INTRODUCTION
In this Annual
Report, references to “we,” “us,” “our,” “our business,” the
“Company,” “WalkMe” and similar references refer to WalkMe Ltd.
and, where appropriate, its consolidated subsidiaries.
This Annual
Report contains estimates, projections and other information
concerning our industry and our business, as well as data regarding
market research, estimates and forecasts prepared by our
management. Information that is based on estimates, forecasts,
projections, market research or similar methodologies is inherently
subject to uncertainties, and actual events or circumstances may
differ materially from events and circumstances that are assumed in
this information. The industry in which we operate is subject to a
high degree of uncertainty and risk due to a variety of factors,
including those discussed under the headings “Special Note
Regarding Forward-Looking Statements” and Item 3.D. “Risk
Factors” in this Annual Report.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This Annual
Report contains estimates and forward-looking statements,
principally in the sections entitled Item 3.D. “Key
Information—Risk Factors,” Item 4. “Information on the Company,”
and Item 5. “Operating and Financial Review and Prospects.” In some
cases, these forward-looking statements can be identified by words
or phrases such as “may,” “might,” “will,” “could,” “would,”
“should,” “expect,” “plan,” “anticipate,” “intend,” “target,”
“seek,” “believe,” “estimate,” “predict,” “potential,” “continue,”
“contemplate,” “possible” or the negative of these terms or other
similar expressions. Statements regarding our future results of
operations and financial position, growth strategy and plans and
objectives of management for future operations, including, among
others, expansion in new and existing markets, are forward-looking
statements.
Our estimates
and forward-looking statements are based on our current
expectations and estimates of future events and trends which affect
or may affect our business, operations and industry. Although we
believe that these estimates and forward-looking statements are
based upon reasonable assumptions, they are subject to numerous
risks and uncertainties.
These
forward-looking statements are subject to a number of known and
unknown risks, uncertainties, other factors and assumptions,
including the risks described in Item 3.D “Key Information—Risk
Factors” and elsewhere in this Annual Report, regarding, among
other things:
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our future financial performance, including our expectations
regarding our revenue, cost of revenue, gross margin, operating
expenses, cash flow and deferred revenue;
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our ability to manage our growth effectively, sustain our
historical growth rate in the future or achieve or maintain
profitability;
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the impact of the COVID-19 pandemic or adverse macro-economic
changes on our business, financial condition and results of
operations;
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the growth and expansion of the markets for our offerings and
our ability to adapt and respond effectively to evolving market
conditions;
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our estimates of, and future expectations regarding, our
market opportunity;
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our ability to keep pace with technological and competitive
developments and develop or otherwise introduce new products and
solutions and enhancements to our existing offerings;
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our ability to maintain the interoperability of our offerings
across devices, operating systems and third-party applications and
to maintain and expand our relationships with third-party
technology partners;
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our ability to attract and retain the executive leadership and
employee talent that we need to be successful in an increasingly
competitive market for talent;
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the effects of increased competition in our target markets and
our ability to compete effectively;
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our ability to attract and retain new customers and to expand
within our existing customer base;
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the success of our sales and marketing operations, including
our ability to realize efficiencies and reduce customer acquisition
costs;
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the percentage of our remaining performance obligations that
we expect to recognize as revenue;
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our ability to meet the service-level commitments under our
customer agreements and the effects on our business if we are
unable to do so;
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our relationships with, and dependence on, various third-party
service providers;
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our ability to maintain and enhance awareness of our
brand;
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our ability to offer high quality customer support;
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our ability to effectively develop and expand our marketing
and sales capabilities;
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our ability to maintain the sales prices of our offerings and
the effects of pricing fluctuations;
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the sustainability of, and fluctuations in, our gross
margin;
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risks related to our international operations and our ability
to expand our international business operations;
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the effects of currency exchange rate fluctuations on our
results of operations;
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challenges and risks related to our sales to government
entities;
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our ability to consummate acquisitions at our historical rate
and at acceptable prices, to enter into other strategic
transactions and relationships, and to manage the risks related to
these transactions and arrangements;
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our ability to protect our proprietary technology, or to
obtain, maintain, protect and enforce sufficiently broad
intellectual property rights therein;
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our ability to maintain the security and availability of our
platform, products and solutions;
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our ability to comply with current and future legislation and
governmental regulations to which we are subject or may become
subject in the future;
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changes in applicable tax law, the stability of effective tax
rates and adverse outcomes resulting from examination of our income
or other tax returns;
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risks related to political, economic and security conditions
in Israel;
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the effects of unfavorable conditions in our industry or the
global economy or reductions in information technology spending;
and
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factors that may affect the future trading prices of our
ordinary shares.
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You should not
rely on forward-looking statements as predictions of future events.
We have based the forward-looking statements contained in this
Annual Report primarily on our current expectations and projections
about future events and trends that we believe may affect our
business, financial condition and operating results. The outcome of
the events described in these forward-looking statements is subject
to risks, uncertainties and other factors described in the section
titled “Risk factors” and elsewhere in this Annual Report.
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 Annual Report. The results, events and
circumstances reflected in the forward-looking statements may not
be achieved or occur, and actual results, events or circumstances
could differ materially from those described in the forward-looking
statements.
In addition,
statements that “we believe” and similar statements reflect our
beliefs and opinions on the relevant subject. These statements are
based on information available to us as of the date of this Annual
Report. While we believe that information provides a reasonable
basis for these statements, that information may be limited or
incomplete. Our statements should not be read to indicate that we
have conducted an exhaustive inquiry into, or review of, all
relevant information. These statements are inherently uncertain,
and investors are cautioned not to unduly rely on these
statements.
The
forward-looking statements made in this Annual Report 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 Annual Report to reflect events or circumstances after
the date of this Annual Report 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.
PRESENTATION OF FINANCIAL INFORMATION
Our
consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States,
or U.S. GAAP. We present our consolidated financial statements in
U.S. dollars.
Our fiscal year
ends on December 31 of each year.
Certain
monetary amounts, percentages and other figures included elsewhere
in this Annual Report have been subject to rounding adjustments.
Accordingly, figures shown as totals in certain tables or charts
may not be the arithmetic aggregation of the figures that precede
them, and figures expressed as percentages in the text may not
total 100% or, as applicable, when aggregated may not be the
arithmetic aggregation of the percentages that precede them.
PART I
Item 1. Identity of
Directors, Senior Management and Advisers
Not
applicable.
Item 2. Offer Statistics
and Expected Timetable
Not
applicable.
Item 3. Key
Information
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Capitalization and
Indebtedness
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Not
applicable.
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Reasons for the Offer and Use of
Proceeds
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Not
applicable.
You should
carefully consider the risks described below before making an
investment decision. Additional risks not presently known to
us or that we currently deem immaterial may also impair our
business operations. Our business, financial condition or
results of operations could be materially and adversely
affected by any of these risks. The trading price and value of our
ordinary shares could decline due to any of these risks, and
you may lose all or part of your investment. This Annual Report
also contains forward- looking statements that involve risks
and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a
result of certain factors, including the risks faced by us
described below and elsewhere in this Annual Report.
Risks Relating to
Our Business and Industry
We have
incurred operating losses in the past, expect to incur operating
losses in the future and may never achieve or sustain
profitability.
We have incurred annual net losses each year since our formation in
October 2011. For the years ended December 31, 2020 and 2021, we
had net losses of $45.0 million and $80.3 million, respectively. We
expect to continue to incur additional losses in the foreseeable
future and we may not achieve or maintain profitability in the
future. As of December 31, 2021, we had an accumulated deficit of
$325 million. We intend to continue to expend substantial financial
and other resources on, among other things:
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innovating and advancing our platform;
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acquiring new customers;
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increasing usage by and spend from our existing
customers;
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international expansion; and
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expansion of our ecosystem and go-to-market
partnerships.
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These efforts may
prove more expensive than we currently anticipate, and we may not
succeed in increasing our revenues sufficiently, or at all, to
offset these higher expenses. In addition, to the extent we are
successful in increasing our customer base, we may also incur
increased losses because the costs associated with acquiring
customers are generally incurred up front, while subscription
revenue is generally recognized ratably over the subscription term.
Additionally, we expect to continue making significant expenditures
on sales and marketing efforts, and expenditures to grow our
platform including to develop new features, integrations,
capabilities, and enhancements to our platform. For example, we
plan to make significant investments in our platform to obtain
FedRamp certification in support of our efforts to expand our U.S.
federal business. Furthermore, as a public company, we will incur
significant legal, accounting and other expenses that we did not
incur as a private company. If our revenue does not grow at a
greater rate than our operating expenses, we will not be profitable
in future periods. Our revenue growth may slow or our revenue may
decline for a number of possible reasons, many of which are beyond
our control, including greater market penetration, increased
competition, slowing demand for our platform, a failure by us to
continue capitalizing on growth opportunities, the maturation of
our business, global economic downturns, or any of the other
factors discussed in this “Risk Factors” section. Any failure to
increase our revenue as we grow our business could prevent us from
achieving profitability at all or on a consistent basis, which
would make it more difficult to accomplish our business objectives
and could have a material adverse effect on our business, financial
condition and results of operations and cause the market price of
our ordinary shares to decline.
Our
business and operations have experienced rapid growth, and if we do
not appropriately manage this growth and any future growth, or if
we are unable to improve our systems, processes and controls, our
business, financial condition, results of operations and prospects
will be adversely affected.
We have
experienced rapid growth and increased demand for our products in
recent periods, and we plan to make continued investments in the
growth and expansion of our business. The growth and expansion of
our business places a continuous significant strain on our
management, operational, and financial resources. In addition, as
customers adopt our platform and products for an increasing number
of use cases, we will need to continue to support increasingly
complex commercial relationships. In order to manage our growth
effectively, we must continue to improve and expand our information
technology and financial infrastructure, our security and
compliance requirements, our operating and administrative systems,
our relationships with various partners and other third parties,
and our ability to manage headcount and processes in an efficient
manner.
We may not be
able to sustain the pace of improvements to our platform and
products successfully or implement systems, processes and controls
in an efficient or timely manner or in a manner that does not
negatively affect our business, financial condition and results of
operations. Our failure to improve our systems, processes, and
controls, or their failure to operate in the intended manner, may
result in our inability to manage the growth of our business and to
forecast our revenue, expenses and earnings accurately, or to
prevent losses.
As we expand
our business and operate as a public company, we may find it
difficult to maintain our corporate culture while managing our
employee growth. Any failure to manage our anticipated growth and
related organizational changes in a manner that preserves our
culture could negatively impact future growth and achievement of
our business objectives. Additionally, our productivity and the
quality of our offerings may be adversely affected if we do not
integrate and train our new employees quickly and effectively.
These challenges have been, and likely will continue to be,
heightened due to the ongoing COVID-19 pandemic and the related
stay-at-home, travel and other restrictions instituted by
governments around the world. Failure to effectively manage our
growth to date and any future growth could result in increased
costs, negatively affect our customers’ satisfaction with our
offerings and adversely affect our business, financial condition,
results of operations and growth prospects.
Our
recent growth may not be indicative of our future growth, and we
may not be able to sustain our revenue growth rate in the future.
Our growth also makes it difficult to evaluate our future prospects
and may increase the risk that we will not be successful.
Our
total revenues for the years
ended December 31, 2020 and
2021 were $148.3 million and $193.3 million,
respectively, representing year-over-year growth of 30%. You should
not rely on our revenue growth over any historical period as an
indication of our future performance. Even if our revenue continues
to increase, we expect our revenue growth rate to decline in future
periods. Many factors may contribute to declines in our growth
rate, including greater market penetration, increased competition,
slowing demand for our offerings, a failure by us to continue
capitalizing on growth opportunities, the maturation of our
business, and global economic downturns, among others. If our
growth rate declines, investors’ perceptions of our business and
the market price of our ordinary shares could be adversely
affected.
In addition,
our rapid growth may make it difficult to evaluate our current
business and future prospects. Our ability to forecast our future
results of operations is subject to a number of uncertainties,
including our ability to effectively plan for and model future
growth. We have encountered in the past, and may encounter in the
future, risks and uncertainties frequently experienced by growing
companies in rapidly changing industries. If we fail to achieve the
necessary level of efficiency in our organization as it grows, or
if we are not able to accurately forecast future growth, our
business would be harmed. Moreover, if the assumptions that we use
to plan our business are incorrect or change in reaction to changes
in the markets in which we operate, or if we are unable to maintain
consistent revenue or revenue growth, our share price could be
volatile, and it may be difficult to achieve and maintain
profitability.
The markets for our
products are new and evolving and may develop more slowly or
differently than we expect. Our future success
depends on the growth and expansion of these markets and our
ability to adapt and respond effectively to evolving market
conditions.
The markets for
our products are relatively new, rapidly evolving and unproven.
Accordingly, it is difficult to predict customer adoption and
renewals, demand for our platform and our products, the entry of
competitive products, the success of existing competitive products,
or the future growth rate, expansion, longevity and the size of our
target markets. The expansion of, and our ability to penetrate,
these new and evolving markets depends on a number of factors,
including widespread awareness among key organizational decision
makers of, and the cost, performance, effectiveness and perceived
value associated with, digital adoption platforms and technologies.
If we or other software and software as a service (“SaaS”)
providers experience security incidents, loss of customer data, or
disruptions in delivery or service, the market for these
applications as a whole, including our platform and products, may
be negatively affected. If digital adoption technologies and
software do not continue to achieve market acceptance, or if there
is a reduction in demand caused by decreased customer or user
acceptance, technological challenges, weakening economic conditions
(including in connection with the COVID-19 pandemic or other
factors such as rising inflation or interest rates), privacy, data
protection and data security concerns, governmental regulation,
competing technologies and products, decreases in information
technology spending or otherwise, or if software providers begin to
implement digital adoption solutions natively within their existing
products, the markets for our platform and products might not
continue to develop or might develop more slowly than we expect,
which could adversely affect our business, financial condition and
results of operations.
If we
are not able to keep pace with technological and competitive
developments or fail to develop or otherwise introduce new products
and enhancements to our existing offerings, our products may become
less marketable, less competitive, or obsolete, and our business,
financial condition and results of operations may be adversely
affected.
The markets in
which we compete are characterized by rapid technological change,
frequent introductions of new products, services, features and
capabilities, and evolving industry standards and regulatory
requirements. Our ability to grow our customer base and increase
revenue from existing customers will depend in significant part on
our ability to develop or otherwise introduce new product offerings
and new features, integrations, capabilities and other enhancements
to our existing offerings on a timely basis, as well as on our
ability to interoperate across an increasing range of devices,
operating systems and third-party applications. The success of any
new products or enhancements to our existing offerings will depend
on a number of factors including, but not limited to, the
timeliness and effectiveness of our research and product
development activities and go-to-market strategy, our ability to
anticipate customer needs and achieve market acceptance, our
ability to manage the risks associated with new
product releases, the effective
management of development and other
spending in connection with the product development process
and anticipated demand, and the availability of other newly
developed products and technologies by our competitors.
In addition, in
connection with our product development efforts, we may introduce
significant changes to our existing products,
or develop or otherwise introduce
new and unproven products or
product features, including technologies with which we have
little or no prior development or operating experience. These new
products, product features and other updates may not perform as
expected, may fail to engage our customers or other users of our
products, or may otherwise create a lag in adoption of such new or
updated products and product features. New products may initially
suffer from performance and quality issues that may negatively
impact our ability to market and sell such products to new and
existing customers. We have in the past experienced bugs, errors,
or other defects or deficiencies in new products and product
updates and delays in releasing new products, deployment options,
and product enhancements and may have similar experiences in the
future. As a result, some of our customers may either defer
purchasing our products until the next upgrade is released or
switch to a competitor if we are not able to keep up with
technological developments.
To keep pace
with technological and competitive developments, we have in the
past invested, and may in the future invest, in the acquisition of
complementary businesses, technologies, services, products, and
other assets that expand the products that we can offer our
customers. We may make these investments without being certain that
they will result in products or enhancements that
will be accepted by existing or prospective customers
or that will achieve market acceptance. The short-term and
long-term impact of any major change to our offerings, or the
introduction of new products or solutions, is particularly
difficult to predict. If new or enhanced offerings fail to engage
our customers or other users of our products, or do not perform as
expected, we may fail to generate sufficient revenue, operating
margin, or other value to justify our investments in such products,
any of which may adversely affect our reputation and negatively
affect our business in the short-term, long-term, or both. If we
are unable to successfully enhance our existing products to meet
evolving customer requirements, increase adoption and use cases of
our platform and products, develop new products and product
features and quickly resolve security vulnerabilities, or if our
efforts in any of these areas are more expensive than we expect,
then our business, financial condition and results of operations
would be adversely affected.
If we do
not maintain the interoperability of our offerings across devices,
operating systems and third-party applications that we do not
control, and if we are not able to maintain and expand our
relationships with third-party technology partners to integrate our
offerings with their products and solutions, our business,
financial condition and results of operations may be adversely
affected.
Our success
depends in part on our ability to integrate our platform and
products with a variety of devices, operating systems and
third-party applications that we do not control, and we need to
continuously modify and enhance our offerings to adapt to changes
in hardware, software, networking, browser and database
technologies. Third-party products and services are constantly
evolving, and we may not be able to modify our offerings to ensure
their compatibility with those of other third parties following
development changes. Third-party providers may change the features
of their applications and software, restrict our access to their
applications and software or alter the terms governing use of their
applications and access to those applications and software in an
adverse manner. Such changes could functionally limit or eliminate
our ability to use these third-party applications and software in
conjunction with our products, which could negatively impact
customer demand, our competitive position and adversely affect our
business. Certain companies with which we currently compete or may
in the future compete own, develop, operate or distribute operating
systems, cloud hosting services and other software applications,
and/or have material business relationships with companies that
own, develop, operate or distribute operating systems, application
stores, cloud hosting services and other software that our
offerings rely on to operate. These companies may be able to
disrupt the operation or compatibility of our offerings with their
products or services, or exert strong business influence on our
ability to, and the terms on which we, operate and distribute our
offerings. Moreover, some of these companies may have inherent
advantages developing products and services that more tightly
integrate with their software and hardware platforms or those of
their business partners. Should these or any other third-party
providers modify their products or standards in a manner that
degrades the functionality of our offerings or gives preferential
treatment to competitive products or services, whether
to enhance their competitive position
or for any other reason, we
may not be able to offer the
functionality that our customers need, which would negatively
impact our ability to generate revenue and adversely affect our
business. Furthermore, any losses or shifts in the market position
of the providers of these third-party products and services could
require us to identify and develop integrations with new
third-party technologies. Such changes could consume substantial
resources and may not be effective. Any expansion into new
geographies may also require us to integrate our offerings with new
third-party technologies, products and services and invest in
developing new relationships with these providers. If we are unable
to respond to changes in a cost-effective manner, our offerings may
become less marketable, less competitive, or obsolete, and our
business, financial condition and results of operations may be
negatively impacted.
Further, we
have created mobile applications and mobile versions of our
offerings to respond to the increasing number of people who access
the internet and cloud-based software applications through mobile
devices, including smartphones and handheld tablets or laptop
computers. If these mobile applications do not perform well, our
business may suffer. We are also dependent on third-party
application stores that we do not control, and that may prevent us
from timely updating our offerings, building new features,
integrations, capabilities or other enhancements, or charging for
access. Should any of these companies stop allowing or supporting
access to our offerings, allow access for us only at an
unsustainable cost, or make changes to the terms of access in order
to make our offerings less desirable or harder to access, whether
for competitive reasons or otherwise, it would also have a negative
impact on our business.
The
markets in which we compete are nascent and highly fragmented, and
we may not be able to compete successfully against current and
future competitors, some of which may have greater financial,
technical, and other resources than we do. If we do not compete
successfully our business, financial condition and results of
operations could be harmed.
The market for
our platform and products is highly fragmented, quickly evolving,
and subject to rapid changes in technology. We believe that our
ability to compete successfully depends upon many factors both
within and beyond our control, including the following:
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breadth of applications and technology integrations
supported;
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support for cross-application guidance, automation and
analytics;
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expertise in third-party application implementations;
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integration of robust analytics and visualization
capabilities;
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cross-platform support for workflows including mobile native
applications (iOS and Android) and desktop (Windows and
macOS);
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ease of implementation and use;
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performance, security, scalability and reliability;
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quality of customer support;
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total cost of ownership; and
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brand recognition and reputation.
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While we do not
believe that any of our competitors currently offers a solution
that effectively competes with the full functionality of our
integrated platform technology solutions, our main sources of
competition fall into the following categories:
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Non-adoption from enterprises
maintaining the status quo of
offline, internally developed, or non-dynamic,
FAQ-centric application guidance and workflow support;
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Point solutions embedded natively or as an add-on to software
provided by diversified enterprise software companies such as SAP,
Oracle, Microsoft, and Salesforce; and
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Providers of software for specific in-app guidance or
analytics use cases for SaaS applications.
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Additionally,
we compete with home-grown, start-up, and open source technologies
across the categories described above. With the trend toward
distributed and remote workforces (which has accelerated as a
result of the COVID-19 pandemic), the passage of time, the
introduction of new technologies and the entrance of new
market participants, competition has
intensified, and we expect it
to continue to intensify in the
future. Established companies are also developing their own
products that compete with ours, and may continue to do so in the
future. Established companies may also acquire or establish product
integration, distribution or other cooperative relationships with
our current competitors. New competitors or alliances among
competitors may emerge from time to time and rapidly acquire
significant market share due to various factors such as their
greater brand name recognition, larger existing user or customer
base, customer preferences for their offerings, a larger or
more effective sales organization and
greater financial, technical, marketing
and other resources and experience. Furthermore,
with the recent increase in large merger and acquisition
transactions in the technology industry, particularly transactions
involving cloud-based technologies, there is a greater likelihood
that we will compete with other larger technology companies in the
future. Companies resulting from these potential consolidations may
create more compelling product offerings and be able to offer more
attractive pricing options, making it more difficult for us to
compete effectively.
Many of our
competitors have, and additional potential competitors may have,
greater financial, technical, and other resources, greater brand
recognition, larger sales forces and marketing budgets, broader
distribution networks, more diverse product and services offerings,
larger and more mature intellectual property portfolios, more
established relationships in the industry and with customers, lower
cost structures and greater customer experience resources. These
competitors may be able to respond more quickly and effectively
than we can to new or changing opportunities, technologies,
standards and customer requirements. They may also be able to
leverage these resources to gain business in a manner that
discourages customers from purchasing our offerings. Potential
customers may also prefer to purchase from companies with which
they have an existing relationship rather than a new supplier,
regardless of product performance or features. Furthermore, we
expect that our industry will continue to attract new companies,
including smaller emerging companies, which could introduce new
offerings or alternative solutions to the problems we address. We
may also expand into new markets and encounter additional
competitors in such markets. The numerous and evolving competitive
pressures in the markets in which we operate, or our failure to
respond effectively to such pressures, may result in price
reductions, fewer customers, reduced revenue, gross profit and
gross margins, increased net losses and loss of market share, any
of which could significantly and adversely affect our business,
financial condition and results of operations.
Our
Digital Adoption Platform is at the core of our business, and any
decline in demand for our Digital Adoption Platform occasioned by
malfunction, inferior performance, increased competition or
otherwise, will impact our business, financial condition and
results of operations.
Our Digital
Adoption Platform is at the core of our business and all of our
customer subscriptions. Customer subscriptions to our Digital
Adoption Platform accounted for approximately 88% and 91% of our
total revenue for the years ended December 31, 2020 and 2021,
respectively, with the remainder of our revenue being derived from
associated professional services. Accordingly, market acceptance of
our Digital Adoption Platform is critical to our success. If demand
for our Digital Adoption Platform declines,
the demand for the associated
professional services will also decline.
Demand for our Digital Adoption Platform is affected by a number of
factors, many of which are beyond our control, such as continued
market acceptance of digital adoption platforms and technologies by
customers for existing and new use cases, the timing of development
and release of new features, functionality, and lower cost
alternatives introduced by our competitors, technological changes
and developments within the markets we serve, including the
potential introduction of native digital adoption solutions within
software providers’ existing products, and growth or contraction in
our addressable markets. If we are unable to continue to meet
customer demand, or if our Digital Adoption Platform fails to
compete effectively, achieve more widespread market acceptance, or
meet statutory, regulatory, contractual, or other applicable
requirements, then our business, financial condition and results of
operations would be harmed.
Our
business depends in part on our existing customers expanding the
value of their subscriptions over time and renewing their
subscriptions at the end of the applicable subscription period. Any
decline in our Dollar-Based Net Retention Rate may harm our future
operating results.
Our
future success depends in part
on our ability to expand the
value of our existing customers’
subscriptions over time, and on our customers renewing their
subscriptions when the contract term expires. The terms of our
subscription agreements are typically for a period of one to three
years, and our customers are under no obligation to renew their
subscriptions after the expiration of the applicable subscription
period. As a result, we cannot guarantee that customers will renew
their subscriptions for a similar contract period or with a similar
or greater scope of applications, users, features, capabilities or
other terms that are equally or more beneficial to us, if they
renew at all.
