to fund our operations for at least the next 12 months. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all.


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
	(in thousands)
Cash used in operating activities	$	(25,030	)	$	(34,831	)	$	(32,492	)	$	(39,716	)	$	(2,201	)
Cash used in investing activities		(8,742	)		(1,780	)		(9,771	)		(8,138	)		(53,348	)
Cash provided by financing activities		510			90,403			121,514			92,024			5,264
Effect of exchange rate changes on cash and cash equivalents		—			(353	)		(2,424	)		72			(3,036	)

Net increase (decrease) in cash and cash equivalents	$	(33,262	)	$	53,439		$	76,827		$	44,242		$	(53,321	)

Cash Used in Operating Activities

During the nine months ended October 31, 2016, operating activities used $2.2 million in cash as a result of a net loss of $95.1 million, adjusted by non-cash charges of $24.2 million, primarily consisting of $13.3 million in amortization of deferred commissions, $5.9 million of depreciation and amortization and $3.7 million in stock-based compensation, and $68.7 million of cash provided from changes in our operating assets and liabilities. The cash provided from changes in our operating assets and liabilities was primarily due to a $95.3 million increase in deferred revenue as a result of increased subscription sales. This amount was partially offset by an $11.5 million increase in deferred commissions, a $9.0 million increase in accounts receivable as a result of higher billings and a $6.5 million decrease in accrued compensation, accrued expenses and other current liabilities due to disbursements for commissions, annual bonuses and a $5.0 million litigation settlement payment.

During the nine months ended October 31, 2015, operating activities used $39.7 million in cash as a result of a net loss of $92.4 million, adjusted by non-cash charges of $31.5 million, primarily consisting of $16.4 million in stock-based compensation, $8.8 million in amortization of deferred commissions and $4.6 million of depreciation and amortization, and $21.2 million of cash provided from changes in our operating assets and liabilities. The cash provided from changes in our operating assets and liabilities was primarily the result of a $60.0 million increase in deferred revenue as a result of increased subscription sales, an increase in accrued expenses and other liabilities of $6.6 million, a decrease in other assets of $5.8 million as a result of a decrease in restricted cash due to a release of letters of credit for deposits on leased facilities and customer indemnities and a $2.0 million decrease in accrued compensation due to annual bonus and commission payouts. These increases in cash were partially offset by a $26.6 million increase in accounts receivable as a result of higher billings, a $13.7 million increase in deferred commission, an $8.9 million increase in prepaid expenses and other current assets and a $2.0 million decrease in accounts payable due to timing of purchases and payments.

During the fiscal year ended January 31, 2016, operating activities used $32.5 million in cash as a result of a net loss of $134.1 million, adjusted by non-cash charges of $43.3 million, consisting of $21.4 million in stock-based compensation, $13.2 million in amortization of deferred commissions and $6.5 million of depreciation and amortization, and $58.3 million of cash provided from changes in our operating assets and liabilities. The cash provided from changes in our operating assets and liabilities was primarily the result of a $115.1 million increase in deferred revenue as a result of increased subscription sales, a $14.5 million increase in accrued compensation and accrued liabilities due to increased expenditures and headcount associated with the growth of our business, and an increase of $6.1 million in other assets due to a decrease in restricted cash mainly due to a release of letters of credit for deposits on leased facilities and customer indemnities. These increases were partially offset by cash used for a $37.4 million increase in accounts receivable reflecting growth in billings, a $26.4 million increase in deferred commissions, a $10.2 million increase in prepaid expenses and other current assets and a $2.4 million decrease in accounts payable.

Index to Financial Statements

During the fiscal year ended January 31, 2015, operating activities used $34.8 million in cash as a result of a net loss of $94.2 million, adjusted by non-cash charges of $20.0 million, consisting of $8.1 million in stock-based compensation, $3.9 million of depreciation and amortization and $7.5 million in amortization of deferred commissions. The cash used in operating activities was also offset by $39.4 million of cash provided from our changes in operating assets and liabilities. The cash provided from changes in our operating assets and liabilities was primarily due to a $58.3 million increase in deferred revenue as a result of increased subscription sales and an $18.7 million increase in accounts payable, accrued compensation and accrued liabilities due to increased expenditures and headcount associated with the growth of our business. These increases in cash provided were partially offset by a $14.4 million increase in accounts receivable reflecting growth in billings, a $14.4 million increase in deferred commissions and an $8.4 million increase in prepaid expenses and other current assets, and other assets.

During the fiscal year ended January 31, 2014, operating activities used $25.0 million in cash as a result of a net loss of $68.3 million, adjusted by non-cash charges of $8.2 million, consisting of $3.7 million in stock-based compensation, $2.3 million in amortization of deferred commissions and $1.8 million of depreciation and amortization, as well as $35.1 million of cash provided from changes in our operating assets and liabilities. The cash provided from changes in our operating assets and liabilities was primarily the result of a $38.5 million increase in deferred revenue as a result of increased subscription sales, and an increase in accounts payable, accrued compensation, and accrued liabilities of $7.2 million due to increased expenditures and headcount associated with the growth of our business. These increases in cash provided were partially offset by an $8.5 million increase in accounts receivable reflecting growth in billings, an $8.5 million increase in deferred commissions and a $4.3 million increase in prepaid expenses and other current assets, and other assets.

Cash Used in Investing Activities

Cash used in investing activities during the nine months ended October 31, 2016 was $53.3 million, of which $55.5 million was used to purchase available-for-sale securities and $5.6 million was used for purchases of property and equipment, partially offset by proceeds from the maturities of available-for-sale securities of $7.8 million.

Cash used in investing activities during the nine months ended October 31, 2015 was $8.1 million which was primarily used to purchase leasehold improvements and equipment to support additional office space and equipment to support the growth in our SaaS operations.

Cash used in investing activities during the fiscal years ended January 31, 2016, 2015 and 2014 was $9.8 million, $1.8 million and $8.7 million, respectively, which was primarily used to purchase equipment to support additional office space and the growth in our operations. For the fiscal years ended January 31, 2016 and 2014, our cash used in investing activities also included $0.4 million and $1.4 million, respectively, for acquisitions.

Cash Provided by Financing Activities

Cash provided by financing activities for the nine months ended October 31, 2016 and 2015 was $5.3 million and $92.0 million, respectively. During the nine months ended October 31, 2016, we received $9.4 million from the exercise of common stock options and used $2.1 million for principal payments on debt and $2.1 million for payment of deferred costs related to this offering. During the nine months ended October 31, 2015, we received $80.5 million from the proceeds from issuance of convertible redeemable preferred stock, $28.1 million from draw-downs under our credit facility and $2.7 million from the exercise of common stock options, which was partially offset by $19.2 million in principal payments on debt.

Cash provided by financing activities for the fiscal year ended January 31, 2016 was $121.5 million, reflecting net proceeds of $154.0 million from the issuance of redeemable convertible preferred stock, $28.1 million from debt draw-downs and $4.1 million from the exercise of common stock options, partially offset by the repurchase of $34.8 million of common stock in a tender offer and $29.9 million in principal payments on debt.

Index to Financial Statements

Cash provided by financing activities for the fiscal year ended January 31, 2015 was $90.4 million, reflecting net proceeds of $70.0 million from the issuance of redeemable convertible preferred stock, $20.0 million from debt draw-downs and $2.2 million from the exercise of common stock options, partially offset by $1.8 million in principal payments on debt.

Cash provided by financing activities for the fiscal year ended January 31, 2014 was $0.5 million due to $0.7 million from the exercise of common stock options, net of repurchases, which was partially offset by $0.2 million in principal payments on debt.

Debt

In February 2014, we entered into a senior loan and security agreement and a subordinated loan and security agreement with a lender for a revolving credit facility and a term loan facility, respectively, which we refer to collectively as the “Credit Facility.” The Credit Facility provides us with the ability to borrow up to $50.0 million, up to $30.0 million can be borrowed through the revolving credit facility subject to an accounts receivable borrowing base and $20.0 million can be borrowed through the term loan facility. We have the ability to draw upon the revolving credit facility through February 2017 at a floating interest rate equal to prime plus 1.0% per annum, which was 4.50% as of each of January 31, 2016 and October 31, 2016. The amount outstanding on the revolving credit facility is limited to 80% of the balance of certain eligible customer accounts receivable. The interest rate on the term loan is a fixed interest rate of 11.0% per annum, payable monthly in arrears, and the outstanding principal is due on April 1, 2017. As of October 31, 2016, no amounts were outstanding under the revolving line of credit and we had borrowings of $20.0 million under the term loan. As of October 31, 2016 we had $30.0 million available under the revolving line of credit. The future minimum principal payments on the revolving credit facility and the term loan facility outstanding as of January 31, 2016, are $20.0 million due in the year ended January 31, 2018.

In connection with the term loan facility, we agreed to issue warrants to purchase up to 201,636 shares of our common stock at an exercise price of $1.60 per share subject to adjustment for certain dilutive issuances, reclassifications, and other similar events, which expire in February 2024. As of October 31, 2016, warrants to purchase 201,636 shares of common stock remained outstanding and exercisable.

Under the terms of the term loan facility, if we are acquired or complete an initial public offering, a cash Contingent Lender Fee is owed to the lender. The Contingent Lender Fee can range from $0.4 million to $3.0 million, as determined by the sum of three parts: (i) $375,000 fixed fee, (ii) the product of $1.1 million multiplied by the percentage of the aggregate amount of all term loan facility advances less $5.0 million, divided by $15.0 million, and (iii) in the event of a company sale, the product of the aggregate of all term loan facility advances multiplied by a percentage ranging from 0% to 7.5%, based on the date of the sale as follows:


Date of Sale	Percentage
On or before August 31, 2015		0.0	%
After August 31, 2015 and on or before February 28, 2016		2.5	%
After February 28, 2016 and on or before May 30, 2016		5.0	%
After May 30, 2016		7.5	%

Based on the nature of the Contingent Lender Fee arrangement, we determined that the commitment should be accounted for as a derivative instrument. As a result, we, with the assistance of a third-party valuation firm, determined the fair value of the aggregate Contingent Lender Fee to be $0.8 million, which was recorded as a debt issuance cost and a Contingent Lender Fee liability upon execution of the credit and term loan facility agreements. The Contingent Lender Fee liability is accounted for at fair value at each reporting period with corresponding changes recorded to Other income (expense), net in our consolidated statements of operations. For the years ended January 31, 2015 and 2016, we recorded a gain of $0.3 million and a loss of $0.7 million, respectively, as a result the change in fair value of the Contingent Lender Fee due to changes in expected draw

Index to Financial Statements

amounts. Our current expectation given that we have drawn the full amount of the term loan is that we will make a payment of $1.5 million upon the completion of this offering.

During the fiscal year ended January 31, 2016, we incurred $1.3 million in debt issuance costs relating to additional common stock warrants. During the fiscal year ended January 31, 2015, we incurred $1.4 million in debt issuance costs consisting of commitment fees of $0.4 million, common stock warrant fair value of $0.2 million and the fair value of the Contingent Lender Fee of $0.8 million. The debt issuance costs are reported as a reduction of the debt balance and are amortized to interest expense over the contractual term of the respective revolving credit facility and the term loan facility. As of January 31, 2015, the total remaining unamortized deferred costs were $0.9 million.

Our Credit Facility contains customary affirmative covenants and certain financial and negative covenants, including restrictions on disposing of assets, entering into change of control transactions, mergers or acquisitions, incurring additional indebtedness, granting liens on certain of our assets and paying dividends. We are required to maintain minimum total customer bookings on a rolling two quarter basis that is not less than an agreed amount that is at least 75% of our projected customer bookings for each period, which must provide for at least 30% growth in comparison to our projected customer bookings for the immediately-preceding fiscal year. We have pledged substantially all of our assets other than intellectual property as collateral under our Credit Facility and granted the lender a negative pledge on our intellectual property. As of January 31, 2016 and April 30, 2016, we were not in compliance with certain covenants for which waivers were subsequently obtained, and, as of both July 31, 2016 and October 31, 2016, we were in compliance with all covenants under our Credit Facility.

The Credit Facility contains customary events of default that include, among others, payment defaults, covenant defaults, bankruptcy defaults, cross-defaults to certain other obligations, judgment defaults and inaccuracy of representations and warranties. Upon the occurrence of an event of default, the lender may elect to declare all amounts outstanding under the Credit Facility to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, the lender can proceed against the collateral granted to them to secure such indebtedness. In addition, the occurrence of an event of default will increase the applicable rate of interest by 3.0%.

Upon any termination of the Credit Facility, we may be subject to certain fees, including termination fees of up to 1.0% of the total available amount under the revolving line of credit and up to 3.0% of the total then-outstanding amount under the term loan.

Contractual Obligations and Commitments

Our principal contractual commitments consist of obligations under leases for office space.

As of January 31, 2016, the future non-cancelable minimum lease payments under these obligations, and our future non-cancelable minimum payments under our other contractual obligations, were as follows:


	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands)
Operating lease obligations	$	41,191	$	6,362	$	13,164	$	13,167	$	8,498
Term debt obligation		20,000		—		20,000		—		—
Unconditional purchase obligations		6,094		2,222		3,872		—		—
Capital lease obligations		5,592		2,987		2,605		—		—

Total	$	72,877	$	11,571	$	39,641	$	13,167	$	8,498

Index to Financial Statements

Off-Balance Sheet Arrangements

As of January 31, 2016 and October 31, 2016, we did not have any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other purposes.

Indemnification Agreements

In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to customers, business partners and other parties with respect to certain matters, including losses arising out of intellectual property infringement claims made by third parties, if we have violated applicable laws, if we are negligent or commit acts of willful misconduct, and other liabilities with respect to our applications and services and our business. In these circumstances, payment is typically conditional on the other party making a claim pursuant to the procedures specified in the particular contract.

In addition, we have entered into indemnification agreements with our directors and certain of our executive officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities and currency exchange rates as follows:

Interest Rate Risk

We had cash and cash equivalents and marketable securities of $142.0 million as of October 31, 2016, which consisted of bank deposits, money market accounts, commercial paper and U.S. corporate securities. The cash and cash equivalents are held primarily for working capital purposes. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

Currency Exchange Risks

Our reporting currency is the U.S. dollar. The functional currency of our foreign subsidiaries is their respective local currency. The assets and liabilities of the subsidiaries are translated to U.S. dollars at the exchange rate on the balance sheet date. Equity transactions are translated using historical exchange rates. Revenues and expenses are translated at the average exchange rate during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in Other comprehensive income (loss). Foreign exchange gains and losses from changes in the exchange rates underlying intercompany balances that are of a long-term investment nature are also reported as a component of Other comprehensive income (loss). All assets and liabilities denominated in a currency other than the functional currency are remeasured into the functional currency with gains and losses recognized in Other income (expense), net in the consolidated statements of operations. We are exposed to exchange rate fluctuations between the British Pound and other major currencies, in particular to the U.S. dollar and the Euro. We recorded net foreign currency transaction gains or (losses) of $(0.2) million, $(2.3) million and $(2.3) million for the fiscal years ended January 31, 2014, 2015 and 2016, respectively, and $(0.2) million and $(3.0) million for the nine months ended October 31, 2015 and 2016,

Index to Financial Statements

respectively. We do not currently engage in any hedging activity to reduce our potential exposure to currency fluctuations, although we may choose to do so in the future. A hypothetical 10% change in foreign currency exchange rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, which are described in Note 1 to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.

Under the Jumpstart Our Business Startups Act (the JOBS Act) an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. However, we are irrevocably choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption is required for non-emerging growth companies.

Revenue Recognition

We recognize revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) our fee is fixed or determinable and (4) collectability is probable or reasonably assured.

For sales to direct end users and channel partners, including resellers, distributors and managed service providers, we recognize product revenue upon delivery, assuming all other revenue recognition criteria are met. It is our practice to require the identification of an end user prior to accepting an order from a channel partner and we typically deliver to the end user. We generally do not grant channel partners rights of return or price protection but do offer channel partners a discounted price enabling them to obtain a margin between their sales price offered to end-user customers and the sales price purchased from us.

Subscription Revenue

Subscription revenue is related to: (i) time-based on-premises license agreements bundled with maintenance and support, (ii) SaaS subscriptions where the license agreement is bundled with maintenance and support as well as hosting services, and (iii) software maintenance and support agreements associated with perpetual licenses. Our maintenance and support agreements provide customers with the right to receive unspecified software upgrades, maintenance releases and patches released during the term of the maintenance agreement on a when-and-if-available basis, and rights to technical support. Revenue for these arrangements is recognized on a straight-line basis over the term of the longest deliverable in the agreement, typically one or three years.

License Revenue

We generate our license revenue through the sale of on-premises perpetual software license agreements.

Index to Financial Statements

Perpetual licenses are generally sold in combination with maintenance and support agreements and frequently with professional services and/or training and are accounted for under the software revenue recognition guidance. Accordingly, we use the residual method to determine the amount of license revenue to be recognized. Under the residual method, consideration is allocated to undelivered elements based upon VSOE of fair value of those elements, with the residual of the arrangement fee allocated to and recognized as license revenue. We determine VSOE of maintenance and support for our on-premises perpetual licenses and professional services based upon the price charged when those services are sold separately.

Professional Services and Other Revenue

We also provide professional services and training. Professional services and other revenue is comprised of fees from consulting services related to the implementation and configuration of our applications and do not involve significant production, modification or customization of software. Professional services arrangements are typically short term in nature and are generally completed within 180 days from the start of service. Professional services and other revenue is generally recognized upon delivery when sold in conjunction with a perpetual license, or ratably over the term of the arrangement when sold in conjunction with a time-based license or a SaaS subscription, which are typically accounted for under the software revenue recognition guidance.