We use a metric
we call Dollar-Based Net Retention to measure the expanding value
of our customers subscriptions over time and understand our renewal
trends. Our definition of Dollar-Based Net Retention is described
in Item 5 of this Form 20-F under “Key Business and Financial
Metrics.” We may not accurately predict future renewal trends or
our Dollar-Based Net Retention Rate given the diversity of our
customer base in terms of size, industry and geography. Customer
renewals, and our Dollar-Based Net Retention Rate, may decline or
fluctuate as a result of a number of factors, including customer
satisfaction with our products and our customer support, the
frequency and severity of product outages, our product uptime or
latency, the pricing and value proposition of our offerings
compared to those of our competitors, additional new features,
integrations, capabilities or other enhancements that we may
develop or otherwise introduce from time to time, updates to our
products as a result of updates by technology partners, mergers and
acquisitions affecting our customer base, and consolidation of
affiliates’ multiple into a single account. Customer renewals have
been and may in the future also be impacted by general economic
conditions (including in connection with the COVID-19 pandemic),
strengths and weaknesses in our customers’ underlying businesses,
and other factors, many of which are beyond our control, that
reduce customers’ spending levels. In addition, customers may renew
for fewer subscriptions, renew for shorter contract lengths if they
were previously on multi-year contracts, or switch to lower cost
offerings on our platform. These factors may also be exacerbated if
our customer base continues to grow to encompass larger
enterprises, which generally require more sophisticated and costly
sales efforts. If our customers do not expand the value of their
subscriptions over time, or if our customers fail to renew their
subscriptions or renew on less economically beneficial terms, our
revenue may decline or grow less quickly than anticipated and our
business, financial condition and results of operations may be
harmed.
If we
are unable to attract new customers, our business, financial
condition and results of operations will be adversely
affected.
To
increase our revenue, we must
continue to attract new customers.
Our success will depend to a substantial extent
on the widespread adoption of our platform and products. Many
enterprises may view digital adoption platforms and technologies
such as ours as new and unproven, and may be reluctant or unwilling
to migrate to our Digital Adoption Platform. Further, the adoption
of SaaS business software may be slower in industries with
heightened data security interests or business practices requiring
highly customizable application software. In addition, as our
target markets mature, our products evolve, and competitors
introduce lower cost or differentiated products that are perceived
to compete with our platform and products, our ability to sell
subscriptions for our products could be impaired. Similarly, our
subscription sales could be adversely affected if customers or
users within these organizations perceive that features
incorporated into competitive products reduce the need for our
products, or if they prefer to purchase other products that are
bundled with solutions offered by other companies that operate in
adjacent markets and compete with our products. As a result of
these and other factors, we may be unable to attract new customers,
which may have an adverse effect on our business, financial
condition and results of operations.
We
recognize subscription revenue over the term of the relevant
subscription period, and as a result, downturns or upturns in sales
are not immediately reflected in full in our results of
operations.
We generate
revenue primarily through sales of subscriptions to our Digital
Adoption Platform, and we recognize our subscription revenue
ratably over the term of the relevant subscription period. As a
result, a significant portion of the revenue we report each fiscal
quarter is the recognition of deferred revenue from subscription
contracts entered into during previous fiscal quarters.
Consequently, a decline in new or renewed subscriptions in any one
fiscal quarter will not be fully or immediately reflected in
revenue in that fiscal quarter and will negatively affect our
revenue in future fiscal quarters. Accordingly, the effect of
significant downturns in new or renewed sales of our subscriptions
is not reflected in full in our results of operations until future
periods.
Our
ability to achieve customer renewals and increase sales of our
products is dependent on the quality of our customer support, and
our failure to offer effective customer support would have an
adverse effect on our reputation, business, financial condition and
results of operations.
Our customers
depend on our customer support professionals, which we refer to as
our customer success team, to resolve issues and realize the full
benefits relating to our platform and products. If we do not
succeed in helping our customers quickly
resolve implementation and/or
post-deployment issues or provide effective
ongoing support and education, our ability to renew subscriptions
with existing customers and to expand the value of those
subscriptions would be adversely affected and our reputation with
potential customers could also be damaged. In addition, a
significant portion of our existing customer base consists of large
enterprises, which generally have more complex IT environments and
require higher levels of support than smaller customers. If we fail
to meet the requirements of these customers, it may be more
difficult to grow sales or maintain our relationships with
them.
Additionally,
it can take several months to recruit, hire and train qualified
engineering-level customer support employees, and we may not be
able to hire such resources fast enough to keep up with demand. To
the extent we are unsuccessful in hiring, training and retaining
adequate support resources, our ability to provide adequate and
timely support to our customers, and our customers’ satisfaction
with our platform and products, will be adversely affected. Our
failure to provide and maintain effective support services would
have an adverse effect on our business, financial condition,
results of operations and reputation.
If we
fail to maintain and enhance our brand, our ability to expand our
customer base will be impaired and our business, financial
condition and results of operations may suffer.
We believe that
maintaining and enhancing the WalkMe brand is important to support
the marketing and sale of our existing and future products to new
customers and to expanding sales of our products to existing
customers. We also believe that brand recognition will become
increasingly important as competition in our target markets
increases. Successfully maintaining and enhancing our brand will
depend largely on the effectiveness of our marketing efforts, our
ability to provide reliable products that continue to meet the
needs of our customers at competitive prices, our ability to
maintain our customers’ trust, our ability to continue to develop
new functionality and use cases, and our ability to successfully
differentiate our products and platform capabilities from those of
our competitors. Our brand promotion activities may not generate
customer awareness or yield increased revenue, and even if they do,
any increased revenue may not offset the marketing expenses we
incur in building our brand. If we fail to successfully promote and
maintain our brand, we may fail to attract new customers and retain
existing customers as necessary to realize a sufficient return on
our brand-building efforts, and may fail to achieve the widespread
brand awareness that is critical for broad customer adoption of our
offerings.
If we
are unable to manage our fixed and variable costs or expand the
scale of our operations and generate a sufficient amount of revenue
to offset the associated fixed and variable costs, our business,
financial condition and results of operations may be materially and
adversely affected.
SaaS businesses
like ours tend to involve certain fixed costs, and our ability to
achieve desired operating margins depends largely on our success in
maintaining a scale of operations and generating a sufficient
amount of revenue to offset these fixed costs and other variable
costs. Our fixed costs typically include compensation of employees,
cloud-based computing services, data storage and related expenses
and office rental expenses. Our variable costs typically include
sales and marketing expenses and payment processing fees. These
costs can be difficult to manage, particularly as we continue to
grow. If we are unable to effectively manage these costs or achieve
economies of scale, our operating margin may decrease and our
business, financial condition, results of operations and prospects
could be materially and adversely affected.
Our
results of operations are likely to fluctuate from quarter to
quarter, which could adversely affect our business, financial
condition and results of operations.
Our
results of operations, including our revenue, cost of revenue,
gross margin, operating expenses and cash flow, have fluctuated
from quarter to quarter in the past and may continue to vary
significantly in the future so that period-to-period
comparisons of our results of operations may
not be meaningful. Accordingly, our financial results in any
one quarter should not be relied upon as indicative of future
performance. Our quarterly financial results may fluctuate as a
result of a variety of factors, many of which are outside of our
control, may be difficult to predict, and may or may not fully
reflect the underlying performance of our business. Factors that
may cause fluctuations in our quarterly financial results
include:
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our ability to attract and retain new customers and expand
sales within our existing customer base;
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the loss of existing customers;
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subscription renewals and the timing of such renewals;
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fluctuations in customer usage of our products from period to
period;
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customer satisfaction with our products and platform
capabilities and customer support;
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mergers and acquisitions or other transactions affecting our
customer base, including the consolidation of affiliates’ multiple
accounts into a single account;
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mix of our revenue between subscription and professional
services;
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our ability to gain new partners and retain existing partners,
and any changes in the economic terms of our agreements with such
partners;
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increases or decreases in the number of users or applications
in our subscriptions or pricing changes upon any renewals of
customer agreements;
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fluctuations in share-based compensation expense;
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decisions by potential customers to purchase alternative
solutions or develop in-house technologies as alternatives to our
products;
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the amount and timing of operating expenses related to the
maintenance and expansion of our business and operations, including
investments in research and development, sales and marketing,
including the capacity of our sales team, and general and
administrative resources;
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our ability to manage our cloud services infrastructure
costs;
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technical disruptions or network outages;
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developments or disputes concerning our intellectual property
or proprietary rights, our platform or products, or third-party
intellectual property or proprietary rights;
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negative publicity about our Company, our offerings or our
partners, including as a result of actual or perceived breaches of,
or failures relating to, privacy, data protection or data
security;
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the timing of expenses related to the development or
acquisition of technologies or businesses and potential future
charges for impairment of goodwill from acquired companies;
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general economic, industry and market conditions;
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the impact of the ongoing COVID-19 pandemic, or any other
pandemic, epidemic, outbreak of infectious disease or other global
health crises on our business, the businesses of our customers and
partners and general economic conditions;
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the impact of political uncertainty or unrest, including the
war in Ukraine;
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changes in our pricing policies or those of our
competitors;
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fluctuations in the growth rate of the overall markets that
our products address;
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seasonality in the underlying businesses of our customers,
including budgeting cycles and purchasing practices, and any
changes in customer spending patterns;
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the business strengths or weakness of our customers;
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our ability to collect timely on invoices or
receivables;
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the cost and potential outcomes of litigation or other
disputes;
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future accounting pronouncements or changes in our accounting
policies;
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our overall effective tax rate, including impacts caused by
any reorganization in our corporate tax structure and any new
legislation or regulatory developments;
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our ability to successfully expand our business in the U.S.
and internationally;
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fluctuations in foreign currency exchange rates;
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legal and regulatory compliance costs in new and existing
markets; and
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the timing and success of new products or product features
introduced by us or our competitors or any other change in the
competitive dynamics of our industry, including consolidation among
competitors, customers or partners.
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The impact of
one or more of the foregoing or other factors may cause our results
of operations to vary significantly. Such fluctuations could cause
us to fail to meet the expectations of investors or securities
analysts, which could cause the trading price of our ordinary
shares to fall substantially, and we could face costly lawsuits,
including securities class action suits. Additionally, the rapid
growth we have experienced in recent years may have masked the full
effects of these seasonal factors on our business to date, and as
such, these factors may have a greater effect on our results of
operations in future periods.
We
depend on our executive leadership team and other key employees,
and the loss of one or more of these employees or an inability to
attract and retain highly skilled employees could harm our
business.
Our future
success depends, in part, on our ability to continue to attract and
retain highly skilled personnel. The loss of the services of any of
our key personnel, the inability to attract or retain qualified
personnel, or delays in hiring required personnel, particularly in
engineering, research and development, sales or customer support,
may seriously harm our business, financial condition and results of
operations. Although we have entered into employment agreements
with our key personnel, some of which include notice periods with
which the employee is required to comply prior to terminating their
employment with us, their employment is for no specific duration.
We are also substantially dependent on the continued service of our
existing engineering personnel because of the complexity of our
products.
Our
future performance also depends on
the continued services and continuing
contributions of our executive leadership team,
including our co-founders Dan Adika, who currently serves as our
Chief Executive Officer, and Rafael Sweary, who currently serves as
our President, to execute on our business plan and to identify and
pursue new opportunities and product innovations. The loss of
services of our executive leadership team, particularly Mr. Adika
or Mr. Sweary, could significantly delay or prevent the achievement
of our development and strategic objectives, which could adversely
affect our business, financial condition and results of
operations.
Additionally,
the industry in which we operate is generally characterized by
significant competition for skilled personnel as well as high
employee attrition which we have experienced from time to time.
There is currently a high demand for experienced software industry
personnel, particularly for engineering, research and development,
sales and support positions, and we may not be successful in
attracting, integrating or retaining qualified personnel to fulfill
our current or future needs and, even if our efforts are
successful, such personnel may not become as productive as we
expect. This intense competition has resulted in increasing wages,
especially in Israel, where most of our research and development
positions are located, and in the San Francisco Bay Area, where we
have a significant presence, which may make it more difficult for
us to attract and retain qualified personnel, as many of the
companies against which we compete for personnel have greater
financial resources than we do. These competitors may also actively
seek to hire our existing personnel away from us, even if such
employee has entered into a non-compete agreement. We may be unable
to enforce these agreements under the laws of the jurisdictions in
which our employees work. For example, Israeli labor courts have
required employers seeking to enforce non-compete undertakings of a
former employee to demonstrate that the competitive activities of
the former employee will harm one of a limited number of material
interests of the employer that have been recognized by the courts,
such as the protection of a company’s confidential information or
other intellectual property, taking into account, among other
things, the employee’s tenure, position, and the degree to which
the non-compete undertaking limits the employee’s freedom of
occupation. We may not be able to make such a demonstration. Also,
to the extent we hire personnel from competitors, we may be subject
to allegations that they have been improperly solicited, that they
have divulged proprietary or other confidential information, or
that their former employers own their inventions or other work
product developed while employed by us.
In addition, in
making employment decisions, particularly in the internet and
high-technology industries, job candidates often consider the value
of the equity they are to receive in connection with their
employment. Employees may be more likely to leave us if the shares
they own or the shares underlying their equity incentive awards
have significantly appreciated or significantly reduced in value.
Many of our employees may receive significant proceeds from sales
of our equity in the public markets, which may reduce their
motivation to continue to work for us and could lead to employee
attrition. If we fail to attract new personnel, or fail to retain
and motivate our current personnel, our business, financial
condition, results of operations and growth prospects could be
harmed.
The
ongoing COVID-19 pandemic could harm our business, financial
condition and results of operations.
In December
2019, a novel coronavirus disease (“COVID-19”) was reported in
China and began to spread across the globe. In March 2020, the
World Health Organization (“WHO”) declared COVID-19 a global
pandemic. Since that time, this contagious disease outbreak has
continued to spread and evolve, impacting worldwide economic
activity and financial markets. As a result of the COVID-19
pandemic, government authorities around the world have ordered
schools and businesses to close, imposed restrictions on
non-essential activities and required people to remain at home
while implementing limitations on business activities, travel and
social gatherings. Even as many of these restrictions ease, we
cannot be certain that new variants will not emerge that cause
additional restrictions to be imposed. These conditions
have caused disruptions in global
demand and global supply chains, as well as
disruptions in the labor force, and have
adversely affected companies across a
variety of industries, including many of our customers
and partners.
In light of the
uncertain and rapidly evolving situation relating to the spread of
COVID-19, as well as government mandates, we took precautionary
measures intended to minimize the risk of the virus to our
employees, our customers, our partners and the communities in which
we operate. As part of this response, we enabled our entire work
force to work remotely, paused hiring and implemented travel
restrictions. We also implemented a short-term hiring freeze across
our Company, which limited our sales capacity and, together with
the impact on spending across much of the global economy, led to
longer sales cycles in the second quarter of 2020.
Though we began
reinvesting in our sales capacity in the second half of 2020 and
saw a reversal of these trends in 2021, we cannot guarantee that
this recovery will continue. In addition, given the continued
spread of COVID-19 and the resultant personal, economic and
governmental reactions, we may have to take additional actions in
the future that could harm our business, financial condition, and
results of operations. While we have a distributed workforce and
our employees are accustomed to working remotely or working with
other remote employees, our workforce was not trained to be fully
remote, and it is possible that continued widespread remote work
arrangements may have a negative impact on our operations, the
execution of our business plans, the productivity and availability
of key personnel and other employees necessary to conduct our
business, and on third-party service providers who perform critical
services for us, or otherwise cause operational failures due to
changes in our normal business practices. If a natural disaster,
power outage, connectivity issue, or other event occurred
that impacted our employees’ ability
to work remotely, it may be
difficult or, in certain cases, impossible,
for us to continue our business for a substantial period of time.
The increase in remote working may also result in
privacy, data protection, data
security and increased fraud risks,
and our understanding of applicable legal and
regulatory requirements, as well as the latest guidance from
regulatory authorities, may be subject to legal or regulatory
challenge, particularly as regulatory guidance evolves in response
to future developments. Although we continue to monitor the
situation and may adjust our current policies as more information
and public health guidance become available, the effects of
suspending travel and doing business in-person over the long-term,
as well as the continued disruption to the operations of our
customers and partners, may also negatively affect our customer
success efforts, sales and marketing efforts, challenge our ability
to enter into customer contracts in a timely manner, slow down our
recruiting efforts, and create operational or other challenges, any
of which could harm our business, financial condition and results
of operations. The COVID-19 pandemic has also resulted in, and may
continue to result in, significant disruption of global financial
markets, reducing our ability to access capital, which could in the
future negatively affect our liquidity.
It is not
possible at this time to estimate the long-term impact that
COVID-19 and related economic impacts could have on our business,
financial condition and results of operations as the impact will
depend on future developments, which are highly uncertain and
cannot be predicted, including, but not limited to, the duration
and spread of the outbreak, its severity, the actions to contain
the virus or treat its impact, and how quickly and to what extent
normal economic and operating conditions can resume. Even after the
outbreak of COVID-19 has subsided, we may experience materially
adverse impacts to our business as a result of its global economic
impact, including any recession that has occurred or may occur in
the future. Furthermore, because of our subscription-based business
model, the effect of the COVID-19 pandemic may not be fully
reflected in our results of operations and overall financial
condition until future periods.
Our
corporate culture has contributed to our success, and if we cannot
maintain this culture as we grow, we could lose the innovation,
creativity, and entrepreneurial spirit we have worked to foster,
which could harm our business and growth prospects.
We believe that
our culture has been and will continue to be a key contributor to
our success. We expect to continue to hire aggressively as we
expand, and we will need to maintain our culture among a larger
number of employees, dispersed across various geographic regions.
If we do not continue to maintain our corporate culture as we grow,
we may be unable to foster the innovation, creativity and
entrepreneurial spirit we believe we need to support our growth.
The continued growth and expansion of our business and our
transition from a private company to a public company may also
result in changes to our corporate culture, which could harm our
ability to attract, recruit and retain employees, as well as our
business and our prospects for future growth.
We
typically provide service-level commitments under our subscription
agreements. If we fail to meet these contractual commitments, we
could be obligated to provide credits for future service, extended
subscription terms or refunds of prepaid amounts equivalent to the
credits, any of which could lead to subscription termination or a
decrease in customer renewals in future periods.
Our
subscription agreements typically contain service-level
commitments. If we are unable to meet the stated service-level
commitments, including failure to meet the uptime and response time
requirements under our customer subscription agreements, we may be
contractually obligated to provide these customers with credits for
future service, extended subscription terms or refunds of prepaid
amounts equivalent to the credits, any of which could lead to
subscription termination or a decrease in customer renewal.
Accordingly, failure to meet our service-level commitments could
significantly affect our revenue in the periods in which the
failure occurs and the credits are applied or the refunds paid out.
In addition, subscription terminations and any reduction in
renewals resulting from service-level failures could significantly
affect both our current and future revenue. Any service-level
failures could also create negative publicity and damage our
reputation, which may discourage prospective customers from
adopting our offerings. In addition, if we modify the terms of our
service-level commitments in future customer agreements in a manner
that customers perceive to be unfavorable, demand for our offerings
could be reduced. Any of these events could adversely affect our
business, financial condition and results of operations.
We
target enterprise customers, and sales to these customers involve
risks that may not be present or that are present to a lesser
extent with sales to smaller entities.
Our sales and
marketing organization is increasingly focused on large enterprise
customers. Sales to large customers involve risks that may not be
present or that are present to a lesser extent with sales to
smaller entities, such as longer sales cycles, more complex
customer requirements, substantial upfront sales costs, and less
predictability in completing some of our sales. For example,
enterprise customers may require considerable time to evaluate and
test our solutions and those of our competitors prior to making a
purchase decision and placing an order. Moreover,
large enterprise customers often
begin to deploy our products on
a limited basis, but nevertheless demand
configuration, integration services and pricing negotiations, which
increase our upfront investment in the sales effort with no
guarantee that these customers will deploy our products widely
enough across their organization to justify our substantial upfront
investment.
The
failure to effectively develop and expand our sales and marketing
capabilities, including third-party resources, could harm our
ability to increase our customer base and achieve broader market
acceptance of our offerings.
Our ability to
increase our customer base and achieve broader market acceptance of
our platform and products will depend to a significant extent on
our ability to expand our sales and marketing operations. As part
of our growth strategy, we plan to continue to invest in growing
our direct sales force. If we are unable to hire a sufficient
number of qualified sales personnel in the near term, our business
and growth prospects will be adversely impacted.
Identifying and recruiting qualified
sales representatives and training
them is time-consuming and resource-intensive, and they
may not be fully trained and productive for a significant amount of
time. We also plan to continue to dedicate significant resources to
our marketing programs. All of these efforts will require us to
invest significant financial and other resources. Our business will
be harmed if our efforts do not generate a correspondingly
significant increase in revenue. We will not achieve anticipated
revenue growth from expanding our sales force if we are unable to
hire, develop, motivate and retain talented sales personnel, if new
sales personnel are unable to achieve desired productivity levels
in a reasonable period of time, or if our sales and marketing
programs are not effective. In addition, because we rely primarily
on a direct sales model, our customer acquisition costs are higher
than those of organizations that rely primarily on a self-service
model, which may limit our ability to cut costs in response to
changing economic and competitive conditions.
In addition to
our direct sales force, we also leverage reseller and other partner
relationships to help market and sell our offerings to customers
around the world, particularly in jurisdictions in which we have a
limited presence. Though we expect that we will need to maintain
and expand our network of partners as we continue to expand our
presence in international markets, these relationships subject us
to certain risks. Some of our partners, mainly system integrators,
offer a wide array of software and services in addition to ours.
Because most of their revenue is derived from selling professional
services, they may prioritize sales of other more professional-
services heavy solutions instead of ours. Moreover, we may face
channel conflicts with producers of software that our customers use
in addition to ours. If such producers perceive our solutions as a
competitive threat to their products, our ability to maintain
or establish partnerships with third parties may be adversely
affected. In addition, recruiting and retaining qualified partners
and training them in our technology and offerings requires
significant time and resources If we decide to further develop and
expand our indirect sales channels, we must continue to scale and
improve our processes and procedures to support these channels,
including investing in systems and training. Many partners may not
be willing to invest the time and resources required to train their
staff to effectively market and sell our offerings.
The
sales prices of our products may change, which may reduce our
revenue and gross profit and adversely affect our financial
results.
The sales
prices for our products may be subject to change for a variety of
reasons, including competitive pricing pressures, discounts,
anticipation of the introduction of new products, general economic
conditions, or changes in our marketing, customer acquisition and
technology costs and, as a result, we anticipate that we will need
to change our pricing model from time to time. In the past,
including in connection with the COVID-19 pandemic, we have
sometimes adjusted our prices for individual customers in certain
situations, and expect to do so from time to time in the future.
Moreover, demand for our offerings is price-sensitive. Competition
continues to increase in the market segments in which we
participate, and we expect competition to further increase in the
future, thereby leading to increased pricing pressures. Larger
competitors with more diverse offerings may reduce the price of
offerings that compete with ours or may bundle them with other
offerings and provide for free. Similarly, certain competitors may
use marketing strategies that enable them to acquire users more
rapidly or at a lower cost than us, or both, and we may be unable
to attract new customers or grow and retain our customer base based
on our historical pricing. As we develop and introduce new
offerings, as well as features, integrations, capabilities and
other enhancements, we may need to, or choose to, revise our
pricing. We may also face challenges setting prices for new and
existing offerings in any new geographies into which we expand.
There can be no assurance that we will not be forced to engage in
price-cutting initiatives or to increase our marketing and other
expenses to attract customers in response to competitive or other
pressures. Any decrease in the sales prices for our products,
without a corresponding decrease in costs, increase in volume or
increase in revenue from our other offerings, would adversely
affect our revenue and gross profit. We cannot assure you that we
will be able to maintain our prices and gross profits at levels
that will allow us to achieve and maintain profitability.
The
length of our sales cycle can be unpredictable, particularly with
respect to sales to enterprise customers, and our sales efforts may
require considerable time and expense.
Our results of
operations may fluctuate, in part, because of the length and
variability of the sales cycle of our subscriptions and the
difficulty in making short-term adjustments to our operating
expenses. Our results of operations depend in large part on sales
to new enterprise customers and increasing sales to existing
customers. The length of our sales cycle, from initial contact from
a prospective customer to contractually committing to one or more
of our offerings, can vary substantially from customer to customer
based on a number of factors, including deal complexity,
implementation time and the need for our customers to satisfy their
own internal requirements and processes, as well as whether a sale
is made directly by us or by one of our resellers or other
partners. It is difficult to predict exactly when, or even if, we
will make a sale to a potential customer, or if and when we can
increase sales to our existing customers. As a result, large
individual sales have, in some cases, occurred in quarters
subsequent to those we anticipated, or have not occurred at all.
Because a substantial proportion of our expenses are relatively
fixed in the short term, our results of operations will suffer if
revenue falls below our expectations in a particular quarter, which
could cause the price of our ordinary shares to decline.
Expansion into markets outside the United States is important to
the growth of our business, and if we do not manage the business
and economic risks of international expansion effectively, it could
materially and adversely affect our business, financial condition
and results of operations.
Our future
success depends, in part, on our ability to sustain and expand our
penetration of the international markets in which we currently
operate and to expand into additional international markets. Our
ability to expand internationally will depend upon our ability to
deliver functionality and other features that reflect the needs and
preferences of the international customers that we target and to
successfully navigate the risks inherent in operating a business
internationally. The continued expansion of our international
operations will subject us to new risks and may increase risks that
we currently face, including risks associated with:
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recruiting and retaining talented and capable employees
outside of Israel and the United States, and maintaining our
Company culture across all of our offices;
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providing our platform and operating our business across a
significant distance, in different languages and among different
cultures, including the potential need to modify our platform and
features to reflect local languages and to ensure that they are
culturally appropriate and relevant in different countries;
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slower than anticipated availability and adoption of cloud and
technology infrastructures by international businesses;
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the applicability of evolving and potentially inconsistent
international laws and regulations, including laws and regulations
with respect to tariffs, privacy, data protection, data security,
consumer protection and unsolicited email, and the risk of
penalties to our customers, users and individual members of our
executive leadership team or other employees if our practices are
deemed to be out of compliance;
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operating in jurisdictions that do not protect intellectual
property rights to the same extent as does the United States;
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our need to rely on local partners including in connection
with joint venture or other arrangements like our Japanese
subsidiary, WalkMe K.K., to penetrate certain geographic regions,
which may make us dependent on such local partners to implement our
growth strategy. See “Operating and Financial Review and
Prospects—Commitments and Contractual Obligations—WalkMe
K.K.”;
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compliance by us and our business partners with
anti-corruption laws, import and export control laws, tariffs,
trade barriers, economic sanctions and other regulatory limitations
on our ability to provide our platform in certain international
markets;
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political and economic instability including instability
arising from the war in Ukraine;
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fluctuations in currency exchange rates;
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double taxation of our international earnings and potentially
adverse tax consequences due to changes in the income and other tax
laws of Israel, the United States or the international
jurisdictions in which we operate, including the complexities
of foreign value added tax (or other tax) systems, and
restrictions on the repatriation of earnings;
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higher costs of doing business internationally, including
increased accounting, travel, infrastructure and legal compliance
costs;
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different labor regulations, especially in the European Union,
where labor laws are generally more advantageous to employees as
compared to the United States, including deemed hourly wage and
overtime regulations in these locations;
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the ongoing COVID-19 pandemic, or any other pandemic, epidemic
or outbreak of infectious disease, including uncertainty regarding
what measures the United States or foreign governments will take in
response;
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the implementation of exchange controls, including
restrictions promulgated by the United States Department of
the Treasury’s Office of Foreign Assets Control (“OFAC”), and
other similar trade protection regulations and measures in the
United States, Israel or in other jurisdictions;
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reduced ability to timely collect amounts owed to us by our
customers in countries where our recourse may be more
limited;
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limitations on our ability to reinvest earnings from
operations derived from one country to fund the capital needs of
our operations in other countries;
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potential changes in laws,
regulations, and costs affecting our United Kingdom (“UK”)
operations and personnel due to Brexit;
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as an Israeli company, we are subject to Israeli laws
concerning governmental access to data and the risk, or perception
of risk, of such access may making our platform less attractive to
organizations outside Israel, and compliance with such Israeli
laws may conflict with legal obligations that we, or other
organizations on our platform, may be subject to in other
countries; and
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exposure to liabilities under anti-corruption and anti-money
laundering laws, including the U.S. Foreign Corrupt Practices Act
of 1977, as amended, and similar applicable laws and regulations in
other jurisdictions.
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While we have
invested, and expect to continue to invest, significant
resources in our international operations and
expansion, it is possible that returns on such investments will not
be achieved in the near future or at all in these less familiar
competitive and regulatory environments. Compliance with laws and
regulations applicable to our global operations could substantially
increase our cost of doing business in international jurisdictions,
and any violations could result in enforcement actions, fines,
civil and criminal penalties, damages, injunctions, or reputational
harm. If we are unable to comply with these laws and regulations or
manage the difficulties and challenges described above and any
other problems we encounter in connection with our international
operations and expansion, our business, financial condition and
results of operations could be materially and adversely
affected.
We
expect our revenue mix to vary over time, which could harm our
gross margin and results of operations.
Our gross
margins and results of operations could be harmed by changes in our
revenue mix between subscription and professional services and
associated costs resulting from any number of factors, including an
increase in the number of partner-assisted sales; entry into new
markets or growth in lower margin markets; entry into markets with
different pricing and cost structures; pricing discounts; and
increased price competition. Any one of these factors or the
cumulative effects of certain of these factors may result in
significant fluctuations in our gross margin and results of
operations. This variability and unpredictability could result in
our failure to meet internal expectations or those of securities
analysts or investors for a particular period. If we fail to meet
or exceed such expectations for these or any other reasons, the
market price of our ordinary shares could decline.
Catastrophic events, or man-made problems such as war or terrorism,
including the rapidly escalating war in Ukraine, may disrupt our
business.
A significant
natural disaster, such as an earthquake, fire, flood, or
significant power outage could have an adverse impact on our
business, financial condition and results of operations. A number
of our executive officers and other employees, as well as our
customers and partners, are located in the San Francisco Bay Area,
a region known for seismic activity and increasingly, wildfires. In
the event our or our customers’ or partners’ operations are
hindered by any of the events discussed above, sales could be
delayed, resulting in missed financial targets for a particular
reporting period. In addition, acts of terrorism, war, such as the
ongoing and rapidly escalating conflict in Ukraine, pandemics, such
as the ongoing COVID-19 pandemic or any other pandemic, epidemic,
outbreak of infectious disease or other public health crisis,
protests, riots and other geo-political unrest could cause
disruptions in our business or the businesses of our customers,
partners, or the economy as a whole. For example, we have a
small software development team based in Kyiv, Ukraine that has
been disrupted by the recent outbreak of war in that country.
While we have not experienced a material impact on our product
roadmap due to this disruption, the human cost to our employees as
well as the potential for broader, adverse impacts of this war,
including heightened operating risks in Ukraine and Europe,
additional sanctions or counter-sanctions, heightened inflation,
cyber attacks, higher energy costs and higher supply chain costs,
as well as broader impact on global and regional economies, is
difficult to measure, and the ultimate impact of such events on our
business is difficult to predict. Any disruption in the
businesses of our customers or partners could have a significant
adverse impact on our results. All of the aforementioned risks may
be further increased if our disaster recovery plans or those of our
customers or partners prove to be inadequate.
We are
exposed to fluctuations in currency exchange rates, which could
negatively affect our financial condition and results of
operations.
Our functional
currency is the U.S. dollar and our revenue and expenses are
primarily denominated in U.S. dollars, with the exception of WalkMe
K.K our Japanese subsidiary, for which the Japanese Yen is the
functional currency. However, a significant portion of our
headcount related expenses, consisting principally of salaries and
related personnel expenses as well as leases and certain other
operating expenses, are denominated in NIS. This foreign currency
exposure gives rise to market risk associated with exchange rate
movements of the U.S. dollar against the New Israeli Shekels (NIS).
Furthermore, we anticipate that a material portion of our expenses
will continue to be denominated in NIS.
In addition,
increased international sales have resulted and, in the future, may
result in greater foreign currency denominated sales, increasing
our foreign currency risk. Moreover, operating expenses incurred
outside the United States and denominated in foreign currencies are
increasing and are subject to fluctuations due to changes in
foreign currency exchange rates. If we are not able to successfully
hedge against the risks associated with currency fluctuations, our
financial condition and results of operations could be adversely
affected. While we may decide to continue to enter into hedging
transactions in the future, the availability and effectiveness of
these hedging transactions may be limited and we may not be able to
successfully hedge our exposure, which could adversely affect our
financial condition and results of operations.
We may
need to raise additional funds to finance our future capital needs,
which may dilute the value of our outstanding ordinary shares or,
if we are unable to raise sufficient additional funds, may prevent
us from growing our business.
Historically,
we have funded our operations and capital expenditures primarily
through our operating cash flows and the net proceeds we have
received from sales of equity securities. Although we believe that
our existing cash and cash equivalents and short-term bank
deposits, together with cash flow from operations, net proceeds
from sales of committed equity securities and the funds available
under our Revolving Credit Facility, will be sufficient to support
our liquidity and capital requirements for at least the next 12
months, we may need to raise additional funds to finance our
existing and future capital needs,
including developing new services and
technologies, and to fund ongoing
operating expenses. If we raise additional funds through the sale
of equity securities, these transactions may dilute the value of
our outstanding ordinary shares. We may also decide to issue
securities, including protected securities, that have rights,
preferences and privileges senior to our ordinary shares. We may
also incur debt. Any debt financing would increase our level of
indebtedness and could negatively affect our liquidity and restrict
our operations. We also can provide no assurances that the funds we
raise will be sufficient to finance any future capital
requirements. We may be unable to raise additional funds on terms
favorable to us or at all. In particular, the widespread COVID-19
pandemic, including variants, has resulted in, and may continue to
result in, significant disruption of global financial markets,
reducing our ability to access capital. If we are unable to raise
additional capital or generate sufficient cash flows, we may be
unable to fund our future needs. This may prevent us from
increasing our market share, capitalizing on new business
opportunities or remaining competitive in our industry, which could
materially and adversely affect our business, prospects, financial
condition and results of operations.
Our
executive leadership team has limited experience managing a public
company, and the requirements of being a public company may strain
our resources, divert the attention of our executive leadership
team, and affect our ability to attract and retain qualified board
members.
As a public
company listed in the United States, we will incur significant
additional legal, accounting, and other expenses. In addition,
changing laws, regulations, and standards relating to corporate
governance and public disclosure, including regulations implemented
by the SEC and Nasdaq, may increase legal and financial compliance
costs, and make some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
and as a result, their application in practice may evolve over time
as new guidance is provided by regulatory and governing
bodies.
Most members of
our executive leadership team have no or limited experience
managing a publicly traded company, interacting
with public company investors and
complying with the increasingly
complex laws pertaining to public companies in the United
States. Our executive leadership team may not successfully or
efficiently manage our transition to being a public company subject
to significant regulatory oversight and reporting obligations under
the U.S. federal securities laws and the continuous scrutiny of
securities analysts and investors. We also intend to invest
resources to comply with evolving laws, regulations, and standards,
and these new obligations and constituents will require significant
attention from our executive leadership team and could divert their
attention away from the day-to-day management of our business. If,
notwithstanding our efforts, we fail to comply with new laws,
regulations, and standards, regulatory authorities may initiate
legal proceedings against us and our business, financial condition
and results of operations may be harmed.
Failure to
comply with these rules might also make it more difficult for us to
obtain certain types of insurance, including director and officer
liability insurance, and we might be forced to accept reduced
policy limits and coverage or incur substantially higher costs to
obtain the same or similar coverage. The impact of these events
would also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors, on committees
of our board of directors or as members of our executive leadership
team.
Sales to
government entities and highly regulated organizations are subject
to a number of challenges and risks.
We sell to U.S.
federal, state, and local, as well as foreign, governmental agency
customers, as well as to customers in highly regulated industries
such as financial services, telecommunications and healthcare.
Sales to such entities are subject to a number of challenges and
risks. Selling to such entities can be highly competitive,
expensive, and time-consuming, often requiring significant upfront
time and expense without any assurance that these efforts will
generate a sale. Government contracting requirements may change and
in doing so restrict our ability to sell into the government sector
until we have attained the revised certification. Government demand
and payment for our products are affected by public sector
budgetary cycles and funding authorizations, with funding
reductions or delays adversely affecting public sector demand for
our products. Additionally, any actual or perceived privacy, data
protection, or data security incident, or even any perceived defect
with regard to our practices or measures in these areas, may
negatively impact public sector demand for our products.
We also often
provide technical support services to certain of our government
entity customers to resolve any issues relating to our products. If
we do not effectively assist our government entity customers in
deploying our products, succeed in helping our government entity
customers quickly resolve post-deployment issues, or provide
effective ongoing support, our ability to sell additional products
to new and existing government entity customers would be adversely
affected and our reputation could be damaged.
Further,
governmental and highly regulated
entities may demand contract terms
that differ from our standard arrangements and
are less favorable than terms agreed with private sector customers.
Such entities may have statutory, contractual, or other legal
rights to terminate contracts with us for convenience or due to a
default, and any such termination may
adversely affect our future results
of operations. Governments routinely investigate and
audit government contractors’ administrative processes, and any
unfavorable audit could result in the government refusing to
continue buying our subscriptions, a reduction of revenue, or fines
or civil or criminal liability if the audit uncovers improper or
illegal activities, which could adversely affect our results of
operations in a material way.
We are
exposed to credit risk and fluctuations in the market values of our
investment portfolio.
Given the
global nature of our business we have diversified U.S. and non-U.S.
investments. Credit ratings and pricing of our investments can be
negatively affected by liquidity, credit deterioration, financial
results, economic risk, political risk, sovereign
risk, or other factors. As a
result, the value and liquidity
of our investments may fluctuate substantially. Therefore,
although we have not realized any significant losses on our
investments, future fluctuations in their value could result in a
significant realized loss.
Risks Related to
Information Technology, Intellectual Property and Data Security and
Privacy
If we or
our third-party service providers experience a security breach or
unauthorized parties otherwise obtain access to our customers’
data, our data or our platform, our solution may be perceived as
not being secure, our reputation may be harmed, demand for our
platform and products may be reduced, and we may incur significant
liabilities.
Our platform
and products involve the collection, storage, processing,
transmission and other use of data, including certain confidential,
sensitive, and personal information. More generally, in the
ordinary course of our business, we collect, store, transmit and
otherwise process large amounts of sensitive corporate, personal
and other information, including intellectual property, proprietary
business information, and other confidential information. Any
security breach, data loss, or other compromise, including those
resulting from a cybersecurity attack, phishing attack, or any
unauthorized access, unauthorized usage, virus or similar breach or
disruption could result in the loss or destruction of or
unauthorized access to, or use, alteration, disclosure, or
acquisition of, data, damage to our reputation, loss of
intellectual property protection, claims and litigation, regulatory
investigations, or other liabilities. We have experienced and
expect to continue to experience attempted cyber-attacks of our IT
networks, such as through phishing scams and ransomware. Although
none of these attempted cyber-attacks has had a material adverse
impact on our operations or financial condition, we cannot
guarantee that such incidents will not have such an impact in the
future. For example, we may become the target of
cyber-attacks by third parties seeking unauthorized access to our
or our customers’ data or to disrupt our ability to provide our
services. These attacks may come from individual hackers, criminal
groups, and state-sponsored organizations. Ransomware attacks,
including those from organized criminal threat actors,
nation-states, and nation-state supported actors, are becoming
increasingly prevalent and severe, and can lead to significant
interruptions in our operations, loss of data and income,
reputational loss, diversion of funds, and may result in fines,
litigation and unwanted media attention. Extortion payments may
alleviate the negative impact of a ransomware attack, but we may be
unwilling or unable to make such payments due to, for example,
applicable laws or regulations prohibiting payments. Additionally,
companies have, in general, experienced an increase in phishing,
social engineering and other attacks from third parties in
connection with the COVID-19 pandemic, and the increase
in remote working further increases these and other security
threats. While we experience cyber-attacks and other security
incidents of varying degrees from time to time, none have
individually or in the aggregate led to costs or consequences
which have materially impacted our operations or business. If our
security measures are breached as a result of third-party action,
employee error or negligence, a defect or bug in our offerings or
those of our third-party service providers, malfeasance or
otherwise and, as a result, someone obtains unauthorized access to
any data, including our confidential, sensitive, or personal
information or the confidential, sensitive, or personal information
of our customers, or other persons, or any of these types of
information is lost, destroyed, or used, altered, disclosed, or
acquired without authorization, or if any of the foregoing is
perceived to have occurred, our reputation may be damaged, our
business may suffer, and we could incur significant liability,
including under applicable data privacy and security laws and
regulations. Even the perception of inadequate security may damage
our reputation and market position, negatively impacting our
ability to win new customers and retain and receive timely payments
from existing customers. Further, we could be required to expend
significant capital and other resources to protect against and
address any data security incident or breach, which may not be
covered or fully covered by our insurance and which may involve
payments for investigations, forensic analyses, regulatory
compliance, breach notification, legal advice, public relations
advice, system repair or replacement, or other services. We and our
third-party vendors and service providers also may face
difficulties or delays in identifying or responding to, and
remediating and otherwise responding to, cyberattacks and other
security breaches and incidents. We have incurred substantial costs
in efforts to protect against and address potential impacts of
security breaches and incidents, and anticipate doing so in the
future.
In addition, we
do not directly control content that our customers transmit to or
with, or store in, our products. If our customers use our products
for the transmission or storage of personally identifiable
information or other sensitive information and our security
measures are or are believed to have been breached as a result of
third party action, employee error, malfeasance or otherwise, our
reputation could be damaged, our business may suffer, and we could
incur significant liability.
We engage
third-party vendors and service providers to store and otherwise
process some of our and our customers’ data, including personal,
confidential, sensitive, and other information about individuals.
Our vendors and service providers may also be the targets of
cyberattacks, malicious software, phishing schemes, and fraud. Our
ability to monitor our vendors and service providers’ data security
is limited, and, in any event, third parties may be able to
circumvent those security measures, resulting in the unauthorized
access to, misuse, acquisition, disclosure, loss, alteration, or
destruction of our and our customers’ data, including confidential,
sensitive, and other information about individuals.
Where a
security incident involves a breach of security leading to the
accidental or unlawful destruction, loss, alternation, unauthorized
disclosure of, or access to, personal data, this could result in
fines of up to EUR 20 million or 4% of annual global turnover
under the General Data Protection Regulation 2016/679 (the “GDPR”)
or £17 million and 4% of total annual revenue in the case of
the UK General Data Protection Regulation and the UK Data
Protection Act 2018 (together, the “UK GDPR”). We may also be
required to notify such breaches to regulators and/or individuals
and operate to mitigate damages, which may result in us incurring
additional costs. Techniques used to sabotage or obtain
unauthorized access to systems or networks are constantly evolving
and, in some instances, are not identified until after they have
been launched against a target. We and our service providers may be
unable to anticipate these techniques, react in a timely manner, or
implement adequate preventative and mitigating measures. If we are
unable to efficiently and effectively maintain and upgrade our
system safeguards, we may incur unexpected costs and certain of our
systems may become more vulnerable to unauthorized access or
disruption. Any of the foregoing could have a material adverse
effect on our business, financial condition, results of operations,
market position, and reputation.
A real
or perceived defect, security vulnerability, error, or performance
failure in our products could cause us to lose revenue, damage our
reputation, and expose us to liability.
Our products
are inherently complex and, despite extensive testing and quality
control, have in the past and may in the future contain defects or
errors, especially when first introduced, or not perform as
contemplated. These defects, security vulnerabilities, errors, or
performance failures could cause damage to our reputation, loss of
customers or revenue, subscription cancellations, service
terminations, or lack of market acceptance of our products. As the
use of our products among new and existing customers expands,
particularly to more sensitive, secure, or mission critical uses,
we may be subject to increased scrutiny, potential reputational
risk, or potential liability should our products fail to perform as
contemplated in such deployments. We have in the past and may in
the future need to issue corrective releases of our products to fix
these defects, errors or performance failures, which could require
us to allocate significant research and development and customer
support resources to address these problems. Despite our efforts,
such corrections may take longer to develop and release than we or
our customers anticipate and expect.
Any limitation
of liability provisions that may be contained in our customer,
user, third-party vendor, service provider, partner and other
agreements may not be enforceable or adequate or effective as a
result of existing or future applicable law or unfavorable judicial
decisions, and they may not function to limit our liability arising
from regulatory enforcement. In addition, some of our customer,
user, third-party vendor, service provider, partner and other
agreements are not capped or limited, either generally or, in some
cases, with respect to certain liabilities. The sale and support of
our products entail the risk of liability claims, which could be
substantial in light of the use of our products in enterprise-wide
environments. In addition, our insurance against any such liability
may not be adequate to cover a potential claim, and may be subject
to exclusions, or subject us to the risk that the insurer will deny
coverage as to any future claim or exclude from our coverage such
claims in policy renewals, increase our fees or deductibles or
impose co-insurance requirements. Any such bugs, defects,
security vulnerabilities, errors, or other performance failures in
our platform or products, including as a result of denial of claims
by our insurer or the successful assertion of claims by others
against us that exceed available insurance coverage, or the
occurrence of changes in our insurance policies, including
increases or the imposition of large deductible
or co-insurance requirements, could have a material
adverse effect on our business, financial condition, results of
operations and reputation.
Incorrect use of, or our customers’ failure to update, our products
could result in customer dissatisfaction and negatively affect our
business, operations, financial results, and growth
prospects.
Our products
are often operated in large scale, complex IT environments. Our
customers require training and experience in the proper use of, and
the benefits that can be derived from, our products to maximize
their potential. If users of our products do not implement, use, or
update them correctly or as intended, then actual or perceived
performance inadequacies and/or security vulnerabilities may
result. Because our customers rely on our products to manage a wide
range of operations, the incorrect implementation or use of, or our
customers’ failure to update, our products, or our failure to train
customers on how to use our products, may result in customer
dissatisfaction and negative publicity, which may adversely affect
our reputation and brand. Our customers’ failure to be effectively
trained or implement our products could result in lost
opportunities for follow-on sales to these customers and
decrease subscriptions by new customers, which would adversely
affect our business, financial condition, results of operations and
growth prospects.
Insufficient investment in, or interruptions or performance
problems associated with, our technology and infrastructure, and
our reliance on technologies from third parties, including
third-party cloud providers, may adversely affect our business,
financial condition and results of operations.
Our continued
growth depends in part on the ability of our existing and potential
customers to access our platform at any time, within an acceptable
timeframe and without interruption or degradation of performance.
We have experienced, and may in the future experience, disruptions,
outages, and other performance problems, which may be caused by a
variety of factors, including infrastructure changes, introductions
of new functionality, human or software errors, denial of service
attacks, or other security related incidents. If our products and
platform capabilities are unavailable or if our customers or other
users are unable to access our products and platform capabilities
within a reasonable amount of time or at all, we may experience a
loss of customers, lost or delayed market acceptance of our
platform and products, delays in payment to us by customers, injury
to our reputation and brand, legal claims against us, and the
diversion of our resources. In addition, to the extent that we do
not effectively upgrade our systems as needed and continually
develop our technology and network architecture to accommodate
actual and anticipated changes in technology, our business,
financial condition and results of operations may be adversely
affected.
In addition,
the operation of our platform depends on third-party cloud
providers, hosting services and other third-party service
providers. Our cloud providers run their own platforms that we
access, and we are therefore vulnerable to their service
interruptions and any changes in their product offerings. Any
limitation on the capacity of our third-party hosting services
could impede our ability to onboard new customers or expand the
usage of our existing customers, which could adversely affect our
business, financial condition and results of operations. In
addition, any incident affecting our third-party cloud providers’
infrastructure, including cyber-attacks, computer viruses, malware,
systems failures or other technical malfunctions, natural
disasters, fire, flood, severe storm, earthquake, power loss,
telecommunications failures, terrorist or other attacks, protests
or riots, and other similar events beyond our control, could
negatively affect our offerings. It is also possible that our
customers and regulators would seek to hold us accountable for any
breach of security affecting a third-party cloud provider’s
infrastructure and we may incur significant liability in
investigating such an incident and responding to any claims,
investigations, or proceedings made or initiated by those
customers, regulators, and other third parties. We may not be able
to recover a material portion of such liabilities from any of our
third-party cloud providers. In addition, it may become
increasingly difficult to maintain and improve our performance,
especially during peak usage times, as our products becomes more
complex and the usage of our products increases. Moreover, our
insurance may not be adequate to cover such liability and may be
subject to exclusions. Any of the above circumstances or events may
adversely affect our business, financial condition and results of
operations.
Furthermore,
our website and internal technology infrastructure may experience
performance issues due to a variety of factors, including
infrastructure changes, human or software errors, website or
third-party hosting disruptions, capacity constraints, technical
failures or natural disasters, or
fraud, denial-of-service or other security attacks. Our
use and distribution of open source software may increase this
risk, as open source licensors generally do not provide warranties
or other contractual protections regarding infringement claims or
the quality of the code, including with respect to security
vulnerabilities or bugs. If our website is unavailable or our
customers are unable to order subscriptions or services or download
our offerings within a reasonable period of time or at all, our
business could be adversely affected. We expect to continue to make
significant investments to maintain and improve website performance
and to enable rapid releases of new features, integrations,
capabilities and other enhancements for our offerings. To the
extent that we do not effectively upgrade our systems as needed and
continually develop our technology to accommodate actual and
anticipated changes in technology, our business, financial
condition and results of operations may be adversely
affected.
In the event
that our service agreements with our third-party hosting services
are terminated, or there is a lapse of service, elimination of
services or features that we utilize, interruption of internet
service provider connectivity or damage to our providers’
facilities, we could experience interruptions in access to our
platform as well as significant delays and additional expense in
arranging or creating new facilities and services and/or
re-architecting our offerings for deployment on a different
cloud infrastructure service provider, which could adversely affect
our business, financial condition and results of operations. Upon
the termination or expiration of such service agreements, we cannot
guarantee that adequate third-party hosting services will be
available to us from the same or different hosting services
providers on commercially acceptable terms or within adequate
timelines or at all.
We also rely on
cloud technologies from third parties in order to operate critical
functions of our business, including financial management services,
relationship management services, and lead generation management
services. If these services become unavailable due to extended
outages or interruptions or because they are no longer available on
commercially reasonable terms or prices, our expenses could
increase, our ability to manage our finances could be interrupted,
our processes for managing sales of our products and supporting our
customers could be impaired, and our ability to generate and manage
sales leads could be weakened until equivalent services are
identified, obtained, and implemented. Even if such services are
available, we may not be able to identify, obtain and implement
such services in time to avoid disruption to our business, and such
services may only be available on a more costly basis or otherwise
less favorable terms. Any of the foregoing could have a material
adverse effect on our business, including our financial condition,
results of operations and reputation.
Failure
to protect or enforce our rights in our proprietary technology,
brand and intellectual property could substantially harm our
business and results of operations.
Our success
depends to a significant degree on our ability to protect our
rights in our proprietary technology,
methodologies, know-how, and brand. We rely on a
combination of trademark, copyright, patent, trade secret and other
intellectual property laws as well as contractual restrictions and
confidentiality procedures to establish and protect our proprietary
rights. However, we currently make certain components of our
products available under open source licenses and release internal
software projects under open source licenses, and anticipate doing
so in the future in order to, among other things, encourage and
develop a marketplace where third parties can create complementary
products that will be able to connect to our Digital Adoption
Platform. Because the source code of the components that we
distribute under open source licenses is publicly available, our
ability to monetize and protect our intellectual property rights
with respect to such source code may be limited or, in some cases,
lost entirely. Our competitors could access such source code and
use it to create software and service offerings that compete with
ours.