Remix and Other Rights

Certain of our sales contracts provide customers with the right to remix product usage from a fixed list of products. If such rights only allow the customer to remix among contractually licensed software products and restrict usage to a combination of software products having cumulative value of no greater than the total license fee, revenue derived from the arrangement is recognized upon delivery of at least one copy of each licensed and remixable product, provided the remaining criteria for revenue recognition have been met. Certain of our other sales contracts provide customers with the right to exchange between like-kind products, and revenue on such arrangements is recognized upon delivery of the initially licensed products, provided the remaining criteria for revenue recognition have been met. Revenue derived from arrangements containing rights to exchange products that are not like-kind and do not qualify as remix rights are accounted for as a customer deposit. The revenue derived from these arrangements is not recognized until the remix rights lapse, provided the remaining criteria for revenue recognition have been met. Customer deposits of $1.1 million, $1.8 million and $0.0 million as of January 31, 2015, January 31, 2016 and October 31, 2016, respectively, were recorded in Other long-term liabilities in our consolidated balance sheets.

Multiple Element Arrangements

The majority of our multiple element arrangements are from perpetual and time-based software licenses and SaaS subscriptions that are generally sold in combination with maintenance and support service and frequently with professional services and/or training and are typically accounted for under the industry-specific software revenue recognition guidance. Subscription and hosting fees, if applicable, from sales of SaaS subscriptions are in almost all cases subject to the industry-specific software revenue recognition guidance because it is our practice to allow customers to take possession of the hosted software at any time during the hosting period for no penalty and it is feasible for the customers to either run the software on their own hardware or contract with another party unrelated to us to host the software. Under the industry-specific software revenue recognition guidance, if we have fair value of all the elements in the arrangement, revenue should be allocated between multiple elements based on the relative fair values of those elements. The fair value of an element must be based on VSOE. VSOE of fair value is based upon the price charged when the same element is sold separately. In determining VSOE of fair value, we require that a substantial majority of the selling prices fall within a reasonably narrow pricing range. In addition, we consider geographies and customer classifications in determining VSOE of fair value. Our software licenses and SaaS subscriptions are generally not sold on a stand-alone basis, and therefore, we have not established VSOE of fair value for the software licenses and SaaS subscriptions. When VSOE of fair value of delivered elements is not available, revenue is recognized using the

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Index to Financial Statements

residual method based on VSOE of fair value of the undelivered elements. If the only undelivered item is maintenance and support services for which we do not have VSOE of fair value, revenue is recognized on a straight-line basis over the term of the maintenance and support services. In the majority of transactions involving perpetual licenses, the arrangements have undelivered maintenance and support and professional services for which VSOE of fair value has been established, and accordingly, we have applied the residual method to recognize license revenue for these arrangements. For arrangements that have two or more undelivered services such as maintenance and support services, hosting services, or professional services for which we have not established VSOE of fair value, we use the combined services approach to recognize revenue for these transactions. Under the combined services approach, the entire fee is recognized on a straight-line basis, once the software has been delivered and the provision of each undelivered service has commenced, over the longer of the maintenance and support services period, the hosting period or the period the professional services are expected to be performed. In those arrangements where we do not have VSOE of fair value for an undelivered element, the arrangement fees are allocated between the elements on a residual basis using the best estimated selling price for revenue classification purposes. The determination of whether deliverables within a multiple element arrangement can be treated separately for revenue recognition purposes involves significant judgment, such as whether VSOE of fair value has been established on undelivered elements. Changes to our assessments of the accounting units in a multiple deliverable arrangement or the ability to establish VSOE of fair value could change the timing of revenue recognition.

Fees are typically considered to be fixed or determinable at the inception of an arrangement, generally based on specific applications and quantities to be delivered. Substantially all of our contracts do not include rights of return or acceptance provisions. To the extent that our agreements contain such terms, we recognize revenue once the acceptance provisions or right of return lapses. Payment terms to customers generally range from net 30 to 90 days. In the event payment terms are provided that significantly differ from our standard business practices, the fees may be deemed not to be fixed or determinable and revenue is recognized when the payments become due, provided the remaining criteria for revenue recognition have been met.

We assess the ability to collect from our customers based on a number of factors, including creditworthiness of the customer and past transaction history of the customer. If the customer is not deemed creditworthy, we defer revenue from the arrangement until payment is received and all other revenue recognition criteria have been met.

Commissions

Sales commissions costs that are incremental and directly related to customer sales contracts are deferred upon execution of a non-cancelable customer contract, and subsequently amortized to expense over the term of such contract in proportion to the revenue recognized. As of January 31, 2015, January 31, 2016 and October 31, 2016, we had total deferred commissions of $15.6 million, $28.8 million and $27.0 million, respectively. Commission expense was $8.7 million, $19.3 million and $27.3 million for the years ended January 31, 2014, 2015 and 2016, respectively, and $16.0 million and $20.3 million for the nine months ended October 31, 2015 and 2016, respectively.

Stock-Based Compensation Expense

We recognize compensation expense related to stock-based awards, including stock options and RSUs, based on the estimated fair value of the award on the grant date, in our accompanying consolidated statements of operations over the related vesting periods. The expense recorded is based on awards ultimately expected to vest and therefore is reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We calculate the fair value of stock options using the Black-Scholes Option-Pricing model. The fair value of RSUs represents the estimated fair value of our common stock on the date of grant. For service-based awards, stock-based compensation is recognized using the straight-line attribution approach over the requisite service period, which is generally

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four years, net of estimated forfeitures. For performance-based awards, stock-based compensation is recognized using the accelerated attribution method, based on the probability of achieving the performance targets over the requisite service period for the entire award. For awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation model and recognized using the accelerated attribution method over the derived service period based on the expected market performance as of the grant date. A substantial majority of our RSUs vest upon the satisfaction of both a service condition of up to four years and a liquidity event condition. The liquidity condition is satisfied upon the occurrence of a qualifying event, defined as a change of control transaction or the effective date of our initial public offering. No compensation expense will be recognized until the performance condition is achieved, at which time the cumulative compensation expense using the accelerated attribution method from the service start date will be recognized.

As of October 31, 2016, the aggregate intrinsic value of vested and unvested options was $ million and the aggregate intrinsic value of our unvested RSUs was $ million based on the estimated fair value for our common stock of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. As of October 31, 2016, we had $15.4 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to stock options that is expected to be recognized over a weighted-average period of 1.9 years. As of October 31, 2016, we had $243.7 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to RSUs that is expected to be recognized over a weighted-average period of 3.3 years. If our initial public offering had occurred on October 31, 2016, we would have recorded an estimated $75.9 million of stock-based compensation expense related to the performance-based RSUs. In future periods, we expect our stock-based compensation expense to increase in dollar amount as a result of our existing stock-based compensation to be recognized as these options and RSUs vest and as we issue additional stock-based awards to attract and retain employees.

We account for equity awards issued to non-employees, such as consultants, in accordance with the guidance relating to equity instruments that are issued to other than employees for acquiring, or in conjunction with selling, goods or services, using the Black-Scholes option-pricing model to determine the fair value of such instruments. Awards granted to non-employees are remeasured over the vesting period, and the resulting value is recorded as an expense over the period the services are received.

Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected term of the option, the expected volatility of the price of our common stock, risk-free interest rates and the expected dividend yield of our common stock. The assumptions we use in our option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

These assumptions and estimates are as follows:

•

Fair Value of Common Stock. Because our common stock is not yet publicly traded, we must estimate the fair value of common stock, in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation as discussed in “Common Stock Valuations” below.

•

Expected Volatility. Expected volatility is a measure of the amount by which the stock price is expected to fluctuate. Since we do not have sufficient trading history of its common stock, we estimate the expected volatility of our stock options at their grant date by taking the weighted average historical volatility of a group of comparable publicly traded companies over a period equal to the expected life of the options.

•

Expected Term. We determine the expected term based on the average period the stock options are expected to remain outstanding generally calculated as the midpoint of the stock options vesting term and contractual expiration period, as we do not have sufficient historical information to develop

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reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

•

Risk-free Interest Rate. We use the average of the published interest rates of U.S. Treasury zero-coupon issues with terms consistent with the expected term of the awards to determine the risk-free interest rate.

•

Expected Dividends. Since we do not anticipate paying any cash dividends in the foreseeable future, we use an expected dividend yield of 0%.

The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine the fair value of our stock options as follows:


	Year Ended January 31,									Nine Months Ended October 31,
	2014			2015			2016			2015			2016
Fair market value of common stock	$	1.70–$2.43		$	4.48–$7.02		$	8.10–$12.94		$	8.10–$10.76		$	12.52–$12.65
Expected dividend yield		—			—			—			—			—
Risk-free interest rate		1.2%–1.9	%		1.3%–1.9	%		1.5%–1.9	%		1.5%–1.9	%		1.1%–1.6	%
Expected volatility		47%–49	%		44%–45	%		41%–44	%		43%–44	%		43%–49	%
Expected term (in years)		6.1			6.1			6.1			6.1			4.4–6.1

In addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. The estimated forfeiture rate is based on an analysis of historical forfeitures and will continue to be evaluated based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. Further, to the extent our actual forfeiture rate is different from this estimate, stock-based compensation is adjusted accordingly. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors. Quarterly changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed.