Further, the
steps we take to protect and enforce our intellectual property
rights may be inadequate. We may not be able to register our
intellectual property rights in all jurisdictions where we conduct
or anticipate conducting business, and may experience conflicts
with third parties who contest our applications to register our
intellectual property. Even if registered or issued, we cannot
guarantee that our trademarks, patents, copyrights or other
intellectual property or proprietary rights will be of sufficient
scope or strength to provide us with any meaningful protection or
commercial advantage. Not all of our key intellectual property is
eligible for patent protection or can otherwise be registered. We
will not be able to protect our intellectual property rights if we
are unable to enforce our rights or if we do not detect
unauthorized use of our intellectual property rights. Despite our
precautions, it may be possible for unauthorized third parties to
copy our products and use information that we regard as proprietary
to create offerings that compete with ours. If we fail to defend
and protect our intellectual property rights adequately, our
competitors and other third parties may gain access to our
proprietary technology, information
and know-how, reverse-engineer our products, and infringe
upon or dilute the value of our brand, and our business may be
harmed. In addition, obtaining, maintaining, defending, and
enforcing our intellectual property rights might entail significant
expense. Any patents, trademarks, copyrights, or other intellectual
property rights that we have or may obtain may be challenged by
others or invalidated through administrative process or litigation.
Even if we continue to seek patent protection in the future, we may
be unable to obtain further patent protection for our technology.
In addition, any patents issued in the future may not provide us
with competitive advantages, may be designed around by our
competitors, or may be successfully challenged by third parties.
Furthermore, legal standards relating to the validity,
enforceability, and scope of protection of intellectual property
rights are uncertain.
We may be
unable to prevent third parties from acquiring domain names or
trademarks that are similar to, infringe upon, dilute or diminish
the value of our trademarks and other proprietary rights.
Additionally, our trademarks may be opposed, otherwise challenged
or declared invalid, unenforceable or generic, or determined to be
infringing on or dilutive of other marks. We may not be able to
protect our rights in these trademarks, which we need in order to
build name recognition with customers. If third parties succeed in
registering or developing common law rights in such trademarks and
we are not successful in challenging such third-party rights, or if
our trademark rights are successfully challenged, we may not be
able to use our trademarks to commercialize our products in certain
relevant jurisdictions.
Effective
patent, trademark, copyright, and trade secret protection may not
be available to us in every country in which our products are
available. The laws of some countries may not be as protective of
intellectual property rights as those in the United States, and
mechanisms for enforcement of intellectual property rights may be
inadequate. As we continue to expand our international activities,
our exposure to unauthorized copying and use of our products and
proprietary information will likely increase. Accordingly, despite
our efforts, we may be unable to prevent third parties from
infringing upon, diluting, misappropriating or otherwise violating
our intellectual property rights.
We enter into
confidential, non-compete, proprietary, and inventions
assignment agreements with our employees and consultants and enter
into confidentiality agreements with other parties. No assurance
can be given that these agreements will grant all necessary rights
to any inventions that may have been developed by the employees or
consultants party thereto or be effective in controlling access to
and distribution of our proprietary information, especially in
certain states and countries, including Israel, that are less
willing to enforce such agreements in certain cases. Further, these
agreements may not prevent our competitors from independently
developing technologies that are substantially equivalent or
superior to our products.
Policing and
defending against unauthorized use of
our know-how, technology and intellectual property is
difficult, costly, time-consuming and may not be effective. Third
parties may knowingly or unknowingly infringe our intellectual
property rights. We may be required to spend significant resources
to monitor and protect our intellectual property rights. Litigation
may be necessary in the future to enforce our intellectual property
rights and to protect our trade secrets. Litigation brought to
protect and enforce our intellectual property rights could be
costly, time-consuming, and distracting to our executive leadership
team and other employees, and could result in substantial
royalties, license fees or other damages, or in the impairment or
loss of portions of our intellectual property. Further, our efforts
to enforce our intellectual property rights may be met with
defenses, counterclaims, and countersuits attacking the validity
and enforceability of our intellectual property rights. Our
inability to protect our proprietary technology against
unauthorized copying or use, as well as any costly litigation or
diversion of the attention and resources of our executive
leadership team or other employees, could delay further sales or
the implementation of our products, require us to reengineer or
impair the functionality of our products, delay introductions of
new products, result in our substituting inferior or more costly
technologies into our products, or injure our reputation. Any of
the foregoing could materially and adversely affect our business,
financial condition, results of operations and growth
prospects.
We could
incur substantial costs and other harm to our business and results
of operations as a result of any claim of infringement,
misappropriation or other violation of another party’s intellectual
property rights.
In recent
years, there has been significant litigation involving patents and
other intellectual property rights in our industry. Compared to
many larger, more established companies in our industry, we do not
currently have a broad patent portfolio, which could prevent us
from deterring patent infringement claims through our own patent
portfolio, and our competitors and others may now and in the future
have significantly broader and more mature patent portfolios than
we have. There is a risk that our operations, platform or
individual solutions may infringe or otherwise violate, or be
alleged to infringe or otherwise violate, the intellectual property
rights of third parties. We could incur substantial costs in
defending any intellectual property litigation. If we are sued by a
third party that claims that our products infringe, misappropriate
or otherwise violate their intellectual property rights, the
litigation could be expensive and could divert our attention and
resources of our executive leadership team or other employees. In
addition, there could be public announcements of the results of
hearings, motions or other interim proceedings or developments, and
if securities analysts or investors perceive these results to be
negative, it could have a material adverse effect on the price of
our ordinary shares.
Any
intellectual property litigation to which we might become a party,
or for which we are required to provide indemnification, regardless
of the merit of the claim or our defense, may require us to do one
or more of the following:
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cease selling or using products or technology that incorporate
or cover the intellectual property rights that we allegedly
infringe, misappropriate or otherwise violate;
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make substantial payments for royalty or license fees, legal
fees, settlement payments or other costs or damages;
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obtain a license, which may not be available on reasonable
terms or at all, to sell or use the relevant technology or
intellectual property; or
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redesign the allegedly infringing products or technology to
avoid infringement, misappropriation or other violation, which
could be costly, time-consuming or impossible.
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Moreover, any
such litigation could also affect the use of our platform by our
customers, partners, affiliates and other third parties, which may
result and substantial damages to them and to us (including
indemnification obligations). If we are required to make
substantial payments or undertake or suffer any of the other
actions and consequences noted above as a result of any
intellectual property infringement, misappropriation or violation
claims against us or any obligation to indemnify our customers for
such claims, such payments, actions and consequences could
materially and adversely affect our business, financial condition,
results of operations and growth prospects.
Indemnity provisions in various agreements potentially expose us to
substantial liability for intellectual property infringement,
misappropriation, violation, and other losses.
Our agreements
with customers and other third parties may include indemnification
provisions under which we agree to indemnify them for losses
suffered or incurred as a result of claims of intellectual property
infringement, misappropriation or other violation, damages caused
by us to property or persons, or other liabilities relating to or
arising from our products, services or other contractual
obligations. Large indemnity payments could harm our business,
financial condition and results of operations. Although we normally
seek to contractually limit our liability with respect to such
indemnity obligations, we do not and may not in the future have a
cap on our liability in certain agreements, which could result in
substantial liability, and we may still incur significant liability
under agreements that do have such a cap. Moreover, even if
contractually capped or limited, such limitations and caps may not
always be enforceable. Any dispute with a customer or other third
party with respect to such obligations could have adverse effects
on our relationship with that customer, other existing customers
and new customers, and other parties, and could harm our
reputation, business, financial condition and results of
operations.
We are
subject to stringent and changing laws, regulations, standards, and
contractual obligations related to privacy, data protection, and
data security. Our actual or perceived failure to comply with such
obligations could result in significant liability or reputational
harm to our business.
We are subject
to numerous laws, directives and regulations, in multiple
jurisdictions and territories, regarding privacy, data protection,
and data security and the collection, storing, sharing, use,
processing, transfer, disclosure, and protection of personal
information and other data, the scope and extent of which are
complex, changing, subject to differing interpretations, and may be
inconsistent among jurisdictions or conflict with other legal and
regulatory requirements. We are also subject to certain contractual
obligations to third parties related to privacy, data protection
and data security, and may comply with, or face asserted or actual
obligations to comply with, self-regulatory frameworks and other
standards. While we strive to comply with our applicable policies
and applicable laws, regulations, contractual obligations, and
other actual and alleged legal obligations relating to privacy,
data protection, and data security, we may not be successful in
complying with the rapidly evolving privacy, data protection, and
data security requirements to which we are subject. Further, any
significant change to applicable laws, regulations or industry
practices regarding the collection, use, retention, security or
disclosure of data, or their interpretation, or any changes
regarding the manner in which the consent of users or other data
subjects for the collection, use, retention or disclosure of such
data must be obtained, could increase our costs and require us to
modify our services and features, possibly in a material manner,
which we may be unable to complete, and may limit our ability to
store and process user data or develop new services and
features.
If we were
found in violation of any applicable laws or regulations relating
to privacy, data protection, or security, or faced claims or
accusations of such violations, our business may be materially and
adversely affected and we would likely have to change our business
practices and potentially the services and features available
through our platform. In addition, these laws and regulations could
impose significant costs on us and could constrain our ability to
use and process data in manners that may be commercially desirable.
In addition, if a breach of data security or security incident were
to occur or to be alleged to have occurred, if any violation of
laws and regulations relating to privacy, data protection or data
security were to be alleged, or if we had any actual or alleged
defect in our safeguards or practices relating to privacy, data
protection, or data security, our solutions may be perceived as
less desirable and our business, financial condition, market
position, reputation, results of operations and growth prospects
could be materially and adversely affected.
We expect that
there will continue to be new laws, regulations, and industry
standards concerning privacy, data protection, and data security
proposed and enacted in various jurisdictions, and to which we may
become subject. For example, the California Consumer Privacy Act
(“CCPA”), which came into force in 2020, provides new data privacy
rights for California consumers and new operational requirements
for covered companies. Specifically, the CCPA mandates that covered
companies provide new disclosures to California consumers and
afford such consumers new data privacy rights that include, among
other things, the right to request a copy from a covered company of
the personal information collected about them, the right to request
deletion of such personal information, and the right to request
to opt-out of certain sales of such personal information.
The California Attorney General can enforce the CCPA, including
seeking an injunction and civil penalties for violations. The CCPA
also provides a private right of action for certain data breaches
that is expected to increase data breach litigation. Additionally,
a new privacy law, the California Privacy Rights Act (“CPRA”), was
approved by California voters in late 2020. The CPRA generally
takes effect on January 1, 2023 and significantly modifies the
CCPA, including by expanding consumers’ rights with respect to
certain personal information and creating a new state agency to
oversee implementation and enforcement efforts. Some observers have
noted the CCPA and CPRA could mark the beginning of a trend toward
more stringent privacy legislation in the United States, which
could also increase our potential liability and adversely affect
our business. In addition, the CCPA has encouraged “copycat” or
other similar laws to be considered and proposed in other states
across the country.For example, Virginia and Colorado have enacted
the Consumer Data Protection Act (“VCDPA”) and the Colorado Privacy
Act (“COPA”), respectively, which will go into effect in 2023 and
will impose obligations similar to or more stringent than those we
may face under other data protection laws. Broad federal privacy
legislation also has been proposed. Recent and new state and
federal legislation relating to privacy may add additional
complexity, variation in requirements, restrictions and potential
legal risk, require additional to compliance programs, could impact
strategies and availability of previously useful data and could
result in increased compliance costs and/or changes in business
practices and policies.
We are also
subject to data privacy and security laws in jurisdictions outside
of the United States. We are subject to, among other laws and
regulations, the GDPR, and the UK GDPR, which each impose a strict
data protection compliance regime in relation to our collection,
control, processing, sharing, disclosure and other use of data
relating to an identifiable living individual (personal
data). The GDPR and UK GDPR also regulate cross-border
transfers of personal data out of the European Economic Area
(“EEA”) and the UK, respectively.
Recent legal developments in the EU have created complexity and
uncertainty regarding such transfers. On July 16, 2020, the
Court of Justice of the European Union (the “CJEU”) invalidated
the EU-U.S. Privacy Shield Framework (the “Privacy
Shield”) under which personal data could be transferred from the
EEA to relevant self-certified U.S. entities. The CJEU further
noted that reliance on the standard contractual clauses (a standard
form of contract approved by the European Commission as an adequate
personal data transfer mechanism and potential alternative to the
Privacy Shield) alone may not necessarily be sufficient in all
circumstances and that transfers must be assessed on
a case-by-case basis. We currently rely on the
standard contractual clauses to transfer personal information
outside the EEA and the UK, including to the United States.
European court and regulatory decisions subsequent to the CJEU
decision of July 16, 2020 have taken a restrictive approach to
international data transfers, including certain decisions that the
use of Google Analytics by European website operators involves the
unlawful transfer of personal data to the United States. As the
enforcement landscape further develops, and supervisory authorities
issue further guidance on – and revised standard contractual
clauses for - international data transfers, we could: suffer
additional costs, complaints and/or regulatory investigations or
fines; have to stop using certain tools and vendors and make other
operational changes; have to implement revised standard contractual
clauses for existing intragroup, customer and vendor arrangements
within required time frames; and/or it could otherwise affect the
manner in which we provide our services.
Failure to
comply with the GDPR and/ or the UK GDPR could result in penalties
for noncompliance (including possible fines of up to the greater of
€20 million/ £17.5 million or 4% of our global annual turnover
for the preceding financial year for the most serious violations).
In addition to the foregoing, a breach of the GDPR or UK GDPR could
result in regulatory investigations, reputational damage, orders to
cease/change our processing of our data, enforcement notices and/or
assessment notices (for a compulsory audit), and/or civil claims
(including class actions) for compensation or damages.
We are also
subject to evolving EU and UK privacy laws on cookies, tracking
technologies and e-marketing. Recent European court and
regulatory decisions are driving increased attention to cookies and
tracking technologies. If the trend of increasing enforcement by
regulators of the strict approach to opt-in consent for all but
essential use cases in recent guidance and decisions continues,
this could lead to substantial costs, require significant systems
changes, limit the effectiveness of our marketing activities,
divert the attention of our technology personnel, adversely affect
our margins, increase costs and subject us to additional
liabilities. In light of the complex and evolving nature of EEA,
EEA Member State and UK privacy laws on cookies and tracking
technologies, there can be no assurances that we will be successful
in our efforts to comply with such laws; violations of such laws
could result in regulatory investigations, fines, orders to
cease/change our use of such technologies, as well as civil claims
including class action type litigation, and reputational
damage.
In addition, we
are subject to the Israeli Privacy Protection Law 5741-1981 (the
“PPL”), and its regulations, including the Israeli Privacy
Protection Regulations (Data Security) 2017 (“Data Security
Regulations”), which impose obligations with respect to the manner
personal data is processed, maintained, transferred, disclosed,
accessed and secured, as well as the guidelines of the Israeli
Privacy Protection Authority and Amendment No. 40 to
the Communications Law (Telecommunications and Broadcasting),
5742-1982. The Data Security Regulations may require us to adjust
our data protection and data security practices, information
security measures, certain organizational procedures, applicable
positions (such as an information security manager) and other
technical and organizational security measures. Failure to comply
with the PPL, its regulations and guidelines issued by the Israeli
Privacy Protection Authority may expose us to administrative fines,
civil claims (including class actions) and in certain cases
criminal liability. Current pending legislation may result in a
change of the current enforcement measures and sanctions. The
Israeli Privacy Protection Authority may initiate administrative
inspection proceedings, from time to time, without any suspicion of
any particular breach of the PPL, as it has done in the past with
respect to dozens of Israeli companies in various business sectors.
In addition, to the extent that any administrative supervision
procedure is initiated by the Israeli Privacy Protection Authority
and reveals certain irregularities with respect to our compliance
with the PPL, in addition to our exposure to administrative fines,
civil claims (including class actions) and in certain cases
criminal liability, we may also need to take certain remedial
actions to rectify such irregularities, which may increase our
costs.
Any failure or
perceived failure by us to comply with our posted privacy policies,
our privacy-related obligations to users or other third parties, or
any other legal obligations or regulatory requirements relating to
privacy, data protection, or data security, may result in
governmental investigations or enforcement actions, litigation,
claims, or public statements against us by consumer advocacy groups
or others and could result in significant liability, cause our
users to lose trust in us, and otherwise materially and adversely
affect our reputation and business. Furthermore, the costs of
compliance with, and other burdens imposed by, the laws,
regulations, other obligations, and policies that are applicable to
the businesses of our customers and other users may limit the
adoption and use of, and reduce the overall demand for, our
platform. Additionally, if third parties we work with violate
applicable laws, regulations or contractual obligations, such
violations may put our users’ data at risk, could result in
governmental investigations or enforcement actions, fines,
litigation, claims, or public statements against us by consumer
advocacy groups or others and could result in significant
liability, cause our users to lose trust in us, and otherwise
materially and adversely affect our reputation and business.
Further, public scrutiny of, or complaints about, technology
companies or their data handling or data protection practices, even
if unrelated to our business, industry or operations, may lead to
increased scrutiny of technology companies, including us, and may
cause government agencies to enact additional regulatory
requirements, or to modify their enforcement or investigation
activities, which may increase our costs and risks. Any of the
foregoing could materially and adversely affect our business,
financial condition and results of operations.
Our use
of open source software could negatively affect our ability to sell
our products and subject us to possible litigation.
We use “open
source” software in connection with the development and deployment
of our products, including in our products, and we expect to
continue to use open source software in the future. Few of the
licenses applicable to certain open source software that we use
have been interpreted by courts, and there is a risk that these
licenses could be construed in a manner that could impose
unanticipated conditions or restrictions on our ability to
commercialize our products. For example, some open source licenses
may subject us to requirements that we make available, in certain
cases and if the component subject of the open source license is
used in a particular manner, the source code for modifications or
derivative works we create based upon, incorporating, linking to or
using the open source software (which could include valuable
proprietary code), and that we license such modifications or
derivative works under the terms of applicable open source
licenses. If an author or other third party that distributes such
open source software were to allege that we had not complied with
the conditions of one or more of these licenses, we could be
required to incur significant legal expenses defending against such
allegations and could be subject to significant damages, enjoined
from the sale of our products that contain the open source software
and required to comply with onerous conditions or restrictions on
these products, which could disrupt the distribution and sale of
these products. In addition, there have been claims challenging the
ownership rights in open source software against companies that
incorporate open source software into their products, and the
licensors of such open source software provide no warranties or
indemnities with respect to such claims. In any of these events, we
and our customers could be required to seek licenses from third
parties in order to continue offering our products, and
to re-engineer our products or discontinue the sale of
our products in the event re-engineering cannot be
accomplished on a timely basis or at all. We and our customers may
also be subject to suits by parties claiming infringement,
misappropriation or other violation of third-party intellectual
property rights due to the reliance by our solutions on certain
open source software, and such litigation could be costly for us to
defend and subject us to an injunction, payments for damages and
other liabilities and obligations.
Further, in
addition to risks related to license requirements, use of certain
open source software carries greater technical and legal risks than
does the use of third-party commercial software. For example, open
source software is generally provided without any support or
warranties or other contractual protections regarding infringement
or the quality of the code, including the existence of security
vulnerabilities. Some open source projects provided on an “as is”
basis have known or unknown vulnerabilities and architectural
instabilities which, if not properly addressed, could negatively
affect the performance of any product incorporating the relevant
software. To the extent that our platform depends upon the
successful operation of open source software, any undetected errors
or defects in open source software that we use could prevent the
deployment or impair the functionality of our systems and injure
our reputation. In addition, the public availability of such
software may make it easier for others to compromise our platform.
Any of the foregoing could result in lost revenue, require us to
devote additional research and development resources
to re-engineer our solutions, cause us to incur
additional costs and expenses, and result in customer
dissatisfaction, any of which could adversely affect our business,
financial condition and results of operations.
We rely
on software and services licensed from other parties. The loss of
software or services from third parties could increase our costs
and limit the features available in our platform and
products.
Components of
our offerings include various types of software and services
licensed from unaffiliated parties. If any of the software or
services we license from others or functional equivalents thereof
were either no longer available to us or no longer offered on
commercially reasonable terms, we would be required to either
redesign the offerings that include such software or services to
function with software or services available from other parties or
develop these components ourselves, which we may not be able to do
without incurring increased costs, experiencing delays in our
product launches and the release of new offerings. Furthermore, we
might be forced to temporarily limit the features available in our
current or future products. If we fail to maintain or renegotiate
any of these software or service licenses, we could face delays and
diversion of resources in attempting to license and integrate
functional equivalents.
Risks Related to
Other Legal, Regulatory and Tax Matters
Our
business is subject to a variety of laws and regulations, both in
the United States and internationally, many of which are
evolving.
We are subject
to a wide variety of laws and regulations. Laws, regulations and
standards governing issues such as worker classification,
employment, payments, worker confidentiality obligations,
intellectual property, consumer protection, taxation, privacy, data
protection and data security are often complex and subject to
varying interpretations, in many cases due to their lack of
specificity and, as a result, their application in practice may
change or develop over time through judicial decisions or as new
guidance or interpretations are provided by regulatory and
governing bodies, such as federal and state administrative
agencies. Many of these laws were adopted prior to the advent of
the internet and mobile and related technologies and, as a result,
do not contemplate or address the unique issues of the internet and
related technologies. Other laws and regulations may be adopted in
response to internet, mobile and related technologies. New and
existing laws and regulations (or changes in interpretation of
existing laws and regulations) may also be adopted, implemented, or
interpreted to apply to us and other technology companies. As the
geographic scope of our business expands, regulatory agencies or
courts may claim that we, or our customers or users, are subject to
additional requirements, or that we are prohibited from conducting
our business in or with certain jurisdictions.
In addition,
recent financial, political and other events may increase the level
of regulatory scrutiny on technology companies generally.
Regulatory agencies may enact new laws or promulgate new
regulations that are adverse to our business, or they may view
matters or interpret laws and regulations differently than they
have in the past or in a manner adverse to our business. Such
regulatory scrutiny or action may create or further exacerbate
different or conflicting obligations on us from one jurisdiction to
another.
As a result of
the foregoing, we may incur increased costs, be exposed to
increased risk of liability and face additional challenges
expanding our business operations, any of which would adversely
affect our business, financial condition, results of operations and
growth prospects.
Legal,
political, and economic uncertainty surrounding the exit of the
United Kingdom from the EU may be a source of instability to
international markets, create significant currency fluctuations,
adversely affect our operations in the United Kingdom and pose
additional risks to our business, financial condition and results
of operations.
In connection
with Brexit, the United Kingdom formally withdrew from the European
Union and ratified a trade and cooperation agreement governing its
future relationship with the European Union. The agreement, which
is being applied provisionally from January 1, 2021 until it
is ratified by the European Parliament and the Council of the
European Union, addresses trade, economic arrangements, law
enforcement, judicial cooperation and a governance framework
including procedures for dispute resolution, among other things.
Because the agreement merely sets forth a framework in many
respects and will require complex additional bilateral negotiations
between the United Kingdom and the European Union as both parties
continue to work on the rules for implementation, significant
political and economic uncertainty remains about how the precise
terms of the relationship between the parties will differ from the
terms before withdrawal.
These
developments and the continued uncertainty regarding the terms of
the relationship between the United Kingdom and the European Union
post-Brexit may have a material adverse effect on global economic
conditions and the stability of global financial markets, and could
significantly reduce global market liquidity and restrict the
ability of key market participants to operate in certain financial
markets. Asset valuations, currency exchange rates and credit
ratings have been and may continue to be subject to increased
market volatility. Lack of clarity about future UK laws and
regulations as the United Kingdom determines which EU laws to
replace or replicate, including financial laws and regulations, tax
and free trade agreements, tax and customs laws, intellectual
property rights, environmental, health and safety laws and
regulations, immigration laws, employment laws and transport laws
could increase the costs of doing business in the United Kingdom
and depress economic activity. Additionally, the need to comply
with any applicable regulatory changes will likely increase costs
for us and our existing and potential customers located in the
United Kingdom, which could negatively affect demand for our
offerings and the ability of customers to make payments under their
agreements with us. Any of these factors could have a significant
adverse effect on our business, financial condition, results of
operations and prospects.
We are
subject to various governmental export control, trade sanctions,
and import laws and regulations that could impair our ability to
compete in international markets or subject us to liability if we
violate these controls.
In some cases,
our products are subject to export control laws and regulations,
including the Export Administration Regulations administered by the
U.S. Department of Commerce, and the Israeli Control of Products
and Services Decree (Engagement in Encryption), 5735-1974, and our
activities may be subject to trade and economic sanctions,
including those administered or governed by OFAC, the Israeli Trade
with the Enemy Ordinance, 1939 and sanction laws of the European
Union and other applicable jurisdictions (collectively, “Trade
Controls”). As such, a license may be required to export or
re-export our products, or provide related services, to certain
countries, customers and other users, as well as for certain end
uses. Further, our products that incorporate encryption
functionality may be subject to special controls applying to
encryption items and/or certain reporting requirements.
While we are in
the process of implementing additional procedures designed to
ensure our compliance with Trade Controls, we cannot guarantee that
we have not made accessible, or will not make accessible,
inadvertently our services to persons in violation of Trade
Controls, or that our customers have not permitted or, despite
these procedures, will not in the future permit our services to be
used by parties in countries or territories subject to Trade
Controls. For example, we recently implemented geo-location
blocking through a third party to prevent content created by our
customers using our tools from being accessed by users of our
customers from IP addresses potentially linked to countries subject
to Trade Controls, but we cannot be certain that this technique
will work in all circumstances. In addition, prior to
implementation of these geo-location blocking techniques, some
users of our customers, while not having access to our platform,
have had access from IP addresses potentially linked to countries
subject to Trade Controls to customer created content, such as
application guides or walkthrus created by the customer using our
tools. Further, the recent outbreak of war in Ukraine has prompted
the U.S. and other governments to impose new Trade Controls on
Russia, among other countries, and related parties. Additional
Trade Controls by the U.S. and other governments enacted due to
geopolitics or otherwise, and any counter-sanctions enacted in
response, could restrict our ability to operate, generate or
collect revenue in certain other countries, which could adversely
affect our business. The failure to comply with Trade Controls
could subject us to both civil and criminal penalties, including
substantial fines, possible incarceration of responsible
individuals for willful violations, possible loss of our export or
import privileges, and reputational harm. Further, the process for
obtaining necessary licenses may be time-consuming or unsuccessful,
potentially causing delays in sales or losses of sales
opportunities. Trade Controls are complex and dynamic regimes, and
monitoring and ensuring compliance can be challenging, particularly
given that our products are widely distributed throughout the world
and are available for download without registration. Any failure by
us or our partners to comply with applicable laws and regulations
would have negative consequences for us, including reputational
harm, government investigations, and penalties.
In addition,
various countries regulate the import of certain encryption
technology, including through import permit and license
requirements, and have enacted laws that could limit our ability to
distribute our offerings or the ability of our customers or their
employees or end customers to implement our offerings in those
countries. Changes in our offerings or changes in export and import
regulations in such countries may create delays in the introduction
of our offerings into international markets, prevent our
end-customers with international operations from deploying our
offerings globally or, in some cases, prevent or delay the export
or import of our offerings to certain countries, governments, or
persons altogether. Any change in export or import laws or
regulations, economic sanctions or related legislation, shift in
the enforcement or scope of existing export, import or sanctions
laws or regulations, or change in the countries, governments,
persons, or technologies targeted by such export, import or
sanctions laws or regulations, could result in decreased use of our
offerings by, or in our decreased ability to export or sell our
offerings to, existing or potential customers with international
operations. Any decreased use of our offerings or limitation on our
ability to export to or sell our offerings in international markets
could adversely affect our business, financial condition and
results of operations, and our ability to execute our growth
strategy.
Changes
in laws and regulations related to the internet, changes in the
internet infrastructure itself, or increases in the cost of
internet connectivity and network access may diminish the demand
for our offerings and could harm our business.
The future
success of our business depends upon the continued use of the
internet as a primary medium for commerce, communication, and
business applications. Federal, state, or foreign governmental
bodies or agencies have in the past adopted, and may in the future
adopt, laws or regulations affecting the use of the internet as a
commercial medium. The adoption of any laws or regulations that
could reduce the growth, popularity, or use of the internet,
including laws or practices limiting internet neutrality, could
decrease the demand for our offerings, increase our cost of doing
business, and adversely affect our results of operations. Changes
in these laws or regulations could require us to modify our
offerings, or certain aspects of our offerings, in order to comply
with these changes. In addition, government agencies or private
organizations have imposed and may impose additional taxes, fees,
or other charges for accessing the internet or commerce conducted
via the internet. These laws or charges could limit the growth of
internet-related commerce or communications generally or result in
reductions in the demand for internet-based products such as ours.
In addition, the use of the internet as a business tool could be
harmed due to delays in the development or adoption of new
standards and protocols to handle increased demands of internet
activity, security, reliability,
cost, ease-of-use, accessibility, and quality of service.
Further, our platform depends on the quality of our customers’ and
other users’ access to the internet.
On
June 11, 2018, the repeal of the Federal Communications
Commission’s (the “FCC”), “net neutrality” rules took effect and
returned to a “light-touch” regulatory framework. The prior rules
were designed to ensure that all online content is treated the same
by internet service providers and other companies that provide
broadband services. Additionally, on September 30, 2018,
California enacted the California internet Consumer Protection and
Net Neutrality Act of 2018, making California the fourth state to
enact a state-level net neutrality law since the FCC repealed its
nationwide regulations, mandating that all broadband services in
California must be provided in accordance with state net neutrality
requirements. The U.S. Department of Justice has sued to block the
law going into effect, and California has agreed to delay
enforcement until the resolution of the FCC’s repeal of the federal
rules. A number of other states are considering legislation or
executive actions that would regulate the conduct of broadband
providers. We cannot predict whether the FCC order or state
initiatives will be modified, overturned, or vacated by legal
action of the court, federal legislation or the FCC. With the
repeal of net neutrality rules in effect, we could incur greater
operating expenses, which could harm our results of
operations.
As the internet
continues to experience growth in the number of users, frequency of
use, and amount of data transmitted, the internet infrastructure
that we and our customers and other users rely on may be unable to
support the demands placed upon it. The failure of the internet
infrastructure that we or our customers and other users rely on,
even for a short period of time, could adversely affect our
business, financial condition and results of operations. In
addition, the performance of the internet and its acceptance as a
business tool has been harmed by “viruses,” “worms” and similar
malicious programs and the internet has experienced a variety of
outages and other delays as a result of damage to portions of its
infrastructure. If the use of the internet is adversely affected by
these issues, demand for our offerings could decline.
Internet access
is frequently provided by companies that have significant market
power and the ability to take actions that degrade, disrupt, or
increase the cost of customers’ access to our offerings. As demand
for online media increases, there can be no assurance that internet
and network service providers will continue to price their network
access services on reasonable terms. We could incur greater
operating expenses and our customer acquisition and retention could
be negatively impacted if network operators:
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implement usage-based pricing;
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discount pricing for competitive products;
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otherwise materially change their pricing rates or
schemes;
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charge us to deliver our traffic at certain levels or at
all;
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throttle traffic based on its source or type;
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implement bandwidth caps or other usage restrictions; or
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otherwise try to monetize or control access to their
networks.
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We have limited
or no control over the extent to which any of these circumstances
may occur, and if network access or distribution prices rise, our
business, financial condition and results of operations would
likely be adversely affected.
Failure
to comply with anti-bribery, anti-corruption, anti-money laundering
laws, and similar laws, could subject us to penalties and other
adverse consequences.
We are subject
to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the
“FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. §
201, the U.S. Travel Act, the USA PATRIOT Act, the United Kingdom
Bribery Act 2010, the Proceeds of Crime Act 2002, Chapter
9 (sub-chapter 5) of the Israeli Penal Law, 5737-1977,
the Israeli Prohibition on Money Laundering Law, 5760–2000 and
additional anti-bribery or anti-corruption laws, regulations, or
rules of the countries in which we operate. These laws generally
prohibit companies and their employees and third-party partners,
representatives, and agents from engaging in corruption and
bribery, including by offering, promising, giving, or authorizing
the provision of anything of value, either directly or indirectly,
to a government official or commercial party to influence official
action, direct business to any person, gain any improper advantage,
or obtain or retain business. Anti-corruption and anti-bribery laws
have been enforced aggressively in recent years and are interpreted
broadly.
We sometimes
leverage third parties to sell our products and conduct certain
aspects of our business abroad. We and our third-party partners may
have direct or indirect interactions with officials and employees
of government agencies or state-owned or affiliated entities and
may be held liable for inaccurate or incomplete accounting records,
internal accounting controls deemed inadequate by applicable
regulatory authorities, and corrupt or other illegal activities of
our employees, affiliates, third-party partners, representatives,
and agents, even if we do not explicitly authorize such activities.
We cannot assure you that our employees and other agents, or those
of our partners, will not take actions in violation of applicable
law, for which we may be ultimately held responsible. As we
increase our international sales and business operations, our risks
under these laws are likely to increase.
Any actual or
alleged violation of the FCPA or other applicable anti-bribery,
anti-corruption or anti-money laundering laws could result in
whistleblower complaints, sanctions, settlements, prosecution,
enforcement actions, fines, damages, adverse media coverage,
investigations, loss of export privileges, severe criminal or civil
sanctions, or suspension or debarment from U.S. government
contracts, all of which may have an adverse effect on our
reputation, business, financial condition, results of operations,
and prospects. Responding to any investigation or action will
likely result in a materially significant diversion of the
attention and resources of our executive leadership team and other
employees and cause us to incur significant defense costs and other
professional fees. In addition, the U.S. government may seek to
hold us liable for FCPA violations committed by companies that we
invest in or acquire.
Unanticipated changes in effective tax rates or adverse outcomes
resulting from examination of our income or other tax returns could
expose us to greater than anticipated tax liabilities.
The tax laws
applicable to our business, including the laws of Israel, the
United States, and other jurisdictions, are subject to
interpretation and certain jurisdictions may aggressively interpret
their laws in an effort to raise additional tax revenue. The taxing
authorities of the jurisdictions in which we operate may challenge
our methodologies for valuing developed technology or intercompany
arrangements or our revenue recognition policies, which could
increase our worldwide effective tax rate and harm our financial
position and results of operations. It is possible that tax
authorities may disagree with certain positions we have taken and
any adverse outcome of such a review or audit could have a negative
effect on our financial position and results of operations.
Further, the determination of our worldwide provision for income
taxes and other tax liabilities requires significant judgment by
management, and there are transactions where the ultimate tax
determination is uncertain. Although we believe that our estimates
are reasonable, the ultimate tax outcome may differ from the
amounts recorded in our consolidated financial statements and may
materially affect our financial results in the period or periods
for which such determination is made.
Our
corporate structure and intercompany arrangements are subject to
the tax laws of various jurisdictions, and we could be obligated to
pay additional taxes, which would harm our results of
operations.
Based on our
current corporate structure, we are subject to taxation in several
jurisdictions around the world with increasingly complex tax laws,
the application of which can be uncertain. The amount of taxes we
pay in these jurisdictions could increase substantially as a result
of changes in the applicable tax principles, including increased
tax rates, new tax laws or revised interpretations of existing tax
laws and precedents. The authorities in these jurisdictions could
review our tax returns or require us to file tax returns in
jurisdictions in which we are not currently filing, and could
impose additional tax, interest, and penalties. These authorities
could also claim that various withholding requirements apply to us
or our subsidiaries, assert that benefits of tax treaties are not
available to us or our subsidiaries, or challenge our methodologies
for valuing developed technology or intercompany arrangements,
including our transfer pricing. The relevant taxing authorities may
determine that the manner in which we operate our business does not
achieve the intended tax consequences. If such a disagreement was
to occur, and our position was not sustained, we could be required
to pay additional taxes, interest, and penalties. Such authorities
could claim that various withholding requirements apply to us or
our subsidiaries or assert that benefits of tax treaties are not
available to us or our subsidiaries. Any increase in the amount of
taxes we pay or that are imposed on us could increase our worldwide
effective tax rate and harm our business, financial condition and
results of operations.
Changes
in tax law relating to multinational corporations could adversely
affect our tax position.
The member
countries of the Organization for Economic Co-operation and
Development (“OECD”), with the support of the G20, initiated the
base erosion and profit shifting (“BEPS”) project in 2013 in
response to concerns that changes were needed to international tax
laws. In November 2015, the G20 finance ministers adopted final
BEPS reports designed to prevent, among other things, the
artificial shifting of income to low-tax jurisdictions, and
legislation to adopt and implement the standards set forth in such
reports has been enacted or is currently under consideration in a
number of jurisdictions. In May 2019, the OECD published a
“Programme of Work,” which was divided into two pillars. Pillar One
focused on the allocation of group profits among taxing
jurisdictions based on a market-based concept rather than the
historical “permanent establishment” concept. Pillar Two, among
other things, introduced a global minimum tax. More recently, on
October 10, 2021, 137 member jurisdictions of the G20/OECD
Inclusive Framework on BEPS (including Israel) joined the
“Statement on a Two-Pillar Solution to Address the Tax Challenges
Arising from the Digitalisation of the Economy” which sets forth
the key terms of such two-pillar solution, including a reallocation
of taxing rights among market jurisdictions under Pillar One and a
global minimum tax rate of 15% under Pillar Two. As this framework
is subject to further negotiation, final approval by the G20, and
implementation by each member country, the timing and ultimate
impact of any such changes on our tax obligations are uncertain.
These changes, when enacted, by various countries in which we do
business may increase our taxes in these countries. The foregoing
tax changes and other possible future tax changes may have an
adverse impact on us.
We could
be required to collect additional sales, use, value added, digital
services or other similar taxes or be subject to other liabilities
that may increase the costs our clients would have to pay for our
products and adversely affect our results of operations.
We collect
sales, value added and other similar taxes in a number of
jurisdictions. One or more U.S. states or countries may seek to
impose incremental or new sales, use, value added, digital
services, or other tax collection obligations on us. Further, an
increasing number of U.S. states have considered or adopted laws
that attempt to impose tax collection obligations
on out-of-state companies. Additionally, the Supreme
Court of the United States has ruled that online sellers can be
required to collect sales and use tax despite not having a physical
presence in the state of the customer, thus permitting a wider
enforcement of such sales and use tax collection requirements
against non-U.S. companies that have historically not
been responsible for state or local tax collection unless they had
physical presence in the U.S. customer’s state. As a result, U.S.
states and local governments may adopt, or begin to enforce, laws
requiring us to calculate, collect, and remit taxes on sales in
their jurisdictions, even if we have no physical presence in that
jurisdiction. A successful assertion by one or more U.S. states
requiring us to collect taxes where we presently do not do so, or
to collect more taxes in a jurisdiction in which we currently do
collect some taxes, could result in substantial liabilities,
including taxes on past sales, as well as interest and penalties.
Furthermore, certain jurisdictions, such as the United Kingdom and
France, have recently introduced a digital services tax, which is
generally a tax on gross revenue generated from users or customers
located in those jurisdictions, and other jurisdictions have
enacted or are considering enacting similar laws. A successful
assertion by a U.S. state or local government, or other country or
jurisdiction that we should have been or should be collecting
additional sales, use, value added, digital services or other
similar taxes could, among other things, result in substantial tax
payments, create significant administrative burdens for us,
discourage potential customers from subscribing to our platform due
to the incremental cost of any such sales or other related taxes,
or otherwise harm our business.
Our
ability to use our net operating loss carryforwards to offset
future taxable income may be subject to certain limitations.
As of
December 31, 2021, we had net operating loss carryforwards of
$248.4 million in Israel and federal net operating loss
carryforwards of $21.7 million in the United States, which may be
utilized against future income taxes. Limitations imposed by the
applicable jurisdictions on our ability to utilize net operating
loss carryforwards, including with respect to the net operating
loss carryforwards of companies that we have acquired or may
acquire in the future, could cause income taxes to be paid earlier
than would be paid if such limitations were not in effect and could
cause such net operating loss carryforwards to expire unused, in
each case reducing or eliminating the benefit of such net operating
loss carryforwards. Furthermore, we may not be able to generate
sufficient taxable income to utilize our net operating loss
carryforwards before they expire. If any of these events occur, we
may not derive some or all of the expected benefits from our net
operating loss carryforwards. Also, any available net operating
loss carryforwards would have value only to the extent there is
income in the future against which such net operating loss
carryforwards may be offset. For these reasons, we may not be able
to realize a tax benefit from the use of our net operating loss
carryforwards, whether or not we attain profitability. We have
recorded a full valuation allowance related to our carryforwards
due to the uncertainty of the ultimate realization of the future
benefits of those assets.
Our
reported financial results may be adversely affected by changes in
accounting principles generally accepted in the United
States.
The accounting
rules and regulations that we must comply with are complex and
subject to interpretation by the Financial Accounting Standards
Board (“FASB”), the SEC and various bodies formed to promulgate and
interpret appropriate accounting principles. Recent actions and
public comments from the FASB and the SEC have focused on the
integrity of financial reporting and internal controls. In
addition, many companies’ accounting policies are being subject to
heightened scrutiny by regulators and the public. Further, the
accounting rules and regulations are continually changing in ways
that could materially impact our financial statements.
Though we
cannot predict the impact of future changes to accounting
principles or our accounting policies on our financial statements
going forward, any such change in these principles or how they are
interpreted could have a significant effect on our reported results
of operations and could affect the reporting of transactions
already completed before the announcement of a change.
We are
not, and do not intend to become, regulated as an “investment
company” under the Investment Company Act of 1940, as amended
(“Investment Company Act”), and if we were deemed an “investment
company” under the Investment Company Act, applicable restrictions
could make it impractical for us to continue our business as
contemplated and could have a material adverse effect on our
business.
An entity
generally will be deemed to be an “investment company” for purposes
of the Investment Company Act if:
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it is an “orthodox” investment company because it is or holds
itself out as being engaged primarily, or proposes to engage
primarily, in the business of investing, reinvesting or trading in
securities; or
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it is an inadvertent investment company because, absent an
applicable exemption, (i) it owns or proposes to acquire investment
securities having a value exceeding 40% of the value of its total
assets (exclusive of U.S. government securities and cash items) on
an unconsolidated basis, or (ii) it owns or proposes to acquire
investment securities having a value exceeding 45% of the value of
its total assets (exclusive of U.S. government securities and cash
items) and/or more than 45% of its income is derived from
investment securities on a consolidated basis with its wholly owned
subsidiaries.
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We are engaged
primarily in the business of providing clients with our cloud-based
Digital Adoption Platform, which enables organizations to better
realize the value of their software investments. We hold ourselves
out as a cloud-based technology company and do not propose to
engage primarily in the business of investing, reinvesting or
trading in securities. Accordingly, we do not believe that we are
an “orthodox” investment company as defined in Section 3(a)(1)(A)
of the Investment Company Act and described in the first bullet
point above. Furthermore, we believe that on a consolidated basis
less than 45% of our total assets (exclusive of U.S. government
securities and cash items) are composed of, and less than 45% of
our income is derived from, assets that could be considered
investment securities. Accordingly, we do not believe that we are
an inadvertent investment company by virtue of the 45% tests in
Rule 3a-1 of the Investment Company Act as described in the second
bullet point above. In addition, we believe that we are not an
investment company under Section 3(b)(1) of the Investment Company
Act because we are primarily engaged in a noninvestment company
business.
The Investment
Company Act and the rules thereunder contain detailed parameters
for the organization and operation of investment companies. Among
other things, the Investment Company Act and the rules thereunder
limit or prohibit transactions with affiliates, impose limitations
on the issuance of debt and equity securities, generally prohibit
the issuance of options and impose certain governance requirements.
We intend to conduct our operations so that we will not be deemed
to be an investment company under the Investment Company Act or
otherwise conduct our business in a manner that does not subject us
to the registration and other requirements of the Investment
Company Act. In order to ensure that we are not deemed to be an
investment company, we may be limited in the assets that we may
continue to own and, further, may need to dispose of or acquire
certain assets at such times or on such terms as may be less
favorable to us than in the absence of such requirement. In
particular, as is common in Israel, much of our marketable
securities and some of our cash is held in the form of time-based
depositary accounts, which may be considered securities under the
Investment Company Act, and we could be required to invest our cash
into accounts that yield a lower return in order to avoid becoming
an investment company. If anything were to happen which would cause
us to be deemed to be an investment company under the Investment
Company Act, the requirements imposed by the Investment Company Act
could make it impractical for us to continue our business as
currently conducted, which would materially adversely affect our
business, financial condition and results of operations. In
addition, if we were to become inadvertently subject to the
Investment Company Act, any violation of the Investment Company Act
could subject us to material adverse consequences, including
potentially significant regulatory penalties.
Risks Relating to
Our Ordinary Shares and Reporting Obligations
Our
share price has been and may continue to be volatile, and you may
lose all or part of your investment.
The market price of our ordinary
shares has experienced significant price and volume volatility and
may continue to fluctuate in the future, substantially as a result
of many factors, including:
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actual or anticipated changes or fluctuations in our results
of operations;
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the guidance we may provide to the public, and any changes in,
or our failure to perform in line with, such guidance;
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announcements by us or our competitors of significant business
developments, new offerings or new or terminated significant
contracts, commercial relationships or capital commitments;
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industry or financial analyst or investor reaction to our
press releases, other public announcements, and filings with the
SEC;
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rumors and market speculation involving us or other companies
in our industry;
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future sales or expected future sales of our ordinary
shares;
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investor perceptions of us and the industries and markets in
which we operate;
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price and volume fluctuations in the overall stock market from
time to time;
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changes in operating performance and stock market valuations
of other technology companies generally, or those in our industry
in particular;
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failure of industry or financial analysts to maintain coverage
of us, changes in financial estimates by any analysts who follow
our Company, or our failure to meet these estimates or the
expectations of investors;
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actual or anticipated developments in our business or our
competitors’ businesses or the competitive landscape
generally;
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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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developments or disputes concerning our intellectual property
rights or our solutions, or third-party proprietary rights;
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announced or completed acquisitions of businesses or
technologies by us or our competitors;
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actual or perceived breaches of, or failures relating to,
privacy, data protection or data security;
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new laws or regulations or new interpretations of existing
laws or regulations applicable to our business;
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actual or anticipated changes in our executive leadership team
or our board of directors;
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general economic conditions and slow or negative growth of our
target markets; and
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other events or factors, including those resulting from
pandemics, war, incidents of terrorism or responses to these
events.
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In addition,
the stock markets have experienced extreme price and volume
fluctuations. Broad market and industry factors may materially harm
the market price of our ordinary shares, regardless of our
operating performance, which may limit or prevent investors from
readily selling their shares and may otherwise negatively affect
the liquidity of our ordinary shares. In the past, following
periods of volatility in the market price of a company’s
securities, securities class action litigation has often been
instituted against that company. If we were involved in any similar
litigation we could incur substantial costs and our attention and
resources of our executive leadership team and other employees
could be diverted.
An
active trading market for our ordinary shares may not be sustained
to provide adequate liquidity.
An active
trading market may not be sustained for our ordinary shares. The
lack of an active market may impair your ability to sell your
shares at the time you wish to sell them or at a price that you
consider reasonable. An inactive market may also impair our ability
to raise capital by selling ordinary shares and may impair our
ability to acquire other companies by using our shares as
consideration.
If we do
not meet the expectations of equity research analysts, if they do
not publish research or reports about our business or if they issue
unfavorable commentary or downgrade our ordinary shares, the price
of our ordinary shares could decline.
The trading
market for our ordinary shares relies in part on the research and
reports that securities analysts publish about us and our business.
The analysts’ estimates are based upon their own opinions and are
often different from our estimates or expectations. If our
revenues, our results of operations, or our financial condition are
below the estimates or
expectations of public market analysts and investors, the price of
our ordinary shares could decline. Moreover, the price of our
ordinary shares could decline if one or more securities analysts
issue unfavorable commentary or cease publishing reports about us
or our business.
We are
an “emerging growth company,” as defined in the JOBS Act, and we
cannot be certain if the reduced disclosure requirements applicable
to emerging growth companies will make our ordinary shares less
attractive to investors.
We are an
“emerging growth company,” as defined in the JOBS Act, and we are
eligible to take advantage of specified reduced disclosure and
other requirements that are applicable to public companies that are
not emerging growth companies. These provisions include, among
others, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act of 2002
(“Section 404”); and not being required to comply with any
requirement that may be adopted by the PCAOB regarding mandatory
audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial
statements (i.e., an auditor discussion and analysis).
In addition, while we are an emerging growth company we can take
advantage of an extended transition period for complying with new
or revised accounting standards. This allows an emerging growth
company to delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. We have
elected to take advantage of this extended transition period and,
as a result, our operating results and financial statements may not
be comparable to the operating results and financial statements of
companies who have adopted the new or revised accounting
standards.
We may remain
an emerging growth company until the earliest to occur of: (i) the
last day of the first fiscal year in which our annual gross revenue
equals or exceeds $1.07 billion; (ii) the date that we become a
“large accelerated filer,” as defined in Rule 12b-2 under the
Exchange Act, which will occur if the market value of our common
equity securities held by non-affiliates is at least $700 million
as of the last business day of our most recently completed second
fiscal quarter; (iii) the date on which we have issued, during the
preceding three-year period, more than $1.0 billion in
non-convertible debt securities; and (iv) December 31, 2026, which
is the last day of the fiscal year ending after the fifth
anniversary of the IPO.
Investors may
find our ordinary shares less attractive to the extent we rely on
the exemptions and relief granted by the JOBS Act. If some
investors find our ordinary shares less attractive as a result,
there may be a less active trading market for our ordinary shares
and the price of our ordinary shares may decline or become more
volatile.
We are a
foreign private issuer and, as a result, we are not subject to U.S.
proxy rules and will be subject to Exchange Act reporting
obligations that, to some extent, are more lenient and less
frequent than those of a U.S. domestic public company.
We report under
the Exchange Act as a non-U.S. company with foreign
private issuer status. Because we qualify as a foreign private
issuer, we take advantage of certain provisions under the Nasdaq
corporate governance rules that allow us to follow Israeli law for
certain corporate governance matters. As long as we qualify as a
foreign private issuer under the Exchange Act, we are exempt from
certain provisions of the Exchange Act that are applicable to U.S.
domestic public companies, including:
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the sections of the Exchange Act regulating the solicitation
of proxies, consents or authorizations in respect of a security
registered under the Exchange Act;
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the sections of the Exchange Act requiring insiders to file
public reports of their share ownership and trading activities and
liability for insiders who profit from trades made in a short
period of time;
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the rules under the Exchange Act requiring the filing with the
SEC of quarterly reports on Form 10-Q containing
unaudited financial and other specified information, or current
reports on Form 8-K, upon the occurrence of
specified significant events; and
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Regulation Fair Disclosure (“Regulation FD”), which
regulates selective disclosures of material information by
issuers.