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

Common Stock Valuations

We are required to estimate the fair value of the common stock underlying our stock option awards when performing the fair value calculations with the Black-Scholes option-pricing model and when determining the fair value of RSUs. The fair value of the common stock underlying our stock option awards was determined by our board of directors, with input from management and review of third-party valuations, which intended all stock options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock. As described below, the exercise price of our stock option awards was determined by our board of directors based on the most recent valuation as of the grant date. As shown below, the valuations of common stock were determined in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions that we used in these valuation models are based on future expectations combined with management judgment. In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous

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objective and subjective factors to determine the fair value of our common stock for financial reporting purposes as of the grant date of each stock option award, including the following factors:

•

contemporaneous valuations performed at periodic intervals by an independent valuation firm;

•

the prices, rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;

•

the prices of our redeemable convertible preferred stock and common stock sold to outside investors in arms-length transactions;

•

our actual operating and financial performance;

•

our current business conditions and projections;

•

our hiring of key personnel and the experience of our management;

•

our stage of development;

•

our likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our company, given prevailing market conditions;

•

the lack of marketability involving securities in a private company;

•

the market performance of comparable publicly traded companies; and

•

U.S. and global capital market conditions.

In valuing our common stock, our board of directors determined the equity value of our business generally using a weighting of the market comparable approach and the income approach valuation methods. When applicable due to a recent redeemable convertible preferred stock offering, the prior sale of company stock method was also utilized.

The market comparable approach estimates the fair value based on a comparison of our company to comparable public companies in a similar line of business. Based on trading multiples of the comparable companies, a representative market value multiple is determined which is applied to our historical and projected operating results to estimate the value of our company. The estimated value is then discounted by a non-marketability factor due to the fact that stockholders of private companies do not have access to trading markets similar to those used by stockholders of public companies, which impacts liquidity. We review the comparable companies with each valuation to ensure that the companies continue to best reflect our industry and business model.

We use a hybrid method utilizing a combination of the option pricing method (OPM) and the probability-weighted expected return method (PWERM) in estimating the value of our common stock. Using the PWERM, the value of our common stock is estimated based upon a probability-weighted analysis of varying values for our common stock assuming possible future events for our company, such as:

•

a “liquidation” scenario, where we assume our company is dissolved and the book value less the applicable liquidation preferences represents the amount available to the common stockholders;

•

a strategic sale in the near term;

•

an initial public offering; or

•

a downside scenario in which we sell our company at a lower than expected stockholder liquidation value.

The OPM treats common stock and redeemable convertible preferred stock as call options on a business, with exercise prices based on the liquidation preference of the redeemable convertible preferred stock. The OPM uses the Black-Scholes option model to price the call option. Estimates of the volatility applied in the Black-Scholes option model were based on available information on the volatility of common stock of comparable, publicly traded companies. Additionally, we applied a discount for lack of marketability.

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The prior sale of company stock approach estimates value by considering any prior arm’s length sales of our capital stock. When considering prior sales of our capital stock, the valuation considers the size of the stock sale, the relationship of the parties involved in the transaction, the timing of the stock sale, and our financial condition at the time of the sale.

Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses and future cash flows, discount rates, market multiples, the selection of comparable companies and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.

For valuations after the completion of this offering, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on The NASDAQ Global Select Market on the date of grant.

Historical grants of stock options and issuances of RSUs since February 1, 2015 are as follows:


Stock Options
Grant Date	Shares		Exercise Price Per Share		Deemed Fair Value Per Share of Common Stock
3/5/15		2,238,750	$	7.02	$	8.08
4/10/15		869,200	$	7.02	$	9.24
6/15/15		921,170	$	9.88	$	10.76
12/9/15		75,012	$	13.10	$	12.94
3/24/16		34,496	$	12.73	$	12.58
6/23/16		37,142	$	12.48	$	12.52
10/4/16		22,726	$	12.54	$	12.65
12/15/16		42,500	$	12.70	$	12.70

		4,240,996


Restricted Stock Units
Grant Date	Shares		Deemed Fair Value Per Share of Common Stock
3/20/15		1,000,000	$	8.56
4/22/15		140,000	$	9.62
6/11/15		53,137	$	10.68
6/15/15		247,718	$	10.76
12/8/15		1,412,500	$	12.95
12/9/15		2,962,258	$	12.94
3/24/16		7,011,894	$	12.58
6/23/16		1,529,908	$	12.52
10/4/16		5,234,180	$	12.65
10/18/16		20,000	$	12.68
11/10/16		350,538	$	12.70
12/15/16		1,006,200	$	12.70
12/24/16		26,666	$	12.70

		20,994,999

The above table does not include 0.7 million performance-based RSUs that we awarded to one of our executives for which performance metrics have not yet been defined. Accordingly, these RSUs are not considered granted for accounting purposes.

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Our assessments of the fair value of the common stock for grant dates between the dates of the valuations were based in part on the current available financial and operational information and the common stock value provided in the most recent valuation as compared to the timing of each grant. For financial reporting purposes, we generally used a straight-line interpolation between the two valuation dates. This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date.

Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. We account for income taxes in accordance with the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.

We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we have considered our historical levels of income, expectations of future taxable income and ongoing tax planning strategies. Because of the uncertainty of the realization of the deferred tax assets, we have recorded a full valuation allowance against our deferred tax assets. Realization of our deferred tax assets is dependent primarily upon future jurisdiction taxable income.

We recognize and measure uncertain tax positions using a two-step approach provided in authoritative guidance. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicated that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. We evaluate our uncertain tax positions on a regular basis and evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues.

Recent Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard, Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, as amended, which will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity is required to recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services. ASU No. 2014-09 defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates, and also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used.

The FASB has recently issued several amendments to the new standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations. The amendments include ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606)—Principal versus Agent Considerations, which was issued in March 2016, and clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09, and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606)—Identifying Performance Obligations and Licensing, which was issued in April 2016, and amends the guidance in ASU No. 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property.

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The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. We do not plan to early adopt, and accordingly, we will adopt the new standard effective February 1, 2018.

We currently plan to adopt using the full retrospective approach. However, a final decision regarding the adoption method has not been finalized at this time. Our final determination will depend on a number of factors, such as the significance of the impact of the new standard on our financial results, system readiness, including that of software procured from third-party providers, and our ability to accumulate and analyze the information necessary to assess the impact on prior period financial statements, as necessary.

We are in the initial stages of our evaluation of the impact of the new standard on our accounting policies, processes, and system requirements. We have assigned internal resources in addition to the engagement of third party service providers to assist in the evaluation. Furthermore, we have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard. While we continue to assess all potential impacts under the new standard, there is the potential for significant impacts to the timing of recognition of subscription revenue, particularly time-based licenses, and professional services revenue, and contract acquisition costs, both with respect to the amounts that will be capitalized as well as the period of amortization.

Under current industry-specific software revenue recognition guidance, we have historically concluded that we did not have VSOE of fair value of the undelivered services related to time-based licenses, and accordingly, we have recognized time-based licenses and related services ratably over the subscription term. Professional services included in an arrangement with subscription revenue have also been recognized ratably over the subscription term. The new standard, which does not retain the concept of VSOE, requires an evaluation of whether time-based licenses and related services, including professional services, are distinct performance obligations and, therefore, should be separately recognized at a point in time or over time. Depending on the outcome of our evaluation, the timing of when revenue is recognized could change significantly for time-based licenses and professional services under the new standard.

As part of our preliminary evaluation, we have also considered the impact of the guidance in ASC 340-40, Other Assets and Deferred Costs; Contracts with Customers, and the interpretations of the FASB Transition Resource Group for Revenue Recognition (TRG) from their November 7, 2016 meeting with respect to capitalization and amortization of incremental costs of obtaining a contract. As a result of this new guidance, we preliminarily believe that we will capitalize additional costs of obtaining the contract, including additional sales commissions, as the new cost guidance, as interpreted by the TRG, requires the capitalization of all incremental costs that we incur to obtain a contract with a customer that we would not have incurred if the contract had not been obtained, provided we expect to recover the costs. Under our current accounting policy, we would only capitalize such costs if they are both incremental and directly related to acquiring the customer. Additionally, we preliminarily believe that the amortization period for our deferred commission costs will be longer than the contract term, as the new cost guidance requires entities to determine whether the costs relate to specific anticipated contracts. Therefore, we believe that the period of benefit, as interpreted by the TRG, for deferred commission costs will likely be longer than the initial contract period. Under our current accounting policy, we amortize the capitalized costs over the underlying contractual period.

While we continue to assess the potential impacts of the new standard, including the areas described above, and anticipate this standard could have a material impact on our consolidated financial statements, we do not know or cannot reasonably estimate quantitative information related to the impact of the new standard on our financial statements at this time.

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Stock-based Compensation

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting to simplify the accounting for share-based payment transactions, including the income tax consequences, an option to recognize gross share-based compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. ASU No. 2016-09 is effective for annual reporting period beginning after December 15, 2017, and interim periods within those years beginning after December 15, 2018 and early adoption is permitted. We are currently in the process of evaluating the impact of adoption of this standard on our consolidated financial statements and related disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic (ASC) 718, Compensation-Stock Compensation, as it relates to such awards. ASU No. 2014-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date or (ii) retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying ASU No. 2014-12 as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Lease (Topic 842), which requires companies to recognize lease liabilities and corresponding right-of-use leased assets on the balance sheet and to disclose key information about leasing arrangements. ASU No. 2016-02 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2018 and early adoption is permitted. We are currently in the process of evaluating the impact of adoption of this standard on our consolidated financial statements and related disclosures.

Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. With respect to our consolidated financial statements, the most significant impact relates to the accounting for equity investments. It will impact the disclosure and presentation of financial assets and liabilities. ASU 2016-01 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017. Early adoption by public entities is permitted only for certain provisions. We are currently in the process of evaluating the impact of the adoption of this standard on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU No. 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU No. 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. We are currently in the process of evaluating the impact of the adoption of this standard on our consolidated financial statements.

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Income Taxes

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which amends existing guidance to require that deferred income tax liabilities and assets be classified as noncurrent in a classified balance sheet, and eliminates the prior guidance which required an entity to separate deferred tax liabilities and assets into a current amount and a noncurrent amount in a classified balance sheet. Early adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. We early adopted ASU No. 2015-17 during fiscal year 2016 on a retrospective basis. The retrospective adoption of ASU No. 2015-17 resulted in a $1.9 million decrease in current deferred tax liabilities and non-current deferred tax assets as of January 31, 2015.

Debt Issuance Costs

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, to simplify the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. ASU No. 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015; however, early adoption is permitted for financial statements that have not been previously issued. ASU No. 2015-03 is to be applied retrospectively to all periods presented. We early adopted ASU No. 2015-03 in the fiscal year ended January 31, 2015 and recorded debt issuance costs of $0.9 million and $1.5 million in Long-term debt on our consolidated balance sheets as of January 31, 2015 and 2016, respectively, and $0.5 million in current maturities of long-term debt on our consolidated balance sheet as of October 31, 2016.

Going Concern

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU No. 2014-15 will be effective for fiscal years ending after December 15, 2016 and interim periods within those fiscal years beginning after December 15, 2016, with early adoption permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which aims to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. ASU No. 2016-15 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017 and early adoption is permitted. We are currently in the process of evaluating the impact of adoption of this standard on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18) which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted. We are currently in the process of evaluating the impact of adoption of this standard on our consolidated financial statements.

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BUSINESS

Overview

We deploy self-configuring software agents into our customers’ software application and IT infrastructure environments across their cloud, on-premises and hybrid deployments. These agents work together to rapidly discover and provide a unified, end-to-end view of our customers’ environments. Our platform then automatically maps business transactions at the code level of the underlying software applications. We then utilize machine learning to create dynamic baselines by determining the normal behavior of individual software applications and business transactions, thereby enabling our customers to automatically detect deviations from these norms. By providing visibility into and dynamically baselining the performance of business transactions in addition to underlying individual software, hardware and network components and processes, which we refer to as services, we enable our customers to align the objectives of their business, product development and IT operations teams. This provides our customers with a unified, real-time view into software application and IT infrastructure performance, the quality of their end users’ experiences and the resulting impact on their businesses and brands.

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Further, our applications can be quickly and easily deployed by our customers without the need for extensive professional services. While we believe that our professional services engagements are not necessary to enable our customers to effectively use our applications, many of our customers purchase professional services from us to maximize the value and functionality of our applications. Additionally, while our larger customers tend to purchase more professional services from us to address the needs of their larger and more complex enterprise software application and IT infrastructure environments, our self-configuring platform and smart code instrumentation enable our applications to be easily deployed, configured and managed at scale in such environments.

We target mid- to large-size organizations worldwide, such as Global 2000 companies, through our direct sales efforts as well as a network of distributors, resellers and managed service providers. Our partner network provides us with additional sales leverage by sourcing new prospects, renewing existing subscriptions, providing technical support and upselling and cross-selling for additional use cases and agent counts, as well as expanding our international sales reach. As of October 31, 2016, we had approximately 1,975 customers, including over 275 of the Global 2000, located in over 50 countries across every major industry.

We have grown rapidly in recent periods. Our revenues for the fiscal years ended January 31, 2014, 2015 and 2016 were $23.6 million, $81.9 million and $150.6 million, respectively, representing year-over-year growth of 247% and 84%. For the nine months ended October 31, 2015 and 2016, our revenue was $102.8 million and $158.4 million, respectively, representing year-over-year growth of 54%. Our billings for the fiscal years ended January 31, 2014, 2015 and 2016 were $62.1 million, $140.2 million and $258.5 million, respectively, representing year-over-year growth of 126% and 84%. For the nine months ended October 31, 2015 and 2016, our billings were $164.7 million and $237.0 million, respectively, representing year-over-year growth of 44%. Our cash (used in) provided by operating activities was $(25.0) million, $(34.8) million and $(32.5) million for the fiscal years ended January 31, 2014, 2015 and 2016, respectively, and $(39.7) million and $(2.2) million for the nine months ended October 31, 2015 and 2016, respectively. Our free cash flow was $(32.3) million, $(36.6) million and $(41.8) million for the fiscal years ended January 31, 2014, 2015 and 2016, respectively, and $(47.4) million and $(7.8) million for the nine months ended October 31, 2015 and 2016, respectively. See the section titled “Selected Consolidated Financial Data—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using billings and free cash flow as a financial measure and for a reconciliation of billings to revenue and free cash flow to cash provided by (used in) operating activities, the most directly comparable financial measures calculated in accordance with generally accepted accounting principles in the United States of America (GAAP).

Industry Background

Powerful trends are transforming the ways that enterprises manage their software application environments and underlying IT infrastructures and interact with customers. These trends include:

Enterprises are Undergoing Digital Transformations

Businesses today are increasingly dependent on software to drive their success as they grow their digital presence. In the current digital era, critical business functions and customer interactions are increasingly conducted through software applications, which serve as the predominant engagement model for a business’s

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customers, partners, employees and other stakeholders. As a result, companies across all major industries worldwide are undergoing digital transformations in which their software applications are becoming synonymous with their businesses and brands. This has thrust developers and IT departments to the forefront of business strategy in new roles as innovation and growth drivers.

Digital transformation is impacting businesses across nearly every vertical, including traditional brick-and-mortar industries, such as retail, financial services and manufacturing. For example:

•

According to Forrester, total U.S. eCommerce spending is expected to grow from $334 billion in 2015 to $480 billion in 2019;

•

According to the U.S. Federal Reserve, 43% of all surveyed U.S. mobile phone owners with a bank account had used mobile banking services in 2015, up from 22% in 2011; and

•

According to McKinsey, 80% of U.S. manufacturers acknowledged that digital operations will be a critical driver of their future competitiveness.

However, Forrester estimated that in 2015 only 27% of businesses had a coherent strategy on how to create customer value as a digital business.

Enterprises must grow their digital presence as well as meet or exceed users’ ever-increasing expectations for high-quality experiences. As users become more accustomed to the speed and quality of the end-user experiences provided by consumer-facing technology companies, all other industries must meet these rising expectations, in everything from eCommerce to back-office management software, or risk having users switch to competitors or alternatives, with Accenture estimating that in 2014 increased customer switching led to an estimated $6 trillion in available revenue opportunities globally. Evidencing these expectations, according to Forrester, 57% of users will leave a website if it takes longer than three seconds to load. In light of these increasing user demands, for both consumer and enterprise related software applications, businesses are under heightened pressure to ensure peak software application performance and provide high-quality user experiences at all times. The stakes of successfully navigating a digital transformation are high and software application and IT infrastructure performance issues can have significant costs in terms of lost revenue and market share. According to a survey conducted by IDC of Fortune 1000 companies, the average cost per hour of a critical software application failure is between $500,000 to $1 million, and $100,000 per hour for an IT infrastructure failure. According to this survey, this translates to an average total cost of unplanned software application downtime of $1.25 billion to $2.5 billion per year for Fortune 1000 companies alone. As a result of these increasing user demands and the costs of application and IT infrastructure performance issues, enterprises are increasing their investment in digital transformations with IDC estimating that worldwide spending on digital transformation technologies will grow at a rate of 16.8% a year to more than $2.1 trillion in 2019.