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In addition,
foreign private issuers are not required to file their annual
report on Form 20-F until 120 days after the
end of each fiscal year, while U.S. domestic issuers that are
accelerated filers are required to file their annual report
on Form 10-K within 75 days after the end of
each fiscal year and U.S. domestic issuers that are large
accelerated filers are required to file their annual report
on Form 10-K within 60 days after the end of
each fiscal year. Foreign private issuers, like emerging growth
companies, also are exempt from certain more stringent executive
compensation disclosure rules. As a result of all of the above, you
may not have the same protections afforded to shareholders of a
company that is not a foreign private issuer.
We may
lose our foreign private issuer status in the future, which could
result in significant additional costs and expenses.
As discussed
above, we are a foreign private issuer, and therefore, we are not
required to comply with all of the periodic disclosure and current
reporting requirements of the Exchange Act that are applicable to
U.S. domestic public companies. The determination of foreign
private issuer status is made annually on the last business day of
an issuer’s most recently completed second fiscal quarter, and,
accordingly, the next determination will be made with respect to us
on June 30, 2022. In the future, we would lose our foreign private
issuer status if more than 50% of our outstanding voting securities
are owned by U.S. residents and any of the following three
circumstances applies: (1) the majority of our directors or
executive officers are U.S. citizens or residents, (2) more
than 50% of our assets are located in the United States, or
(3) our business is administered principally in the United
States. If we lose our foreign private issuer status, we will be
required to file with the SEC periodic reports and registration
statements on U.S. domestic issuer forms, which are more detailed
and extensive than the forms available to a foreign private issuer.
We will also have to mandatorily comply with U.S. federal proxy
requirements, and our officers, directors and principal
shareholders will become subject to
the short-swing profit disclosure and recovery provisions
of Section 16 of the Exchange Act. In addition, we will lose
our ability to rely upon exemptions from certain corporate
governance requirements under the Nasdaq listing rules. As a U.S.
listed public company that is not a foreign private issuer, we will
incur significant additional legal, accounting and other expenses
that we will not incur as a foreign private issuer.
As we
are a foreign private issuer and intend to follow certain home
country corporate governance practices, our shareholders may not
have the same protections afforded to shareholders of companies
that are subject to all corporate governance requirements.
As a foreign
private issuer, we have the option to follow certain home country
corporate governance practices rather than the Nasdaq corporate
governance rules, provided that we disclose and describe the
requirements we are not following and the Israeli practices we are
following. We intend to rely on this “foreign private issuer
exemption” with respect to the quorum requirement for shareholder
meetings, and may in the future elect to follow home country
practices with regard to other matters. As a result, our
shareholders may not have the same protections afforded to
shareholders of companies that are subject to all Nasdaq corporate
governance requirements.
The
market price of our ordinary shares could be negatively affected by
future issuances and sales of our ordinary shares.
Sales by us or
our shareholders of a substantial number of ordinary shares in the
public market, or the perception that these sales might occur,
could cause the market price of our ordinary shares to decline or
could impair our ability to raise capital through a future sale of,
or pay for acquisitions using, our equity securities.
As of December
31, 2021, we are authorized to issue up to 900,000,000 ordinary
shares. Subject to compliance with applicable rules and
regulations, we may issue ordinary shares or securities convertible
into ordinary shares from time to time in connection with a
financing, acquisition, investment, our share incentive plans or
otherwise. Any such issuance could result in substantial dilution
to our existing shareholders and cause the market price of our
ordinary shares to decline.
We may
be classified as a passive foreign investment company, which could
result in adverse U.S. federal income tax consequences to U.S.
Holders of our ordinary shares.
We would be
classified as a passive foreign investment company (“PFIC”) for any
taxable year if, after the application of
certain look-through rules, either: (i) 75% or more
of our gross income for such year is “passive income” (as defined
in the relevant provisions of the Internal Revenue Code of 1986, as
amended), or (ii) 50% or more of the value of our gross assets
(determined on the basis of a quarterly average) during such year
is attributable to assets that produce or are held for the
production of passive income (the “asset test”). For these
purposes, cash and other assets readily convertible into cash are
categorized as passive assets, and the company’s goodwill and other
unbooked intangibles are generally taken into account. Passive
income generally includes, among other things, rents, dividends,
interest, royalties, gains from the disposition of passive assets
and gains from commodities and securities transactions. For
purposes of this test, we will be treated as owning a proportionate
share of the assets and earning a proportionate share of the income
of any other corporation of which we own, directly or indirectly,
more than 25% (by value) of the stock. Based on the composition of
our income, assets and operations, we do not believe that we were a
PFIC for the taxable year ending December 31, 2021. However,
our status as a PFIC requires a factual determination that depends
on, among other things, our income, assets and operations in each
year. Fluctuations in the market price of our ordinary shares may
cause our classification as a PFIC for the current or future
taxable years to change because the value of our assets for
purposes of the asset test, including the value of our goodwill and
unbooked intangibles, may be determined by reference to the market
price of our shares from time to time (which may be volatile).
Among other matters, if our market capitalization subsequently
declines, it may make our classification as a PFIC more likely for
the current or future taxable years. The composition of our income
and assets may also be affected by how, and how quickly, we use our
liquid assets. Therefore, there can be no assurance that we will
not be treated as a PFIC for our current taxable year or any future
taxable year.
Certain adverse
U.S. federal income tax consequences could apply to a U.S. Holder
(as defined in “Item 10.E. “Tax Considerations - U.S. Federal
Income Tax Considerations”) if we are treated as a PFIC for any
taxable year during which such U.S. Holder holds our ordinary
shares. U.S. Holders should consult their tax advisors regarding
the application of PFIC rules to an investment in our ordinary
shares. For further discussion, see Item 10.E. “Tax Considerations
- Material United States Tax Considerations.”
If a
United States person is treated as owning at least 10% of our
ordinary shares, such holder may be subject to adverse U.S. federal
income tax consequences.
If a United
States person is treated as owning (directly, indirectly, or
constructively) at least 10% of the value or voting power of our
ordinary shares, such person may be treated as a “United States
shareholder” with respect to each “controlled foreign corporation”
(“CFC”) in our group (if any). Because our group includes a U.S.
subsidiary, certain of our non-U.S. subsidiaries will be
treated as CFCs (regardless of whether or not we are treated as a
CFC). A United States shareholder of a CFC may be required to
report annually and include in its U.S. taxable income its pro rata
share of “Subpart F income,” “global
intangible low-taxed income,” and investments in U.S.
property by CFC, regardless of whether we make any distributions.
An individual that is a United States shareholder with respect to a
CFC generally would not be allowed certain tax deductions or
foreign tax credits that would be allowed to a United States
shareholder that is a U.S. corporation. Failure to comply with
these reporting obligations may subject a United States shareholder
to significant monetary penalties and may prevent the statute of
limitations with respect to such shareholder’s U.S. federal income
tax return for the year for which reporting was due from starting.
We cannot provide any assurances that we will assist investors in
determining whether we are or any of
our non-U.S. subsidiaries is treated as a CFC or whether
any investor is treated as a United States shareholder with respect
to any such CFC or furnish to any United States shareholders
information that may be necessary to comply with the aforementioned
reporting and tax paying obligations. The United States Internal
Revenue Service has provided limited guidance on situations in
which investors may rely on publicly available information to
comply with their reporting and taxpaying obligations with respect
to foreign-controlled CFCs. A United States investor should consult
its advisors regarding the potential application of these rules to
an investment in our ordinary shares.
Provisions of Israeli law and our Articles of Association may
delay, prevent or make undesirable an acquisition of all or a
significant portion of our shares or assets.
Provisions of
Israeli law, including the Israeli Companies Law, 5759-1999 (the
“Companies Law”), and our amended and restates Articles of
Association could have
the effect of delaying or preventing a change in control and may
make it more difficult for a third-party to acquire us or
our shareholders to elect different individuals to our board of
directors, even if doing so would be considered to be beneficial by
some of our shareholders, and may limit the price that investors
may be willing to pay in the future for our ordinary shares. Among
other things:
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the Companies Law regulates mergers and requires that a tender
offer be effected when more than a specified percentage of shares
in a company are purchased;
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the Companies Law requires special approvals for certain
transactions involving directors, officers or certain significant
shareholders and regulates other matters that may be relevant to
these types of transactions;
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the Companies Law does not provide for shareholder action by
written consent for public companies, thereby requiring all
shareholder actions to be taken at a general meeting of
shareholders;
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our amended and restates Articles of
Association divide our
directors into three classes, each of which is elected once every
three years, and accordingly, each of our directors serves until
the third annual general meeting following his or her election
or re-election or until he or she is removed;
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an amendment to our amended and restates Articles of
Association will
generally require, in addition to the approval of our board of
directors, a vote of the holders of a majority of our outstanding
ordinary shares entitled to vote and present and voting on the
matter at a general meeting of shareholders (referred to as simple
majority), and the amendment of a limited number of provisions,
such as the provision dividing our directors into three classes,
requires a vote of the holders of at least 65% of the total voting
power of our shareholders;
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our amended and restates Articles of
Association do not
permit a director to be removed except by a vote of the holders of
at least 65% of the total voting power of our shareholders and any
amendment to such provision shall require the approval of at least
65% of the total voting power of our shareholders; and
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our amended and restates Articles of
Association provide
that director vacancies may be filled by our board of
directors.
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Israeli tax
considerations may also make potential transactions undesirable to
us or to some of our shareholders whose country of residence does
not have a tax treaty with Israel granting tax relief to such
shareholders from Israeli tax. With respect to mergers, Israeli tax
law allows for tax deferral in certain circumstances but makes the
deferral contingent on the fulfillment of numerous conditions,
including a holding period of up to two years from the date of the
transaction during which certain sales and dispositions of shares
of the participating companies are restricted. Moreover, with
respect to certain share swap transactions, the tax deferral is
limited in time, and when such time expires, the tax becomes
payable even if no disposition of the shares has occurred.
Furthermore,
under the Encouragement of Research, Development and Technological
Innovation in the Industry Law, 5744-1984, and the regulations,
guidelines, rules, procedures, and benefit tracks thereunder
(collectively, the “Innovation Law”), to which we are subject due
to our receipt of grants from the Israeli National Authority for
Technological Innovation, or the Israeli Innovation Authority (the
“IIA”), a recipient of IIA grants such as our Company must report
to the IIA regarding any change in the holding of means of control
of our Company which transforms any non-Israeli citizen
or resident into an “interested party,” as defined in the Israeli
Securities Law, 5728-1968 (the “Israeli Securities Law”), and
such non-Israeli citizen or resident shall execute an
undertaking in favor of IIA, in a form prescribed by IIA.
We do
not intend to pay dividends in the foreseeable future.
We have never
declared or paid any cash dividends on our ordinary shares. We
currently intend to retain all available funds and any future
earnings to finance the operation and expansion of our business and
do not anticipate paying any dividends on our ordinary shares in
the foreseeable future. Consequently, investors who purchase
ordinary shares may be unable to realize a gain on their investment
except by selling such shares after price appreciation, which may
never occur.
Our board of
directors has sole discretion regarding whether to pay dividends.
If our board of directors decides to pay dividends, the form,
frequency and amount will depend upon our future operations and
earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that our
directors may deem relevant. The Companies Law imposes restrictions
on our ability to declare and pay dividends.
We will
continue to incur increased costs as a result of operating as a
public company, and our executive leadership team and other
employees are required to devote substantial time to new compliance
initiatives and corporate governance practices.
As a public
company, and particularly after we are no longer an emerging growth
company, we will incur significant legal, accounting and other
expenses that we did not incur as a private company.
The Sarbanes-Oxley Act, the Dodd-Frank Wall
Street Reform and Consumer Protection Act, the listing requirements
of the Nasdaq and other applicable securities rules and regulations
impose various requirements on public companies, including the
establishment and maintenance of effective disclosure and financial
controls and corporate governance practices. Our executive
leadership team and other personnel continue to devote a
substantial amount of time to these compliance initiatives.
Moreover, these rules and regulations will continue to increase our
legal and financial compliance costs and will make some activities
more time-consuming and costly. For example, we expect
that these rules and regulations may make it more difficult and
more expensive for us to obtain director and officer liability
insurance, and could also make it more difficult for us to attract
and retain qualified members of our board.
We continue to
evaluate these rules and regulations and cannot predict or estimate
the amount of additional costs we may incur or the timing of such
costs. These rules and regulations are often subject to varying
interpretations, in many cases due to their lack of specificity,
and, as a result, their application in practice may evolve over
time as new guidance is provided by regulatory and governing
bodies. This could result in continuing uncertainty regarding
compliance matters and higher costs necessitated by ongoing
revisions to disclosure and governance practices.
If we fail to maintain an effective system of disclosure controls
and internal control over financial reporting, our ability to
produce timely and accurate financial statements or comply with
applicable regulations could be impaired.
The
Sarbanes-Oxley Act requires, among other things, that we maintain
effective disclosure controls and procedures and internal control
over financial reporting. We are continuing to develop and refine
our disclosure controls and other procedures that are designed to
ensure that information required to be disclosed by us in the
reports that we will file with the SEC is recorded, processed,
summarized, and reported within the time periods specified in SEC
rules and forms and that information required to be disclosed in
reports under the Exchange Act is accumulated and communicated to
our principal executive and financial officers. We believe that any
disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. These
inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion
of two or more people or by an unauthorized override of the
controls. Accordingly, because of the inherent limitations in our
control system, misstatements due to error or fraud may occur and
not be detected.
We are also
continuing to improve our internal control over financial
reporting. In order to maintain and improve the effectiveness of
our disclosure controls and procedures and internal control over
financial reporting, we have expended, and anticipate that we will
continue to expend, significant resources, including
accounting-related costs and significant management oversight. If
any of these new or improved controls and systems do not perform as
expected, we may experience material weaknesses in our
controls.
In addition to
our results determined in accordance with U.S. GAAP, we believe
certain non-GAAP measures and key metrics may be useful in
evaluating our operating performance. We present certain non-GAAP
financial measures and key performance metrics in this Annual
Report and intend to continue to present certain non-GAAP financial
measures and key performance metrics in future filings with the SEC
and other public statements. Any failure to accurately report and
present our non-GAAP financial measures and key performance metrics
could cause investors to lose confidence in our reported financial
and other information, which would likely have a negative effect on
the trading price of our ordinary shares.
Our current
controls and any new controls that we develop may become inadequate
because of changes in conditions in our business, as a result of
our growth and expansion, changes to or additions of new products
or otherwise. Further, weaknesses in our disclosure controls and
internal control over financial reporting may be discovered in the
future. Any failure to develop or maintain effective controls or
any difficulties encountered in their implementation or improvement
could harm our business, financial condition, and results of
operations or cause us to fail to meet our reporting obligations
and may result in a restatement of our consolidated financial
statements for prior periods. Any failure to implement and maintain
effective internal control over financial reporting also could
adversely affect the results of periodic management evaluations
that we will be required to include in our second annual report
that we file with the SEC and annual independent registered public
accounting firm attestation reports regarding the effectiveness of
our internal control over financial reporting that we will be
required to include in our annual reports after we lose our status
as an “emerging growth company.” Ineffective disclosure controls
and procedures and internal control over financial reporting could
also cause investors to lose confidence in our reported financial
and other information, which would likely have a negative effect on
the trading price of our ordinary shares. In addition, if we are
unable to continue to meet these requirements, we may not be able
to remain listed on Nasdaq.
We will be
required to furnish a report by management on, among other things,
the effectiveness of our internal control over financial reporting
pursuant to Section 404(a) in the second annual report following
the completion of the IPO. This assessment will need to include
disclosure of any material weaknesses identified by our management
in our internal control over financial reporting. The rules
governing the standards that must be met for our management to
assess our internal control over financial reporting are complex
and require significant documentation, testing and possible
remediation. Testing and maintaining internal controls may divert
our management’s attention from other matters that are important to
our business. Additionally, when we are no longer an “emerging
growth company,” our independent registered public accounting firm
will be required to formally attest to the effectiveness of our
internal control over financial reporting pursuant to Section
404(b). 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 internal control over
financial reporting is documented, designed or operating. To
achieve compliance with Section 404, we are engaged in a process to
document and evaluate our internal control over financial
reporting, which is both costly and challenging. In this regard, we
will need to continue to dedicate internal resources, potentially
engage outside consultants, and adopt a detailed work plan to
assess and document the adequacy of internal control over financial
reporting, continue steps to improve control processes as
appropriate, validate through testing that controls are functioning
as documented, and implement a continuous reporting and improvement
process for internal control over financial reporting. Despite our
efforts, there is a risk that we will not be able to conclude,
within the prescribed time frame or at all, that our internal
control over financial reporting is effective as required by
Section 404. If we identify one or more material weaknesses, it
could result in an adverse reaction in the financial markets due to
a loss of confidence in the reliability of our financial
statements. As a result, the market price of our ordinary shares
could be negatively affected, and we could become subject to
investigations by the SEC or other regulatory authorities, which
could require additional financial and management resources.
Any failure to
maintain effective disclosure controls and internal control over
financial reporting could adversely affect our business, financial
condition, and results of operations and could cause a decline in
the price of our ordinary shares.
Our
Articles of Association designate the federal district courts of
the United States as the sole and exclusive forum for certain types
of actions and proceedings that may be initiated by our
shareholders.
Our Articles of
Association provide that, unless we consent in writing to the
selection of an alternative forum, the U.S. federal district courts
shall be the sole and exclusive forum for any claim asserting a
cause of action arising under the Securities Act. Section 22
of the Securities Act creates concurrent jurisdiction for federal
and state courts over all such Securities Act actions. Accordingly,
both state and federal courts have jurisdiction to entertain such
claims. We note that investors cannot waive compliance with U.S.
federal securities laws and the rules and regulations thereunder.
This choice of forum provision may limit a shareholder’s ability to
bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors, officers or other employees and
may increase the costs associated with such lawsuits, which may
discourage such lawsuits against us and our directors, officers and
employees. Alternatively, if a court were to find these provisions
of our amended and restates Articles of Association inapplicable
to, or unenforceable in respect of, one or more of the specified
types of actions or proceedings, we may incur additional costs
associated with resolving such matters in other jurisdictions,
which could adversely affect our business and financial condition.
Any person or entity purchasing or otherwise acquiring any interest
in our share capital shall be deemed to have notice of and to have
consented to the choice of forum provisions of our Articles of
Association described above. This provision would not apply to
suits brought to enforce a duty or liability created by the
Exchange Act or any other claim for which the U.S. federal courts
have exclusive jurisdiction.
Risks relating to
Our Incorporation and Location in Israel
Conditions in Israel could materially and adversely affect our
business.
Many of our
employees, including certain members of our executive leadership
team, operate from our offices that are located in Tel Aviv,
Israel. In addition, a number of our officers and directors are
residents of Israel. Accordingly, political, economic, and military
conditions in Israel and the surrounding region may directly affect
our business and operations. In recent years, Israel has been
engaged in sporadic armed conflicts with Hamas, an Islamist
terrorist group that controls the Gaza Strip, with Hezbollah, an
Islamist terrorist group that controls large portions of southern
Lebanon, and with Iranian-backed military forces in Syria. In
addition, Iran has threatened to attack Israel. Some of these
hostilities were accompanied by missiles being fired from the Gaza
Strip against civilian targets in various parts of Israel,
including areas in which some employees and consultants are
located, and negatively affected business conditions in Israel. Any
hostilities involving Israel or the interruption or curtailment of
trade between Israel and its trading partners could adversely
affect our operations and results of operations.
Our commercial
insurance does not cover losses that may occur as a result of
events associated with war and terrorism. Although the Israeli
government currently covers the reinstatement value of direct
damages that are caused by terrorist attacks or acts of war, we
cannot assure you that this government coverage will be maintained
or that it will sufficiently cover our potential damages. Any
losses or damages incurred by us could have a material adverse
effect on our business. Any armed conflicts or political
instability in the region would likely negatively affect business
conditions and could harm our results of operations.
Further the
State of Israel and Israeli companies have been from time to time
subjected to economic boycotts. Several countries still restrict
business with the State of Israel and with Israeli companies. These
restrictive laws and policies may have an adverse impact on our
operating results, financial condition or the expansion of our
business. A campaign of boycotts, divestment and sanctions has been
undertaken against Israel, which could also adversely impact our
business.
In addition,
many Israeli citizens are obligated to perform several days, and in
some cases more, of annual military reserve duty each year until
they reach the age of 40 (or older, for reservists who are military
officers or who have certain occupations) and, in the event of a
military conflict, may be called to active duty. In response to
increases in terrorist activity, there have been periods of
significant call-ups of military reservists. It is
possible that there will be military reserve
duty call-ups in the future. Our operations could be
disrupted by such call-ups. Such disruption could
materially adversely affect our business, prospects, financial
condition and results of operations.
It may
be difficult to enforce a U.S. judgment against us, and our
officers and directors named in this Annual Report, in Israel or
the United States, or to assert U.S. securities laws claims in
Israel or serve process on our officers and directors.
Not all of our
directors or officers are residents of the United States and most
of their and our assets are located outside the United States.
Service of process upon us or our non-U.S. resident
directors and officers and enforcement of judgments obtained in the
United States against us or our non-U.S. our directors
and executive officers may be difficult to obtain within the United
States. We have been informed by our legal counsel in Israel that
it may be difficult to assert claims under U.S. securities laws in
original actions instituted in Israel or obtain a judgment based on
the civil liability provisions of U.S. federal securities laws.
Israeli courts may refuse to hear a claim based on a violation of
U.S. securities laws against us or our non-U.S. officers
and directors because Israel may not be the most appropriate forum
to bring such a claim. In addition, even if an Israeli court agrees
to hear a claim, it may determine that Israeli law and not U.S. law
is applicable to the claim. If U.S. law is found to be applicable,
the content of applicable U.S. law must be proved as a fact, which
can be a time-consuming and costly process. Certain matters of
procedure will also be governed by Israeli law. There is little
binding case law in Israel addressing the matters described above.
Under certain circumstances, Israeli courts might not enforce
judgments rendered outside Israel, which may make it difficult to
collect on judgments rendered against us or
our non-U.S. officers and directors.
Your
rights and responsibilities as our shareholder will be governed by
Israeli law, which differ in some respects from the rights and
responsibilities of shareholders of U.S. corporations.
We are
incorporated under Israeli law. The rights and responsibilities of
holders of our ordinary shares are governed by our Articles of
Association and the Companies Law. These rights and
responsibilities differ in some respects from the rights and
responsibilities of shareholders in typical U.S. corporations. In
particular, pursuant to the Companies Law, each shareholder of an
Israeli company has to act in good faith and in a customary manner
in exercising his or her rights and fulfilling his or her
obligations toward the Company and other shareholders and to
refrain from abusing his or her power in the Company, including,
among other things, in voting at the general meeting of
shareholders on amendments to a company’s articles of association,
and with regard to increases in a company’s authorized share
capital, mergers and certain transactions requiring shareholders’
approval under the Companies Law. In addition, a controlling
shareholder of an Israeli company or a shareholder who knows that
it possesses the power to determine the outcome of a shareholder
vote or who has the power to appoint or prevent the appointment of
a director or officer in the company or has other powers toward the
Company has a duty of fairness toward the Company. However, Israeli
law does not define the substance of this duty of fairness. There
is little case law available to assist in understanding the
implications of these provisions that govern shareholder
behavior.
We (or
companies we have acquired) have received Israeli government grants
for certain research and development activities. The terms of these
grants may require us to satisfy specified conditions in order to
develop and transfer technologies supported by such grants outside
of Israel. In addition, in some circumstances, we may be required
to pay penalties in addition to repaying the grants.
A company we
acquired in 2017 was previously financed, in part, through grants
from the IIA. As part of the acquisition transaction, we assumed
all rights, restrictions and obligation towards the IIA in respect
of such grants. From its inception through 2017, that company
conducted projects with the IIA’s support and received grants
totaling $0.3 million from the IIA, which have been fully
repaid.
The Innovation
Law requires, inter alia, that the products developed as part of
the programs under which the grants were given be manufactured in
Israel and restricts the ability to
transfer know-how funded by IIA outside of Israel.
Transfer of IIA-funded know-how outside of Israel
requires prior approval and is subject to payment of a redemption
fee to the IIA calculated according to a formula provided under the
Innovation Law. A transfer for the purpose of the Innovation Law is
generally interpreted very broadly and includes, inter alia, any
actual sale of the IIA-funded know-how, any license
to develop the IIA-funded know-how or the products
resulting from such IIA-funded know-how or any other
transaction, which, in essence, constitutes a transfer
of IIA-funded know-how. We cannot be certain that
any approval of the IIA will be obtained on terms that are
acceptable to us, or at all. We may not receive the required
approvals should we wish to
transfer IIA-funded know-how and/or development
outside of Israel in the future.
Subject to
prior approval of the IIA, we may transfer
the IIA-funded know-how to another Israeli company.
If the IIA-funded know-how is transferred to another
Israeli entity, the transfer would still require IIA approval but
will not be subject to the payment of the redemption fee. In such
case, the acquiring company would have to assume all of the
applicable restrictions and obligations towards the IIA (including
the restrictions on the transfer of know-how and
manufacturing capacity, to the extent applicable, outside of
Israel) as a condition to IIA approval.
We may
become subject to claims for remuneration or royalties for assigned
service invention rights by our employees, which could result in
litigation and adversely affect our business.