IT Investments are Moving to Customer-Facing Software Applications

IT investments have historically focused on systems of record such as enterprise resource planning software. However, the increasing importance of software applications as the core channel for businesses to engage their customers, partners, employees and other stakeholders is shifting the view of IT departments from a back-office, service organization to one of a company’s centers of innovation. This is leading to increased investment in new strategic software application projects such as customer-facing software applications. Further, the continued growth of mobile applications and the Internet of Things is expanding the channels through which companies must provide consistent, high-quality user experiences to meet consumer expectations and evolving demands. With a direct channel to end users, brands are increasingly becoming defined by their customer-facing software applications.

This increased focus on customer-facing software applications has led to new entrants upending established markets and forcing intense competition across industries worldwide. In response, enterprises are investing to

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build and manage customer-facing software applications to keep pace with user demands. Evidencing this shift, IDC predicts that more than 42% of total U.S. technology spending in 2018 will be on customer-facing processes.

Velocity is Critical

Traditionally, software was developed slowly with large changes occurring at each cycle and subjected to rigorous testing before its release to end users. This approach is becoming increasingly untenable as businesses in every major industry need to rapidly innovate and require more agile development methods and shorter development cycles to do so. According to McKinsey, through the use of agile development, companies are seeing increased productivity within their development teams, faster release of digital products and services, and improved customer experiences and McKinsey estimates that companies can reduce the average number of days required to complete code development and move it into live production by over 80% from 89 days to 15 days. Traditional businesses are increasingly feeling the need to match or approximate this rapid pace of software iteration or they risk being at a competitive disadvantage. This focus on velocity is leading more and more enterprises to move to production-first software environments, in which software updates are deployed incrementally to end users with limited testing, as well as greater adoption of APIs and microservices. Such environments allow enterprises to obtain immediate end-user feedback and test potential new business strategies in real time in order to improve end-user experiences and achieve better business results at scale.

Additionally, easy access to hosted, low-cost, scalable cloud computing resources has enabled developers to innovate faster on their own software applications while leveraging a wide range of new application program interfaces (APIs), microservices, which are small software components that can underlie and be used in multiple applications, and other development tools. However, while production-first software environments enable continuous deployment and innovation at competitive speeds, continuous deployment often leads to lower stability or more frequent outages. As end-user demands regarding stability, consistency and speed continue to grow, businesses are being required to rapidly innovate without materially degrading the reliability and performance of their increasingly complex software application and IT infrastructure environments.

Accelerating IT Complexity

Enterprises typically run a complex network of business-critical software applications, each of which can have hundreds of interdependent components and millions of lines of code. This already complex environment is further complicated by the following trends:

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An increasing number of development languages, frameworks and methodologies, with Gartner predicting that through 2017, the number of programming languages used within “mainstream” (large-enterprise) IT portfolios would increase by 30% on average;

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The need for customer-facing software applications to be architected to scale to support millions of end users;

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The variety of deployment options, including in public and private clouds and within customers’ own datacenters, as well as hybrid approaches wherein an enterprise deploys some of its applications in the cloud and others within its own datacenters;

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Greater adoption of microservices, APIs and containerization as well as infrastructure-as-a-service and platform-as-a-service solutions; and

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The rise of agile development and the corresponding acceleration of deployments directly into production (without pre-production).

As more business processes are executed through software applications, the complexity and scale of digital information and customer interactions are growing exponentially. Furthermore, the rapid and continued growth

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of connected devices has driven corresponding growth in the amount of code and data under management thereby further complicating an already complex environment. This growing volume of data combined with the lack of consistent frameworks and technical tools has made it increasingly difficult to monitor end-user interactions and transaction flows end-to-end from the end-use device through the software application, IT infrastructure, database and network. This growing complexity also makes it more difficult to identify and isolate customer-impacting issues quickly and precisely. Additionally, enterprises must scale their IT environments to support their growth and comply with more and more rigorous compliance and regulatory requirements.

Legacy Approaches Fail to Address the Needs of Modern Enterprises

Organizations have historically deployed legacy ITOM products, including those that address APM, DBMS, log management and network management, to monitor and manage their software applications and underlying IT infrastructures. Such products are often resource-intensive, expensive and generally incapable of supporting complex, modern software applications and IT architectures, such as cloud and hybrid deployments, production-first software environments and microservices. These approaches also typically lack the ability to gather and analyze data in real time and are difficult to integrate. Moreover, enterprises have historically treated ITOM and business analytics as distinct solutions creating a lack of alignment between an enterprise’s business, product development and IT operations.

Enterprise Needs are Driving Adoption of Application Intelligence

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Monitor performance in real time. Enterprises need visibility into performance issues to minimize negative impact on end users, and consequently business results. As such, enterprises need a solution that provides visibility into software application and IT infrastructure performance in real time to better inform business and operational decisions at competitive velocity.

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Implement quickly and scale easily. Enterprises are embracing new technologies, such as microservices and next-generation development languages, as well as IT architectures, such as public, private and hybrid clouds. The process of integrating these innovations into environments architected and built on legacy approaches can be very complex to implement, manage and scale. Enterprises require an application intelligence solution that can facilitate this integration as well as be implemented quickly and easily, migrated rapidly and scale as the enterprise grows while minimizing the need for maintenance.

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Understand and track business processes. The complexity of today’s IT environments makes it time consuming and difficult to isolate performance issues by looking at individual services. For example, a simple checkout process on an eCommerce website can involve dozens of interconnected services, such as identity verification, inventory management and payment processing. Enterprises need a solution that can monitor and manage business processes across complicated software application and IT infrastructure environments down to the underlying services. As such, enterprises need to align the objectives of their business, product development and IT operations teams by focusing them on the success of the overall business process instead of the performance of individual services.

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Present unified, comprehensive visibility. Due to the siloed nature of traditional approaches, enterprises have historically been required to implement a patchwork of monitoring tools, which offer little to no business context, do not effectively map performance issues across traditionally siloed systems and provide limited insight into the impact on end users. Enterprises need a unified solution with a common user interface, architecture and data model that provides a centralized view of the varied software, hardware and network services utilized in every business process.

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Diagnose performance issues in production without negatively impacting end-user experiences. Traditional monitoring tools were not designed to run in production-first environments and thus often negatively impact software application performance due to their resource-intensive nature. As enterprises move to production-first software environments, they require a solution that deeply diagnoses performance issues without undermining performance when deployed in such environments, in addition to being able to analyze issues during pre-production phases.

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Correlate software application performance to business results. The robust and real-time data generated by software applications and their users are not always leveraged when making business decisions as traditional approaches typically cannot provide overarching business context to monitoring data. Enterprises need a solution that not only identifies software application and IT infrastructure performance issues but provides visibility and context into how those performance issues are impacting the broader business in order to enable business, product development and IT operations teams to make better, more informed decisions in real time.

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Analyze massive data sets quickly. Legacy approaches are labor intensive, expensive and inefficient, particularly when dealing with today’s unprecedented volume of data, often requiring days or weeks to identify and isolate the root cause of performance issues. As time is valuable and performance is paramount, particularly in production-first environments, enterprises need a solution with automated diagnostic capabilities that is able to quickly and efficiently ingest, process and analyze massive amounts of data in real time.

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Satisfy increasing regulatory and compliance needs. Enterprises face a myriad of regulatory and compliance requirements. While cloud architectures have provided enterprises with numerous benefits, they also lead to complicated data privacy and compliance issues. To address these complications, enterprises need a solution that can be deployed in the cloud, on-premises or using a hybrid cloud approach and provides transaction audit trails and the ability to implement strict user and data access controls.

Our Opportunity

We offer an innovative, enterprise-grade application intelligence software platform that is uniquely positioned to address these needs by enabling enterprises to accelerate their digital transformations by actively monitoring, analyzing and optimizing complex application environments at scale.

We believe that our solution replaces legacy products across various well-established categories of IT spending. According to Gartner, the IT operations market in 2016 is expected to be $23.0 billion, and the business intelligence and analytics market is expected to be $17.1 billion, resulting in a total addressable market (TAM) of $40.1 billion in 2016, and is expected to grow at 7.6% annually to $53.8 billion in 2020. We believe we currently address a significant portion of those markets.

We internally estimate that the TAM for our solution is approximately $12 billion. We calculated this figure using the total number of global companies with greater than $50 million in annual revenue in 2015, which we determined by referencing certain independent industry data from S&P Global Market Intelligence, for each industry in which we currently serve customers. We then multiplied the total number of companies for each such industry by our industry-specific average recurring contract value for customers as of October 31, 2016, which we calculated by adding the aggregate annual recurring contract value from all existing customers within each industry and dividing the total by the number of our existing customers in each such industry. We then normalized our internal TAM estimate for our recurring and non-recurring revenue mix by applying a conservative estimate that is significantly below our past experience.

Our Solution

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platform. Our solution is uniquely positioned to enable enterprises to accelerate their digital transformations by actively monitoring, analyzing and optimizing complex application environments at scale. Our key applications are Application Performance Management, End-User Monitoring and Infrastructure Visibility.

Our solution uniquely addresses the enterprise needs stated above by:

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Being easy to deploy, configure and manage at scale. We have designed our solution to address the unique size, scale and infrastructure complexity challenges faced by the world’s largest enterprises, including those with highly distributed and complex software application and IT infrastructure environments as well as microservices architectures. Our solution can be easily deployed, configured and managed at scale, thereby creating fast time to value.

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Auto-discovering and following business transactions. We allow enterprises to view the performance of their software applications and IT infrastructures through the lens of a business transaction. We do this by monitoring and analyzing all code execution to automatically discover business transactions. This provides enterprises with a powerful way to assess code performance and its impact on business activities as well as to drive better cross-team collaboration between business, product development and IT operations teams by providing a single view that is relevant to each constituent. This empowers our customers to rapidly identify and isolate the root cause of performance issues, minimize the impact on end users and maximize their business outcomes.

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Providing a unified, end-to-end view of customer environments. Our platform is purpose-built on a common architecture and data model that delivers a consistent, intuitive user interface across offerings. Our customers’ business, product development and IT operations personnel are able to view and understand their end-to-end software application and IT infrastructure performance, the quality of their end-users’ experiences and their business performance all through a single pane of glass, regardless of how they deploy our applications.

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Diagnosing performance issues in production-first environments quickly, with low overhead. Our integrated suite of applications has been designed to operate in production-first environments at scale with robust monitoring and low overhead. Our platform leverages machine learning to dynamically baseline normal performance, and alerts users regarding deviations from these baselines to help them identify and address issues in real time. Using pattern recognition and anomaly detection, we are able to intelligently determine what data to collect and when to alert customers regarding performance issues. Our platform is therefore able to diagnose the root cause of performance issues quickly with minimal impact on performance.

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Understanding the business context of software application performance. Our approach to unified monitoring combined with our focus on business transactions gives our customers real-time insights into software application and IT infrastructure performance and how that performance impacts end-user experiences and business outcomes. This approach when paired with Business iQ, one of our intelligence performance engines, enables customers to make quicker decisions that drive real and measurable improvements to their business.

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Analyzing massive data sets quickly. Our solution collects and organizes massive amounts of data and intelligently identifies and isolates critical issues that affect performance. Our platform leverages machine learning to glean insights from massive data sets in real time to drill down to the root cause of performance issues and the business impact of such issues faster while providing suggestions for remediation.

•

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premises and hybrid approaches, to meet their regulatory and compliance needs. Additionally, our solution provides customers with administrative oversight capabilities, including transaction audit trails and the ability to implement strict user and data access controls, in even the most complex enterprise software application and IT infrastructure environments.

We have been positioned as a leader for the past five consecutive years in Gartner’s Magic Quadrant for Application Performance Monitoring Suites. In its December 2016 report, Gartner positioned us furthest for “Completeness of Vision.” In January 2015, we hired a former Gartner executive, who co-authored Gartner’s Magic Quadrant for Application Performance Monitoring Suites in 2012, 2013 and 2014, to serve as a vice president of AppDynamics. While we do not believe that a conflict of interest exists as a result of our hiring of this executive from Gartner, we regularly examine our relationships with our customers, suppliers and third-party analysts to avoid perceived or actual conflicts of interest.

Growth Strategy

Key elements to our growth strategy include:

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Rapid and continued innovation. We believe we offer the industry-leading software application and IT infrastructure monitoring and analytics products. We intend to continue to invest in our research and development efforts and build on our consistent track record of technical innovation to maintain our competitive advantages and market leadership. We will focus our research and development efforts on enhancing the functionality, breadth and scalability of our integrated suite of applications and underlying platform, addressing new use cases and developing additional, innovative monitoring and analytics technologies.

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Helping more enterprises digitally transform. We intend to reach additional enterprises and as well as further penetrate the industry verticals we currently address by expanding our worldwide sales and marketing capabilities.

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Expanding our footprint across the enterprise. Many of our customers initially deploy one or more of our applications in specific groups or departments or to monitor specific applications. After realizing the benefits of our applications, many customers then broaden their deployment across the enterprise, using our applications to actively monitor, analyze and optimize additional software applications, IT infrastructure components and business transactions. In order to continue to grow our presence within these accounts, we intend to devote additional sales and marketing resources to drive increased adoption within and across our existing customers.

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Selling additional applications to our existing customers. Many of our customers initially deploy our applications for a specific use case, predominantly APM. As we continue to expand the capabilities of our integrated suite of applications, our customers often purchase incremental offerings from us to address new software application and IT infrastructure monitoring and analytics needs and leverage the additional capabilities of our applications, including End-User Monitoring and Infrastructure Visibility, as well as premium Peak editions of our offerings, which include Business iQ.

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Enhancing our strategic partner ecosystem. As a core part of our strategy, we have developed an ecosystem of partners to broaden and complement our product offerings, sales and marketing, professional services and customer success capabilities. We will continue to seek potential strategic partnership opportunities which expand the capabilities and use cases of our integrated suite of applications and augment our sales reach.

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Technology

Built on a foundation of proprietary intellectual property, our enterprise-grade application intelligence software platform serves as the underlying technical deployment architecture for our integrated suite of applications. Our platform leverages the following core technological advances:

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Self-configuring platform. Analyzes software code to automatically discover business transactions and automatically adapts agent instrumentation to changes in the software application and IT infrastructure environments being monitored, providing fast time to value and requiring minimal configuration.

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Smart code instrumentation. Provides adaptive code instrumentation by embedding self-configuring software agents with our customers’ underlying software code, allowing customers to seamlessly instrument all software applications in both pre-production and production-first environments as well as microservices architectures, without the need for manual configuration or code changes and with minimal overhead.

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Transaction tag and follow. Dynamically tags and follows every business transaction end-to-end across complex and distributed software application and IT infrastructure environments.

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Dynamic baselining and intelligent anomaly detection. Leverages machine learning with dynamic baselining for intelligent anomaly detection that reduces or eliminates false positives and optimizes for the amount of data that needs to be collected, with no manual configuration needed.

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Highly scalable data platform. Processes metrics, events and metadata at web scale with minimal latency, processing and analyzing trillions of metrics each month, using self-learning methodologies, and allowing our customers to focus on innovation.

We deliver the same core platform irrespective of the deployment option chosen, which helps ensure that our applications align with the needs of our customers—regardless of whether they require pure cloud, pure on-premises or hybrid deployments. This flexible software deployment architecture is a key differentiator as compared to both legacy and cloud-only solutions.

We offer a software development kit which has enabled us to extend our monitoring capabilities to over 100 customer and partner integrations. We also have technology partnerships with key software, hardware and cloud services providers to ensure the interoperability of our applications with our customers’ software application and IT infrastructure environments as well as partnerships with infrastructure-as-a-service and platform-as-a-service providers that enable streamlined software application development and operations in both private and public clouds.

Applications

We offer an integrated suite of monitoring and analytics products comprised of three key applications built on our application intelligence software platform. Our platform is powered by intelligent performance engines that work in concert to help provide businesses with real-time, actionable IT and business insights into software application and IT infrastructure performance, end-user experiences and business outcomes. We deliver this by providing code-level visibility into a customer’s digital business and operational performance, so they can discover and anticipate problems, resolve them quickly and make smarter, more impactful business decisions. Our integrated suite of applications includes, Application Performance Management, End-User Monitoring and Infrastructure Visibility, as well as a range of underlying product modules. Each of our three key applications are offered on a subscription and perpetual license basis, with the majority of our revenue from each of our applications being derived from sale of subscriptions.

Our application intelligence software platform is powered by the following intelligence performance engines:

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Map iQ: Map iQ enables enterprises to map and understand interactions within applications through business transactions. Key capabilities include automatically discovering and tracing business

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transactions as they propagate through IT infrastructure, and creating visual flow maps that are dynamically updated, helping enterprises understand their architecture and dependencies;

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Baseline iQ: Baseline iQ establishes dynamic baselines, by measuring typical behavior at particular times of day and days of the week, for business transactions and metrics rather than static thresholds. Key capabilities include determining “normal” behavior for every business transaction and metric via machine learning, and automatically creating rules for triggering alerts when a deviation from the baseline is noticed, allowing proactive investigation of issues before users are impacted;

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Diagnostic iQ: Diagnostic iQ enables enterprises to leverage deep diagnostic capabilities, with full code visibility, at low overhead. Key capabilities include analyzing data through patented algorithms and pattern recognition intelligence to distill down to what is most important, and making it easy to determine root causes when problems occur;

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Business iQ: Business iQ leverages the data collected by our platform to provide actionable insights into IT operations, end-user experiences and business outcomes in real time. Key capabilities include monitoring, collecting and analyzing business transactions and multiple types of data, intelligently correlating transaction events and logs, advanced performance troubleshooting, and the ability to visualize trends, build interactive custom dashboards, raise alerts and generate reports;

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Signal iQ: Signal iQ is a big data platform that helps enterprises avoid false positives and allows them to focus teams on the most impactful areas of the business. Key capabilities include ingesting, correlating and baselining hundreds of millions of events per day, and triggering notifications or automated remediations through a sophisticated policy engine; and

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Enterprise iQ: Enterprise iQ enables management of systems and people within an enterprise at scale. Key capabilities include a modern web-based user interface, enterprise-grade setup that streamlines mapping, configuration, deployment, and maintenance at scale, and role-based access control and policies that provide appropriate data access and governance.