A significant
portion of our intellectual property has been developed by our
employees in the course of their employment for us. Under the
Israeli Patent Law, 5727-1967 (the “Patent Law”), inventions
conceived by an employee in the course and as a result of or
arising from his or her employment with a company are regarded as
“service inventions,” which belong to the employer, absent a
specific agreement between the employee and employer giving the
employee service invention rights. The Patent Law also provides
that if there is no such agreement between an employer and an
employee, the Israeli Compensation and Royalties Committee (the
“Committee”), a body constituted under the Patent Law, shall
determine whether the employee is entitled to remuneration for his
or her inventions. Case law clarifies that the right to receive
consideration for “service inventions” can be waived by the
employee. The Committee will examine, on
a case-by-case basis, the general contractual framework
between the parties, using interpretation rules of the general
Israeli contract laws. Further, the Committee has not yet
determined one specific formula for calculating this remuneration,
but rather uses the criteria specified in the Patent Law. Although
we generally enter
into assignment-of-invention agreements with our
employees pursuant to which such individuals waive their right to
remuneration for service inventions, we may face claims demanding
remuneration in consideration for assigned inventions. As a
consequence of such claims, we could be required to pay additional
remuneration or royalties to our current and/or former employees,
or be forced to litigate such claims, which could negatively affect
our business.
Our Articles of Association provide that unless we consent
otherwise, the competent courts of Tel Aviv, Israel shall be the
sole and exclusive forum for substantially all disputes between us
and our shareholders under the Companies Law and the Israeli
Securities Law, which could limit our shareholders’ ability to
bring claims and proceedings against, as well as obtain a favorable
judicial forum for disputes with, us and our directors, officers
and other employees.
Unless we
consent in writing to the selection of an alternative forum, the
competent courts of Tel Aviv, Israel shall be the exclusive forum
for (i) any derivative action or proceeding brought on our
behalf, (ii) any action asserting a claim of breach of
fiduciary duty owed by any of our directors, officers or other
employees to us or our shareholders, or (iii) any action
asserting a claim arising pursuant to any provision of the
Companies Law or the Israeli Securities Law. This exclusive forum
provision is intended to apply to claims arising under Israeli Law
and would not apply to claims brought pursuant to the Securities
Act or the Exchange Act or any other claim for which U.S. federal
courts would have exclusive jurisdiction. Such exclusive forum
provision in our Articles of Association will not relieve us of our
duties to comply with U.S. federal securities laws and the rules
and regulations thereunder, and shareholders will not be deemed to
have waived our compliance with these laws, rules and regulations.
This exclusive forum provision may limit a shareholder’s ability to
bring a claim in a judicial forum of its choosing for disputes with
us or our directors, officers or other employees, which may
discourage lawsuits against us and our directors, officers and
other employees.
General Risk
Factors
If we
are unable to consummate acquisitions at acceptable prices, and to
enter into other strategic transactions and relationships that
support our long-term strategy, our growth rate and our business,
financial condition and results of operations could be negatively
affected. These transactions and relationships also subject us to
certain risks.
As part of our
business strategy, we may acquire or make investments in
complementary companies, products or technologies, and enter into
other strategic transactions and relationships in the ordinary
course. Our ability to grow our revenues, earnings and cash flow at
or above our historic rates depends in part upon our ability to
identify and successfully acquire and integrate businesses at
acceptable prices, realize anticipated synergies and make
appropriate investments that support our long-term strategy. We may
not be able to consummate acquisitions at rates similar to the
past, which could adversely impact our growth rate and our
business, financial condition and results of operations. Promising
acquisitions, investments and other strategic transactions are
difficult to identify and complete for a number of reasons,
including high valuations, competition among prospective buyers,
the availability of affordable funding in the capital markets and
the need to satisfy applicable closing conditions and obtain
applicable antitrust and other regulatory approvals on acceptable
terms. In addition, competition for acquisitions, investments and
other strategic transactions may result in higher purchase prices
or other terms less economically favorable to us. Changes in
accounting or regulatory requirements or instability in the credit
markets could also adversely impact our ability to consummate these
transactions on acceptable terms or at all.
In addition,
even if we are able to consummate acquisitions and enter into other
strategic transactions and relationships, these transactions and
relationships involve a number of financial, accounting,
managerial, operational, legal, compliance and other risks and
challenges, including the following, any of which could negatively
affect our growth rate and the trading price of our ordinary
shares, and may have a material adverse effect on our business,
financial condition and results of operations:
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Any business, technology, product or solution that we acquire
or invest in could under-perform relative to our expectations and
the price that we paid or not perform in accordance with our
anticipated timetable, or we could fail to operate any such
business or deploy any such technology, product or solution
profitably.
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We may incur or assume significant debt in connection with our
acquisitions and other strategic transactions and relationships,
which could also cause a deterioration of our credit ratings,
result in increased borrowing costs and interest expense and
diminish our future access to the capital markets.
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Acquisitions and other strategic transactions and
relationships could cause our financial results to differ from our
own or the investment community’s expectations in any given period,
or over the long-term.
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Pre-closing and post-closing earnings charges could
adversely impact operating results in any given period, and the
impact may be substantially different from period to period.
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Acquisitions and other strategic transactions and
relationships could create demands on our management, operational
resources and financial and internal control systems that we are
unable to effectively address.
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We could experience difficulty in integrating personnel,
operations and financial and other controls and systems and
retaining key employees and customers.
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We may be unable to achieve cost savings or other synergies
anticipated in connection with an acquisition or other strategic
transaction or relationship.
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We may assume unknown liabilities, known contingent
liabilities that become realized, known liabilities that prove
greater than anticipated, internal control deficiencies or exposure
to regulatory sanctions resulting from the acquired company’s or
investee’s activities and the realization of any of these
liabilities or deficiencies may increase our expenses, adversely
affect our financial position and/or cause us to fail to meet our
public financial reporting obligations.
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In connection with acquisitions and other strategic
transactions and relationships, we often enter into post-closing
financial arrangements such as purchase price
adjustments, earn-out obligations and indemnification
obligations, which may have unpredictable financial results.
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As a result of our acquisitions, we have recorded significant
goodwill and other assets on our balance sheet and if we are not
able to realize the value of these assets, or if the fair value of
our investments declines, we may be required to incur impairment
charges.
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We may have interests that diverge from those of our strategic
partners and we may not be able to direct the management and
operations of the strategic relationship in the manner we believe
is most appropriate, exposing us to additional risk.
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Investing in or
making loans to early-stage companies often entails a high degree
of risk, and we may not achieve the strategic, technological,
financial or commercial benefits we anticipate; we may lose our
investment or fail to recoup our loan; or our investment may be
illiquid for a greater-than-expected period of time.
Unfavorable conditions in our industry or the global economy or
reductions in information technology spending could limit our
ability to grow our business and negatively affect our results of
operations.
Our results of
operations may vary based on the impact of changes in our industry
or the global economy on us or our customers. Current or future
economic uncertainties or downturns could adversely affect our
business and results of operations. Negative conditions in the
general economy both in the United States and abroad, including
conditions resulting from changes in gross domestic product growth,
financial, and credit market fluctuations, rising inflation or
interest rates, political turmoil, natural catastrophes, the
ongoing COVID-19 pandemic, any other pandemic, epidemic
or outbreak of infectious disease, warfare, protests and riots, and
terrorist attacks on the United States, Europe, the Middle East,
the Asia Pacific region, or elsewhere, could cause a decrease in
business investments by our customers and potential customers,
including spending on information technology, and negatively affect
the growth of our business. To the extent our products are
perceived by customers and potential customers as discretionary,
our revenue may be disproportionately affected by delays or
reductions in general information technology spending. Also,
customers may choose to develop in-house software as an
alternative to using our products. Moreover, competitors may
respond to market conditions by lowering prices. We cannot predict
the timing, strength or duration of any economic slowdown,
instability or recovery, generally or within any particular
industry. If the economic conditions of the general economy or
markets in which we operate do not improve, or worsen from present
levels, our business, results of operations, and financial
condition could be adversely affected.
The
estimates of market opportunity and forecasts of market growth
included in this Annual Report may prove to be inaccurate, and even
if the markets in which we compete achieve the forecasted growth,
our business could fail to grow at similar rates, or at all.
The estimates
of market opportunity and forecasts of market growth included in
this Annual Report may prove to be inaccurate. Market opportunity
estimates and growth forecasts are subject to significant
uncertainty and are based on assumptions and estimates that may not
prove to be accurate, including as a result of any of the risks
described in this Annual Report.
The variables
that go into the calculation of our market opportunity are subject
to change over time, and there is no guarantee that any particular
number or percentage of addressable users or companies covered by
our market opportunity estimates will purchase our products at all
or generate any particular level of revenue for us. In addition,
our ability to expand in any of our target markets depends on a
number of factors, including the widespread awareness among key
organizational decision makers of, and the cost, performance, and
perceived value associated with, our platform and products and
those of our competitors. Even if the markets in which we compete
meet the size estimates and growth forecasted in this Annual
Report, our business could fail to grow at similar rates, or at
all. Our growth is subject to many factors, including our success
in implementing our business strategy, which is subject to many
risks and uncertainties. Accordingly, the forecasts of market
growth included in this Annual Report should not be taken as
indicative of our future growth.
If our
estimates or judgments relating to our critical accounting policies
are based on assumptions that change or prove to be incorrect, our
results of operations could fall below the expectations of
securities analysts and investors, resulting in a decline in the
trading price of our ordinary shares.
The preparation
of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported
in our consolidated financial statements and accompanying notes. We
base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances, as discussed in the section titled “Operating and
Financial Review and Prospects’” included elsewhere in this Annual
Report, the results of which form the basis for making judgments
about the carrying values of assets, liabilities, equity, revenue,
and expenses that are not readily apparent from other sources. Our
results of operations may be adversely affected if our assumptions
change or if actual circumstances differ from those in our
assumptions, which could cause our results of operations to fall
below our publicly announced guidance or the expectations of
securities analysts and investors, resulting in a decline in the
market price of our ordinary shares.
Our
business activities subject us to litigation risk that could
materially and adversely affect us by subjecting us to significant
money damages and other remedies, causing unfavorable publicity or
increasing our litigation expense.
We are, from
time to time, the subject of complaints or litigation, including
user claims, contract claims, employee allegations of improper
termination and discrimination and claims related to violations of
applicable government laws regarding religious freedom, advertising
and intellectual property. The number and significance of these
potential claims and disputes may increase as our business expands.
Any such claim could be expensive to defend and, regardless of its
merit, may divert time, money, management’s attention and other
valuable resources away from our operations, harm our reputation,
and, thereby, adversely affect our business. Further, our insurance
may not cover all potential claims made against us or be sufficient
to indemnify us for all liability that may be imposed.
Additionally, a substantial judgment against us could materially
and adversely affect our business, financial condition, results of
operations and prospects.
Our
insurance may not provide adequate levels of coverage against
claims.
We believe that
we maintain insurance customary for businesses of our size and
type. However, there are types of losses we may incur that cannot
be insured against or that we believe are not economically
reasonable to insure. Moreover, any loss incurred could exceed
policy limits and policy payments made to us may not be made on a
timely basis.
Item 4. Information on
the Company
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A. |
History and Development of the
Company
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WalkMe Ltd. was
founded in October 2011 under the name Make Tutorial Ltd. and
changed its legal name to WalkMe Ltd. in March of 2012. Our
commercial name is WalkMe. In June 2021, we listed our shares on
the Nasdaq Global Select Market under the symbol “WKME.” We are a
company limited by shares organized under the laws of the State of
Israel. We are registered with the Israeli Registrar of Companies.
Our registration number is 51-4682269. Our principal executive
offices are located at 1 Walter Moses St., Tel Aviv, 6789903,
Israel.
Our website
address is www.walkme.com, and our telephone number
is +972-3-763-0333. We use our website as a means of
disclosing material non-public information. Such disclosures will
be included on our website in the “Investor Relations” sections.
Accordingly, investors should monitor such sections of our website,
in addition to following our press releases, SEC filings and public
conference calls and webcasts. Information contained on, or that
can be accessed through, our website does not constitute a part of
this Annual Report and is not incorporated by reference herein. We
have included our website address in this Annual Report solely for
informational purposes. Our SEC filings are available to you on the
SEC’s website at http://www.sec.gov. This site contains reports and
other information regarding issuers that file electronically with
the SEC. The information on that website is not part of this Annual
Report and is not incorporated by reference herein.
Our agent for
service of process in the United States is WalkMe, Inc., which
maintains its principal offices at 71 Stevenson Street, Floor 20,
San Francisco, CA 94105. Its telephone number
is 855-492-5563.
For a
description of our principal capital expenditures and divestitures,
see Item 5. “Operating and Financial Review and Prospects—Liquidity
and Capital Resources.”
Overview
WalkMe is a
platform which enables organizations to better realize the value of
their software investments. Using our cloud-based Digital Adoption
Platform, users—employees and customers of organizations—can
navigate websites, SaaS applications, or mobile apps through a
digital, GPS-like experience to accomplish any task from simple,
online transactions, to complex cross-application software
processes, to fully autonomous experiences that require no manual
clicks or entries.
Using our
unique, no code software implementation process, our Digital
Adoption Platform overlays upon any application and enables a data
first approach to understand the gaps between user interactions and
behavior with technology and an organization’s business goals. With
actionable insights, we then enable organizations to create and
deliver elegant experiences that lead users to success, ensuring
digital adoption and ultimately fulfilling the promise of digital
transformation. We enable businesses to drive business process
adoption by connecting usage data with action for the end user
driving a better experience and better business outcomes.
With a digital
adoption strategy powered by WalkMe, employees and customers of
organizations can benefit from an intuitive and unified technology
experiences. Chief information officers (“CIO”) and business
leaders gain visibility and insights across the organization’s
enterprise technology stack. This allows organizations to become
more results driven, agile and innovative, to better compete in
today’s ever-changing business environment, to accelerate their
digital strategies and to ultimately achieve their
objectives.
The digital
revolution has fundamentally shifted the core competencies required
of successful companies. According to the U.S. Bureau of Economic
Analysis, digital investment, defined as private non-residential
fixed investment in software, research and development, and
information processing equipment, comprised 56% of all
non-residential fixed investment by U.S. businesses as of the
fourth quarter of 2020. From remote-first workforces leveraging
virtual collaboration for seamless communications to new
digitally-enabled business models, technology is impacting every
part of people’s lives. Meanwhile, as daily usage of technology has
increased over time, expectations for digital interactions have
evolved, resulting in the consumerization of software and increased
demand for frictionless user experiences. To compete in an
increasingly digital world, organizations continue to acquire new
technologies, investing billions of dollars a year in software
applications that promise specific business outcomes to elevate and
exceed their key business metrics. These software applications,
increasingly delivered over the cloud, cover every business process
and department within an organization. According to Gartner,
enterprise software spend is expected to increase from $506 billion
in 2021 to $715 billion by 2024, as enterprises invest in software
to transform their businesses.
Fully realized,
these investments promise increased employee productivity, better
customer experiences and improved business insights for CIOs and
business leaders. In practice, however, the more software
organizations acquire, the more complex their enterprise technology
stack is to manage, use and maintain. CIOs and business leaders
lack visibility into what or how software is being utilized, which
processes can be optimized and whether their technology investments
are delivering the expected business value. Similarly, users—both
employees and customers—struggle to navigate a growing number of
applications with different interfaces to complete business
processes. Users must continuously relearn new technology functions
that may have vastly different and evolving capabilities while
evolving business processes place new demands on the
business.
As a result,
despite massive investments in technology, the majority of
organizations fail to successfully capitalize on their digital
transformation initiatives, accomplish their strategic objectives
and deliver business value at scale. According to Boston Consulting
Group, 70% of digital transformations fall short of their
objectives. We believe the principal reason for such failures is
the inability of users to overcome deeply rooted behaviors and this
resistance to change leads to users never fully adopting the
underlying software and processes.
We believe the
key to digital adoption is understanding points of failure and
bottlenecks through data-based insights, then continually acting on
and improving processes to achieve digital transformation more
rapidly and strategically. According to a recent Harvard Business
Review Analytic Services study we sponsored of over 500 corporate
executives, 80% of respondents stated that, in order to increase
the chances of digital transformation success, it is important or
very important for senior management to have a clear and complete
overview of their organization’s digital adoption progress via
analytics. Moreover, 81% of those surveyed agreed or strongly
agreed that the ability to rapidly adopt new technologies and embed
them in their employees’ everyday work is a competitive
differentiator in their industry.
With digital
transformation success, we believe CIOs and business leaders:
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gain visibility into the usage of the software applications
stack to better understand resource allocation;
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create streamlined digital experiences that meet business
goals for the organization;
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have the ability to measure return on investment in technology
spend; and
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track software usage to gain insight into tangible business
impact created by manager-led departments.
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In addition,
digital transformation success provides employees and customers
with:
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intuitive and improving user experiences with
technology;
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simplified learning curves for gaining proficiency on a new
application, increasing efficiency and solving the problem of
under-utilization of software;
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reduced breadth and variety of applications that they are
required to engage with and continuously learn; and
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more frequent engagement with the business process, not just
the software, which leads to increased retention.
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From new
digital transformation programs to optimizing value out of existing
technologies, we help organizations tie software adoption to their
strategic goals across every level, from CIOs and business leaders,
to employees and customers. As of December 31, 2021, through our
Digital Adoption Platform, we had approximately 2,000 customers in
42 countries, including 367 of the Global 2000.
Our success in
helping customers achieve their digital transformation strategies
has allowed us to achieve significant growth. For the years ended
December 31, 2020 and 2021, our revenue was $148.3 million and
$193.3 million, respectively, representing year-over-year growth of
30%. For the years ended December 31, 2020 and 2021, our net loss
was $45.0 million and $80.3 million, respectively, our operating
cash flow was ($8.7) million and ($34.2) million, respectively, and
our free cash flow was ($11.0) million and ($40.8) million,
respectively.
Key Trends
Driving the Need for a Digital Adoption Platform
Digital
transformation is a priority for enterprise organizations.
According to Gartner, enterprise software spend is expected to
increase from $506 billion in 2021 to $715 billion by 2024, as
enterprises invest in technology to increase productivity, better
compete and grow their businesses. Moreover, global enterprise
spend on digital transformation is projected to reach nearly $2.4
trillion within the next four years, representing over 57% of all
business spending on technology, according to IDC. According to
research by Accenture, digital leaders, defined as the top 10% of
companies leading technology innovation, achieve two to three times
greater revenue growth as compared to their competitors—a widening
divide that Accenture calls the “Digital Achievement Gap.” As
enterprises attempt to drive successful digital transformation,
budget allocations to software continue to increase. According to
IDC, global enterprise spend on software as a percentage of total
global IT spend has grown from 22% in 2016 to 26% in 2020, and is
projected to grow to 30% by 2024. Moreover, according to Gartner,
by 2025, 70% of organizations will use digital adoption solutions
across the entire technology stack to overcome still insufficient
application user experiences.
The
COVID-19 pandemic has further accelerated this trend, as public
health measures force enterprises to accelerate their
cloud-migration initiatives, enable virtual work collaboration at
scale and transform operations to deliver contactless,
digitally-enabled experiences for their employees and customers.
According to a KPMG survey, 79% of CEOs say that their companies
are accelerating the creation of a seamless digital consumer
experience as a result of the COVID-19 pandemic and 63% have
increased their digital transformation budget. As technology
innovation accelerates in an increasingly online world, companies
must become digital or risk being rendered obsolete.
Digital transformation is
dependent on people adopting new software applications.
Based on Blissfully 2020 SaaS trends report, enterprises maintain
288 SaaS applications, on average, representing approximately 10
applications per employee, with usage of applications growing at an
estimated rate of 30% annually. Despite this growth, enterprises
are not experiencing the promised returns on their digital
transformation investments largely, we believe, because their
employees are overwhelmed by the increasing number of software
applications they are being asked to learn and utilize, and their
customers are confused by new digital interactions that are
constantly evolving as applications are updated. Additionally,
business processes are constantly evolving to support changing
business needs resulting in more confusion and the need to relearn
processes and applications. Enterprises require assistance bridging
this gap between their digital transformation aspirations and the
technical acumen of their internal and external users.
Failure to
adopt applications has significant costs for organizations.
According to Insight Enterprises, over 20% of licensing spend is on
software that is not utilized, which represents $3.0 million a year
in wasted investment for most organizations. For employees,
underutilization results in additional time required to complete
tasks, ultimately leading to lost customers and revenue. For
managers, underutilization results in wasted IT spend and resources
and reduced employee productivity. As a result, CIOs face
difficulty steering their organizations to desired goals. These
factors often result in organizations achieving only a small
portion of their digital transformation goals while incurring large
monetary and operational costs.
Users need a
frictionless software application experience. As new
advanced digital user interfaces such as wearables, smartphones and
AI-powered voice assistants become more prevalent, enterprise
applications appear dated and cumbersome by comparison. This
disparity in interfaces affects engagement and heightens
expectations for software provided by organizations to their users.
Moreover, employees expect frictionless technology experiences,
which is in turn critical for employee retention. In the virtual
work environment, frictionless onboarding and streamlined workflows
have become essential to maintaining an efficient and productive
workforce. Meanwhile, customers experience pain points along their
digital journeys, such as difficult to navigate websites, which can
lead to lost sales. Enterprises must increasingly prioritize
frictionless digital experiences for their employees and
customers.
In a digital
world, delivering experiences that employees value and customers
love is key to capturing the benefit of digital transformations and
the underlying applications.
Business
processes span multiple applications across organizational
silos. Employees depend on a vast array of enterprise
software applications that often span different departments to
perform their job functions. A sales employee may utilize different
applications for external purposes such as CRM, quoting and project
management, while simultaneously dealing with internal HR, payroll,
expense and other back-office tools. According to a recent report
by Harvard Business Review Analytic Services, employees find
cross-application workflows are on average 42% more difficult to
use than single application processes. When multiple workflows
exist without sufficient guidance, more potential points of failure
arise, as employees can no longer be experts in each application
across the organization. A unified and guided user experience
becomes critical as the number of applications grows. Finally, for
department-level managers and CIOs overseeing entire organizations,
multiple applications and workflows without centralization or
ML-based analytics do not provide the visibility required for
insightful decision-making.
The role of the
CIO is evolving from traditional to transformational. The
CIO has increasingly become a key influencer in most parts of an
organization, including customer experience, operations, COVID-19
response and recovery efforts, innovation and overall leadership of
the organization. To succeed, CIOs must present themselves in the
core business strategy of the organization. They accordingly
require the right technology to lead the organization to digital
transformation success, by ensuring a robust, resilient and agile
infrastructure. This requires access to the right data and
visibility into their digital portfolio and the ability to create
seamless user experiences for users across the organization and
across any platform.
WalkMe’s Digital Adoption Platform
Our Digital Adoption Platform enables organizations to measure,
drive and act to maximize the impact of their digital
transformation and accelerate the return on their software
investment. Our unified, strategic platform drives value through
the following building blocks:
Data
WalkMe Insights and UI Intelligence provides CIOs and business
leaders with visibility across the software stack, actionable
insights and data needed to measure, drive and act to maximize the
impact of their digital transformation strategies.
User Experience
User experience is the foundation of WalkMe. With our software,
enterprises can design and overlay contextual and personalized
experiences that drive adoption of its digital processes and assets
on mobile, web and desktop interfaces.
Data- Driven Action Through User-Centric Technology Applicable
Anywhere
Our technology
is designed to leverage the application user interface (“UI”) as
the primary integration point to deliver our products. Unlike
Application Programming Interfaces (“APIs”) which are not
consistently available across applications and require developer
resources to implement, our UI-focused approach allows us to deploy
our Digital Adoption Platform across any application and deliver
contextually aware, fully dynamic workflow guidance, automation and
analytics.
Our Digital
Adoption Platform drives the success of digital transformation
initiatives by empowering CIOs and business leaders with critical
business insights to enhance business process and increase software
adoption by taking data-driven action to improve the user
experiences for employees and customers:
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For CIOs and Business Leaders, our
platform provides unified visibility, data and actionable insights
across the organization’s software stack, to improve key business
processes and drive employees and customers to action. Our
data-driven insights offer strategic perspective and provide a
competitive advantage to CIOs.
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A leading food and beverage
company uses our Digital Adoption Platform to gain
visibility into user behavior across applications and focus
resources to target employees at the point in their journey that
they need help. By automating common workflow processes and
providing targeted support for others, they are realizing improved
task completion rates of nearly two times prior levels, in some
cases. Importantly, user satisfaction has increased and
productivity gains have given employees more time to focus on
higher value initiatives.
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For Employees, our
platform provides a contextual and unified experience that can be
seamlessly delivered across any application (third party,
proprietary, mobile or desktop) to provide personalized process
workflow guidance and automation.
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A global pharmacy store
chain utilized our technology to drive digital adoption
across multiple apps that are relied upon by more than 220,000
employees globally, resulting in an average reduction of 50% in
support tickets. During the pandemic, a key driver of WalkMe’s
success was its role in standing up new technology with as little
friction as possible.
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A leading biotechnology
company uses WalkMe across over 45 applications in over 11
languages to empower its workforce to be successful while
continuing to deliver on its promises to employees and customers.
WalkMe is used as a strategy for adoption of existing apps as well
as a method of deploying new pieces of software. With WalkMe, they
rolled out an enterprise wide HCM to 90,000+ employees with no
formal training methods and user satisfaction ranking at 98% in
some cases.
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For Customers, our
platform can be deployed on any customer facing website or
application to power self-service onboarding, feature engagement,
support and more.