Application Performance Management

Our Application Performance Management application is our flagship offering, and allows customers to monitor and manage business transactions across highly complex and distributed software application environments. Key capabilities include:

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auto-discovery and end-to-end monitoring of business transaction performance through the dynamic tagging and following of every transaction across software application environments;

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the ability to support a variety of languages and technology frameworks, such as Java, .NET, PHP, Node.js, C++, Python and Apache Web Server, as well as messaging and queuing technologies;

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deep code-level visibility into software applications deployed in production-first environments with low overhead;

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the ability to intelligently capture detailed snapshots of anomalous business transactions;

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automation and machine learning to determine dynamic baselines for every transaction based on historical patterns;

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the ability to identify and isolate software application issues quickly and provide suggestions for remediation; and

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the ability to configure and manage any software application within minutes and without needing the application’s source code.

End-User Monitoring

Our End-User Monitoring application enables enterprises to monitor and optimize browser and mobile software applications. Our End-User Monitoring application includes two product modules.

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Browser Real-User Monitoring

Our Browser Real-User Monitoring product module provides deep code-level visibility into client-side browser software applications and their dependency on back-end software applications and services, as well as insights into end-user experiences. Key capabilities include:

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instant insights into end-user web experiences, including top page requests and pages with the highest response times;

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visibility into the distribution of end users by browser type, version and devices, as well as the geographical distribution of end users;

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detailed content load times, as well as errors and detailed resource timing breakdowns;

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end-to-end visibility into business transactions from browser to back-end software applications, when coupled with our Application Performance Management application; and

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the ability to track and trend how key performance indicators (KPIs) are impacted by browser performance.

Mobile Real-User Monitoring

Our Mobile Real-User Monitoring product module provides visibility into iOS and Android mobile software application performance, and their dependencies on back-end software applications and services, as well as insights into end-user experiences. Key capabilities include:

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identification and resolution of mobile application crashes and errors;

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visibility into mobile usage across devices, networks, operating systems, connection types and software application versions;

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the ability to monitor detailed load, latency and errors metrics for network and API requests;

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end-to-end visibility into business transactions from mobile to back-end software applications, when coupled with our Application Performance Management application; and

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the ability to track and trend how KPIs are impacted by mobile software application performance.

Infrastructure Visibility

Our Infrastructure Visibility application helps enterprises ensure that software application performance is not negatively impacted by IT infrastructure issues. Infrastructure Visibility provides enterprises with visibility into server and database performance and the ability to quickly troubleshoot application and user-impacting issues. Our Infrastructure Visibility application includes two product modules.

Database Visibility

Our Database Visibility product module delivers agent-less heterogeneous database monitoring capabilities in the context of software applications that they support. Key capabilities include:

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support of a range of databases, including databases from Microsoft, MongoDB, NetApp, Oracle, PostgreSQL and Sybase;

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auto-discovery of software application-to-database dependencies and management of database performance in the context of business transactions, when coupled with our Application Performance Management application; and

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the ability to troubleshoot database performance and correlate server CPU and memory performance with database performance.

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Server Visibility and Service Availability Monitoring

Our Server Visibility and Service Availability Monitoring product module proactively detects server performance issues which impact software application performance. Key capabilities include:

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the ability to monitor Linux and Windows server metrics, when coupled with our Application Performance Management application;

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the ability to effectively monitor cloud and virtual environments by determining the rate of change in such environments through abstraction of variable server capacity;

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quick resolution of server bottlenecks by capturing business transactions and server snapshots;

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the ability to leverage platform extensibility to support additional software applications and IT infrastructure components; and

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the ability to provide availability for service endpoints to actively identify services that are unavailable.

Customers

As of October 31, 2016, we had approximately 1,975 customers, including more than 275 of the Global 2000, located in over 50 countries across every major industry. Our customers primarily consist of mid- to large-size enterprises. No customer accounted for more than 10% of our revenue in the fiscal years ended January 31, 2014, 2015 and 2016.

The following is a list of representative customers by key verticals whose total purchases of our applications are in excess of $250,000 since February 1, 2013.


Financial Services Capital One Financial Citizens Bank Lloyds Bank PayPal Quicken Loans	Communications & Entertainment Charter Communications Electronic Arts FamilySearch Sky Talktalk Telecom Group Verizon	Consumer & Retail Shutterfly Tesco Stores The Carphone Warehouse The Hut.com Williams-Sonoma

Technology & Software eHarmony Garmin Okta Sabre Corporation Salesforce	Business Services & Insurance Aetna Ellie Mae IBM Pearson Education Rackspace Siemens	Travel & Logistics Choice Hotels International Expedia InterContinental Hotels Group Jetblue Airways United Airlines Wyndam Hotel Group

Customer Case Studies

The following are examples of how certain of our representative customers noted above have selected, deployed and benefited from the use of our solution:

Citizens Bank

Situation: Citizens is one of the oldest and largest financial institutions in the United States. Over time as part of an overall industry trend, Citizens’ customers have migrated from branch business to its online banking system and mobile applications in increasingly higher percentages, and Citizens believed this trend would continue.

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Citizens anticipated that the shift to online and mobile banking platforms could create stability issues with its software applications due to the scale and performance requirements of these new platforms. To prepare for that accelerated growth and to continue to be able to provide an exceptional customer experience, the bank launched a strategic initiative to increase the stability and reliability of its software applications.

Solution and benefits: In 2014, we deployed our Application Performance Management application as a proof of concept and were able to immediately identify application performance issues. The immediate success of our unified solution led to Citizens purchasing on-premises licenses of our Application Performance Management application for 25 of its critical software applications as well as our Infrastructure Visibility application for its IT infrastructure and our End-User Monitoring application for its mobile applications. Following the success of its initial deployment, in 2015, Citizens licensed our Application Performance Management application for an additional 25 critical software applications and expanded its use of our End-User Monitoring application for its web-based software applications. Citizens estimates that since they first deployed our solutions in 2014 our unified solution has reduced unplanned downtime of its software applications and reduced critical software application performance incidents by more than 15% each while also improving mean time to repair such unplanned downtime and critical performance incidents substantially.

Ellie Mae

Situation: Ellie Mae’s mission is to automate the mortgage process. One of its strategic offerings in the automation push is Encompass, a system of record for mortgages, which enables lenders to streamline and automate the mortgage process from origination to underwriting. This increasingly complex SaaS offering and its integrations with Ellie Mae’s growing partner ecosystem have magnified the risk of performance issues, service outages and latency. To help ensure that its software applications delivered peak performance across every step of the automation process at all times, Ellie Mae was looking for an integrated solution to mitigate these risks and improve the performance of its code and IT infrastructure underlying its services.

Solution and benefits: In 2014, Ellie Mae purchased our Application Performance Management and Infrastructure Visibility applications after determining it needed end-to-end visibility for the software application and IT infrastructure environment underlying Encompass, with its multiple integrations. The company deployed our solution in production where additional instrumentation of complex transaction flows was needed to try to ensure that business-critical services were operating at peak levels at all times. With our solution, Ellie Mae was able to quickly view and understand its business transactions, identify and isolate the source of application performance issues and determine how to remediate issues quickly. For example, within a few minutes of installing our software agents on its application servers, Ellie Mae discovered a defect in its software application that was allowing invalid data to pass from the user interface to the backend system, resulting in excessive memory consumption. Ellie Mae was able to quickly and accurately identify the source of memory consumption and make adjustments accordingly, which reduced the overall utilization of its compute memory from 90% to 40% following the deployment of our solutions in 2014. Ellie Mae has also consolidated its disparate collection of management tools into our integrated, scalable solution and created tailored alerts around deviations from dynamic baselines. Further, our solution enabled Ellie Mae to reduce the mean time to resolution of performance issues.

Sky

Situation: Sky, a leading entertainment company in Europe, has millions of customers that expect to be able to access its programming on their mobile devices, televisions and desktops at all times. When Sky’s customers experience outages or performance incidents when attempting to view content via Sky’s web and mobile software applications, it adversely affects Sky’s business and brand, particularly with respect to high-traffic events, such as sporting events and popular television show premiers. Sky’s senior leadership team needed an integrated solution which could enable it to proactively monitor and manage the stability of its programming delivery platform, which includes both on-premises applications and external public cloud-hosted applications used to optimize the quality of its customers’ experiences.

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