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One of the world’s largest
technology and consulting companies uses WalkMe to support
onboarding, mitigate support tickets, and increase success of their
customers on over 20 B2B offerings. They’ve seen 6x increase in
product adoption, 4x higher conversion rate, 80% revenue growth of
digital offerings, and a 300% improvement in product usage
consumption, and user retention.
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Key Benefits of Our Digital Adoption Platform
By overcoming the digital transformation challenge, organizations
are better able to leverage technology to drive key business
metrics that focus on mitigating risk for the business, driving
efficiency and revenues. Our Digital Adoption Platform:
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Provides Insights to Help CIOs
and Business Leaders Drive Business Outcomes Horizontally Across
the Organization. CIOs and business leaders use our Insights
capabilities, UI Intelligence technology and integration- center to
gain visibility into the enterprise technology stack, including
software usage and user experiences across business processes. This
analytics suite delivers metrics horizontally across departmental
managers, which include tactical information such as how employees
and customers engage with applications (e.g., number of active
users and application and feature utilization) as well as higher
level, strategic information targeted to CIOs (e.g., enterprise
wide technology utilization and process adoption). Our analytics
can be leveraged to manage, measure and prioritize digital
projects, change user behaviors, and increase digital adoption,
which drives business outcomes that align with the strategic goals
of the entire organization.
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Delivers Immediate
Value. Our technology provides CIOs and business
leaders with immediate visibility into the software stack and
business processes, consolidates applications for users to navigate
and provides detailed guidance on how to use them effectively. From
an employee and customer perspective, time to mastery of new
technologies and processes is greatly reduced. In addition,
managers do not have to rely on IT resources to facilitate
deployment and integration with legacy systems, shortening the wait
for useful insights and allowing for quick decisions. Such dynamics
enable enterprises to cultivate agile and productive workforces
that can rapidly adapt to changing organizational needs. By using
our platform, enterprises organically understand the data-based
insights and derived solutions to their issues, saving additional
learning curve costs and achieving faster and increased ROI on
their software spend.
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Optimizes Software Usage and
Technology Spend. We enable enterprises to make greater use
of software more efficiently. For example, many enterprises utilize
their CRM tools solely as a contact database. With our Digital
Adoption Platform, organizations can create easy to use business
process workflows that facilitate and encourage employees to use
the CRM tools as an interactive sales pipeline and forecasting
system that provides comprehensive revenue generation benefits.
Through our Digital Adoption Platform, organizations are able to
capture this additional value from new user behavior formed around
the optimal product adoption, by leveraging pre-built best practice
templates and solution.
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These
improved usage behaviors also lead to increased return on
technology investment for CIOs. According to an October 2020
Forrester Consulting study, The
Total Economic Impact™ of WalkMe Digital Adoption Platform,
a study WalkMe commissioned (“TEI Study”), our Digital Adoption
Platform was estimated to deliver net present value savings of $9.8
million from increased application usage and process efficiency
over a three-year period for a modeled composite of representative
customers. The TEI study also found that WalkMe can deliver up to a
368% return on investment over three years for customers
implementing our Digital Adoption Platform, with a payback period
of less than three months. The study further found that WalkMe
enabled organizations can realize future license savings of about
20% savings in the third year of implementing our Digital Adoption
Platform. Additionally, the study indicated that the value of the
benefits customers derive from WalkMe can grow approximately 126%
over three years as organizations implement more use cases.
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Increases Employee
Productivity and Reduces Support Costs. By engaging
employees across software applications, employees are able to use
more easily the software applications that the enterprise has
deployed. This leads to improved productivity, increased data
accuracy, reduced support costs and increased employee engagement.
Based on the TEI Study, employees observe a 60% reduction in
training time on applications and savings of 50% from reduced IT
support calls and Help Desk tickets. With WalkMe, employees are
able to realize the full capabilities of different applications
without friction, driving better performance in their jobs and
improving business outcomes for the organization.
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Improves Customer
Engagement. Our Digital Adoption Platform improves customer
engagement and retention by simplifying the end user experience.
According to the TEI Study, our Digital Adoption Platform resulted
in an approximate increase of 35% in customer retention and 10%
growth in upsell opportunities from existing customers over three
years.
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For additional details regarding the TEI Study, see “Market and
Industry Data.”
Our
Competitive Strengths
Category-defining platform
powering digital transformation. We pioneered the digital
adoption category. We believe that our position as the market
leader and our strong brand awareness increases our opportunities
to win new customers and to expand our offerings within our
existing customers. According to a 2021 Everest Group study that
observed 18 Digital Adoption Platform vendors, in 2020 WalkMe’s
Digital Adoption Platform market share, by license revenue, was
greater than 45%. As of December 31, 2021, our customers included
367 of the Global 2000. We believe the adoption of WalkMe by the
largest global enterprises is evidence that our platform has the
enterprise-grade functionality, scalability, reliability and
security required by the world’s most demanding
organizations.
Broad, rich dataset and
AI/ML capabilities provide valuable insights and continuous
optimization. The breadth of applications where our software
is deployed has enabled us to build a massive dataset, capturing on
average billions of data events per day. We leverage this dataset
to power our machine learning algorithms, which proactively
identify where users struggle, what users’ intent was in completing
an action within an application or workflow, and where
opportunities exist for automation of repetitive workflows. The
depth of our experience has provided us with deep insights on best
practices and industry benchmarking, as well as key performance
indicators, all of which we are able to share with our customers.
As a result, WalkMe acts as both a platform for discovering and
implementing digital transformation initiatives, and enabling
customers to rapidly adjust business processes and test impact,
driving a cycle of continuous optimization.
Proprietary AI technology
that recognizes user interfaces. Our technology operates as
a layer upon any user interface and leverages artificial
intelligence to analyze and identify the underlying elements of the
UI. By deploying this patented UI intelligence technology across
thousands of software instances, we have developed deep insights
into how users interact with software and a powerful understanding
of the consistent elements present across many different user
interfaces. This core technology ensures that if an application or
user interface is updated, the existing collection of our
instructional guides and automated workflow processes are
automatically updated to support the new version of the underlying
application with limited or no input from our customer. For
example, if an update to an underlying application changes the
location of a field linked to a Walk- Thru, WalkMe will
automatically recognize the new location and the workflow for the
user will not be disrupted. Similarly, as users customize their UI
to their own preferences, the WalkMe automations and guidance
layers will adapt to the user by recognizing the relevant
underlying elements. This technology enables our customers to scale
and advance their digital transformation strategies by
significantly reducing maintenance requirements and costs borne
from constant changes to the underlying software, continuous
process modification and optimization, and the flexibility desired
by and unique needs of each user.
Growing ecosystem that
positions WalkMe at the center of the digital transformation
industry. We are investing to continue to grow our brand
awareness and build out the WalkMe Beyond brand, an ecosystem of
professionals, partners, and collaborators with powerful network
effects. We have established WalkMe Beyond as a core strategy that
brings together the various industry activities that are shaping
our ecosystem, including our research arm, professionals certified
by us on our platform, our partners, the Digital Adoption
Institute, our customer community portal, Integration center,
developer hub and a soon-to-launch services exchange
marketplace.
Infrastructure agnostic and
extensible technology. Our Digital Adoption Platform can be
deployed across any type of application including SaaS cloud
applications, on-premise software on servers, on desktops or on
mobile devices and across all operating systems. Because our
platform works across all of these systems, our customers are able
to automate digital processes across their internally built,
third-party application environments from a single platform. Our
platform is easy to access and operate from anywhere, which is
important for increasingly distributed and remote workforces.
Our
Growth Strategy
We intend to
capitalize on our large market opportunity, first mover advantage
and category-defining technology platform by executing the
following key elements of our growth strategy:
Innovate and advance our
platform. Our investments in research and development to
build our technology have been a core differentiator for us. We
released WalkMe for mobile applications in 2017, our Insights
engine in 2018, and introduced ActionBot in 2019 and our patented
UI Intelligence technology in 2019. We intend to continue to invest
in technology innovation to enhance our platform, including
machine-learning, hyper-automation and process mining/discovery
technologies.
Acquire new
customers. We have achieved significant and broad-based
customer adoption, including 367 of the Global 2000. We believe
that we have a substantial opportunity to continue to grow our
customer base. We intend to accelerate new customer acquisition
across the markets that we serve as well as enter into new market
segments by scaling our sales and marketing capabilities and
channel relationships. As part of this strategy, we intend to
increase our capacity, including investing in FedRamp certification
for our platform and targeted sales and marketing resources, to
increase our U.S. federal government customers.
Increase usage and spend
from our existing customers. Our customers often initially
adopt WalkMe for a specific use case within a single department.
After their initial adoption, our customers frequently expand to
new users and use cases across additional applications within a
department and ultimately to applications across the entire
enterprise. We believe that our ease of use, depth, breadth of our
platform, and, according to the TEI Study, a pay-back period of
less than 3 months, will enable us to increase adoption by our
existing customers.
Expand
internationally. We believe there is a global need for our
Digital Adoption Platform. For the year ended December 31, 2021, we
had approximately 30% of our revenue came from customers outside of
the United States. We have made significant investments in
expanding our presence in Europe, the Middle East, Africa and Asia,
and we believe there is a compelling opportunity to expand our
offerings internationally in those markets with minimal additional
investment to our technology and infrastructure.
Expand our ecosystem and
go-to-market partnerships. We intend to continue investing
in our ecosystem and partner relationships to extend the
functionality of our platform, support new use cases and add new
go-to-market channels. In 2021, we announced partnerships with
Deloitte U.S. and SAP Concur, and, in the first quarter of 2022 we
announced a partnership with Accenture, to extend our channels for
acquiring new customers. We have built a flexible technology
platform with open APIs which third-party developers can use to
develop and sell new applications and solutions through our WalkMe
Marketplace, which will increase our value to our customers and
further embed WalkMe as a strategic platform within the enterprise.
We intend to continue to invest in building our partner
relationships including our relationships with system integrators
to increase our delivery capacity, add new go-to-market channels
and increase our sales pipeline. We intend to continue to grow our
WalkMe Beyond ecosystem, digital adoption platform (“DAP”)
professional as a Profession and our WalkMe Marketplace for
independent professionals to offer services supporting
WalkMe.
Our
Technology
Our technology
is designed to autonomously understand user behavior across digital
journeys by leveraging the application UI as the primary
integration point to deliver our products. Our UI-focused approach
enables seamless integration and allows us to deploy our products
across any application—including custom built software—to deliver
contextually aware, fully dynamic workflow guidance, as well as
automation and analytics based on the user needs. Our Digital
Adoption Platform does not require any coding or changes to the
underlying application to implement the seamless deployment of
WalkMe across the applications used by our customers.
At the core of
our UI-focused approach is DeepUI, our proprietary UI Intelligence
technology. DeepUI leverages patented AI and machine learning
algorithms to analyze any software application or website UI in
relation to the user’s process flow context, navigation intent and
permissions, among many other factors.
By
understanding how users interact with the underlying elements of
any application’s UI at a granular level, our Digital Adoption
Platform is able to automatically adapt as applications are
continuously updated. For example, just as a person would know how
to recognize a login page because they have seen similar pages
countless times before, our DeepUI technology recognizes the
underlying elements of an application’s UI and automatically adapts
to enable users to successfully navigate through any application
process flow, regardless of changes to the underlying UI. In
addition, our DeepUI technology drives reductions in operational
and maintenance costs by removing the
need to support manual updates
triggered by version changes to the
underlying application. We do this
by periodically scanning the
applications upon which our software
is deployed and collecting user behavior metadata. We do this
seamlessly, with no impact on the user.
The data
collected by DeepUI is digested by Insights. Insights collects user
attributes, session information, WalkMe interactions,
location, device, among others,
processing on average billions of
events every day. Insights’ core technology is a
petabyte scale real-time analytics platform that can support data
at any scale and in any form. The events are aggregated and
accumulated into smart dashboards, which enable our customers to
analyze and run ad hoc queries on real time and historical data.
This provides our customers with actionable insights to help with
their data-driven decisions and maximize their value from our
platform.
Our
Core Principles in Building Our Technology
No
prerequisites and frictionless deployment on any digital
asset
Our technology
is platform agnostic and supports any digital asset that is used by
our customers, including all modern web browsers (desktop and
mobile), mobile native applications (iOS and Android), and desktop
operating systems (Windows and macOS).
Simple and flexible deployment across any enterprise
environment
Our platform is
easy to deploy across any enterprise, including complex IT
environments and custom-built software. We support delivery through
a browser extension, code snippet, mobile SDK, desktop agent, or
through 3rd party apps.
No-code simplicity, enterprise grade functionality
We designed our
platform so that any individual can build complex implementations
without the need for coding by leveraging our UI intelligence
technology and our robust and easy-to-use editor. Like recording a
macro in Office, our editor enables the building of Walkthroughs by
recording the steps a user takes. This makes building content
simple, fast and easy to maintain, while also supporting enterprise
requirements such as collaboration by multiple users building on
the same account, testing environments or versioning.
Data-driven approach
Our platform is
built on a big-data pipeline that collects and processes on average
billions of events every day, providing CIOs and business leaders
visibility into the software stack and an understanding into
digital experiences across applications. In order to monitor
business goals, customers are able to leverage data, identify areas
of improvement, apply digital adoption capabilities, define success
and act upon it.
Deliver extensible, agile and integration-ready platforms
Our platform
achieves extensibility and agility by designing core services such
as content management and user behavior analysis to be broadly
applicable to any application. This reduces the complexity and the
required effort needed to adopt new applications that are built to
serve additional use cases. Furthermore, our platform is designed
to be easily integrated with software utilized by our customers by
exposing an API and set of tools for incoming and outgoing data
integrations, in both batch mode as well as online.
Cloud-native architecture for performance, reliability and
availability
Our software is
built on a microservices-based architecture, leveraging public
cloud infrastructure from Amazon Web Services and Google Cloud
Platform. Our architecture is designed to be highly scalable and
reliable, as it runs on top of business critical systems.
Security and privacy by design
WalkMe is ISO
27001 and SOC 2 Type II certified. In addition, we have developed
features that provide our customers with
security controls over their use
of WalkMe that helps achieve
their compliance with regulatory requirements.
Additionally, our UI-focused integration approach
supports improved security by aligning our Digital Adoption
Platform with the user role-based policies already integrated
within the application.
Our Platform
Our extended
functional capabilities, designed to solve key business challenges,
include:
User experience
is what drives WalkMe. With WalkMe, our customers can design
contextual and personalized experiences that engage and drive user
adoption of their digital assets on mobile, web and desktop.
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Smart
Walk-Thrus. Smart Walk-Thrus are intelligent and
context aware, step-by-step instructions delivered to
users in real-time as dynamic, in-app experiences that
adjust guidance based on user roles and actions, app navigation
orientation, workflow process stage and custom defined conditions.
Walk-Thrus simplify the user experience by
providing on-screen guidance and automation, helping
ensure proper task completion. Examples include guiding employees
on how to add a lead or account to a CRM, or helping consumers
complete a purchase. Walk-Thrus can also branch into other
Walk-Thrus based on contextual rules. They can scroll down pages to
a hidden component, commute users in and out of systems (including
third-party data sources) and even perform active tasks, such as
validating and submitting forms.
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Flow Steps. Flow Steps
function to alter the sequence of the Smart Walk-Thru; for example,
they can split the Smart Walk-Thru into different paths, wait for a
certain condition before continuing, or handle errors.
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SmartTips. SmartTips
are functional tool tips used for guidance and validation.
SmartTips can add remarks that address certain processes that are
prone to user error, especially in complicated or vague forms.
SmartTips can provide information on what is on the page or in an
input field and provide real-time feedback on data before form
submission.
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ShoutOuts. ShoutOuts
are notifications that display announcements and encourage
interaction. ShoutOuts can be represented by an action button that
will launch another WalkMe item. For example, in a CRM setting,
ShoutOuts can be used to inform users that the website will be
going down for maintenance, or remind employees to log
activity.
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Onboarding. Onboarding
is a to-do list for users. Onboarding Tasks enable users
to see their progress as they move through the Tasks, gamifying the
experience and pushing them to complete more tasks and engage with
WalkMe. Onboarding can be used to train new hires on a series of
tasks, or to help inform users of widespread changes in an
application or on a website.
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TeachMe.
WalkMe’s Micro-LMS suite, TeachMe, allows users to
package their WalkMe experiences into learning modules and complete
courses. Learning is available to them in the application when it
is most relevant to them. Courses will appear in a tab on the left
hand side of the screen that can be minimized or maximized. Courses
in TeachMe are made using Walk-Thrus, Resource, Articles, Videos
and more.
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Workstation.
Workstation connects employees through a single interface to the
applications within an enterprise and simplifies task completion,
enterprise search, communication, a natural language conversational
interface and automation.
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WalkMe Mobile. WalkMe
Mobile is a native mobile platform for iOS and Android applications
that adds the WalkMe capabilities to mobile apps.
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No-code editor.
Our no-code editor is our main authoring tool through
which WalkMe customers can create, design and manage content
without writing new software code. With key functionalities such as
segmentation, conditional logic and branching, our customers can
create seamless user experiences that drive users to success.
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Solution Accelerators.
We have built several platform-specific solution templates based on
the implementations gathered by WalkMe across the most commonly
used applications. These Solution Accelerators drive best
practices, reduce customer maintenance efforts and costs and enable
faster implementation and time-to-value for frequently
used actions such as changing password or updating an
address.
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Automated Steps. An
Automation process is an automated Smart Walk-Thru that can run
simultaneously while a visual Smart Walk-Thru (including balloon
steps) is also running. For example, an automated process can copy
and paste text from one application and into another and close the
process without undermining data integrity.
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ActionBot. Our
ActionBot is a natural language chatbot interface that allows users
to perform entire tasks from a central conversational interface,
meaning the user is not required to search, operate and navigate
sophisticated enterprise management systems, fill in complex forms
or struggle through convoluted flows between disconnected
platforms. The ActionBot automation can be performed on top of the
UI or by utilizing APIs.
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Shield. WalkMe Shield
is an automated testing solution which ensures that the end users’
experience is always up-to-date. Shield records both the
WalkMe and user experience to ensure flows
are up-to-date with every website change, browser update
and platform version release.
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WalkMe’s data
provides CIOs and business leaders with insights and visibility
across the software stack and the insights needed to measure, drive
and act to ultimately maximize the impact of their digital
transformation strategy by driving process adoption.
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Visibility into Software
Application Utilization. Provides insight into all
applications deployed across an organization, including KPI
setting, usage trends, cross-application user journeys, and
workflow processes.
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Real-time Assessment of User
Productivity. Provides granular data to identify
opportunities to optimize user and business productivity and
eliminate the friction from adopting new technologies.
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Innovative Suite of Digital
Experience Analytics. Measures user engagement and usage
across the underlying application by capturing every interaction
users have with HTML elements on a website to create rich user
event data that can be leveraged for analytics.
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Powerful User Journey Insights
through Session Stream and Session Playback. Session Stream
delivers analytics for understanding user journeys and experiences
by displaying the exact sequence of user actions and events in a
single session. Session Playback pairs with Session Stream to
provide a video-like re-creation of a user’s actual
experience.
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Unique Business Process
Analytics through Funnels. Analyze linear business processes
to understand user challenges, path to completion, conversion and
logical cohort segmentation. In addition, Funnels provides ability
to drill into detailed user-list and session playback analysis and
can be used with any WalkMe or application UI interaction.
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Tracked Events Dashboard to
Drive Pattern Recognition. Enables CIOs and business leaders
to view customer usage trends through Insight’s Tracked Events and
better understand patterns to track what works and what does not.
Tracked Events Dashboard can be customized with a set of selected
tracked events and can be shown at a user or account level.
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Custom Reports. In
cases where customers are interested in datasets that are not
available throughout our dashboards, a custom report can be created
and added to the WalkMe Insights dashboard. Custom reports can
aggregate data from multiple applications in one place and are
flexible to be downloaded, sent periodically via email or
integrated with external applications, such as BI and Analytics
software.
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Our Integration
Center technology supports both incoming and outgoing integrations
to strengthen data analysis on the one hand and create segmented
and personalized user experiences on the other. Our customers
integrate their most business-critical applications to and from
WalkMe for better decision making and more impactful user
experiences.
We serve a
diverse set of customers across all major industries, including
some of the world’s largest and most sophisticated enterprises. As
of December 31, 2021, we had approximately 2,000 customers
including 367 of the Global 2000, as well as 454 customers with ARR
greater than $100,000 and 31 customers with ARR greater than
$1,000,000. Below is a representative list of customers categorized
by industry vertical. No single customer accounted for more than
1.6% and 2.6% of our ARR in the year ended December 31, 2020
and 2021, respectively, which does not take into account certain
mergers or acquisitions that occurred during those years.
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Consumer &
Retail
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Technology
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Financial
Services
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Energy, Industrial, &
Transportation
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Circle
K
L’Oreal
Nestle
Southern
Glazers
Ulta
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LinkedIn
Red
Hat
Sprinklr
Unity
Technologies
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Bank of
the West
Citigroup
E*trade
Goldman
Sachs
IGM
Financial Services
Nasdaq
Paychex
Sun Life
Financial
Zurich
Insurance Group
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American
Airlines
BMW
Chevron
Orica
Schneider Electric
Veolia
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Healthcare &
Life Science
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Education &
Non Profit
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Communications
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AstraZeneca
Christus
Health
Geisinger
Modernizing Medicine
Parexel
Quest
Diagnostics
Syneos
Health
Team
Health
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Kaplan
Make a
Wish Foundation
McGraw
Hill
Stanford
University School of
Medicine
University of Miami
University of Virginia
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British
Telecommunications PLC
Cisco
LogMeIn
Lumen
Technologies
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Our sales and
marketing teams work together closely to drive awareness and
adoption of our platform, accelerate customer acquisition and
increase revenue from customers. While we sell to organizations of
all sizes across a broad range of industries, our key focus is on
larger enterprises that tend to invest more heavily in software
application deployment. These organizations have larger workforces
and customer bases and therefore a greater need for our Digital
Adoption Platform. We plan to continue to invest in our direct
sales force to grow our larger enterprise customer base, both in
the U.S. and internationally.
To support our
sales team in reaching potential customers, our integrated
marketing programs are architected to address the specific needs of
our diverse market segments. They create qualified sales
opportunities, highlight WalkMe’s position as the market pioneer
and leader and educate and raise awareness of our Digital Adoption
Platform. In addition, we have tailored customer marketing
initiatives focusing on driving expansion within existing accounts
and virality among Digital Adoption Platform professionals and
advocates.
Our marketing
department ensures thought leadership and market education for our
Digital Adoption Platform. It promotes activity around our growing
WalkMe Beyond ecosystem as well as Realize, our customer and user
conference.
Our go-to-market model involves a combination of direct
sales and partner-assisted sales.
We sell
subscriptions to our platform primarily through our direct sales
force which is largely organized by territory and customer size,
measured by the number of employees. Our direct sales force is
focused on landing new customers, as well as expanding within them
as they adopt WalkMe for additional use cases and applications. We
typically onboard a new customer with solutions targeting:
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one application or department, after which our sales force
focuses on expanding into other applications or departments,
or
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an enterprise-wide deployment where WalkMe is used across
departments, applications and use cases.
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We sell to
multiple buyers within an enterprise including:
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CIO or VP IT who is focused on digital transformation to
business efficiency, workforce agility and an overall return on
software investment;
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VP of sales, whose priorities include sales productivity and
forecast accuracy;
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Head of Human Resources who aims to improve the digital
experience of employees, especially in a remote work
environment;
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Head of Product who is trying to improve revenue and customer
retention across an application or platform; and
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Head of Contact Center who is looking to reduce support
overhead and improve productivity of support teams.
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We work with
strategic systems integrators such as Accenture, Deloitte, IBM and
Cognizant to sell with and/or through them to their clients. We
believe that Global Systems Integrators (“GSI”) are important
consulting and implementation partners for WalkMe, enabling
enterprises to further their digital adoption strategies and are a
natural extension of our go-to-market function. We have
also developed relationships with leading regional systems
integrators.
Customer Support and Professional Services:
Our customer
success team provides customer support for each of our customers.
Support begins in the customer acquisition phase and continues
throughout the duration of the relationship. Customer support
includes working with customers on launch
and on-boarding, ongoing support, analytics and renewal.
We have a dedicated professional services team. This team provides
support to customers that require services, may have special
operational needs or may require more custom analytics.
Our research
and development organization is responsible for the design,
development, testing and delivery of new technologies, features,
integrations and improvements to our platform. It is also
responsible for operating and scaling our platform, including the
underlying public cloud infrastructure.
Our research
and development organization consists of teams specializing in
software engineering, user experience, product management, data
science, technical program management and technical writing. As of
December 31, 2021, we had approximately 300 employees in our
research and development organization. Our research and development
employees are located primarily in our Tel Aviv offices. We intend
to continue to invest in our research and development capabilities
to expand our platform.
We have
pioneered the Digital Adoption Platform market, and we do not
believe that any single company currently offers a solution that
effectively competes with the full functionality of our integrated
platform technology solutions. Our main sources of competition fall
into the following categories:
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Non-adoption from enterprises maintaining the status quo
of offline, internally developed,
or non-dynamic, FAQ-centric application guidance and
workflow support;
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Point solutions embedded natively or as an add-on to
software provided by diversified enterprise software companies such
as SAP, Oracle, Microsoft, Salesforce; and
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Providers of software for specific in-app guidance
or analytics use cases for SaaS applications, which lack holistic
platform solutions and extensibility across applications.
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We believe that
the principal competitive factors in our markets include the
following:
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Breadth of applications and technology integrations
supported;
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Support for cross-application guidance, automation and
analytics;
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Expertise in third-party application implementations;
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Integration of robust analytics and visualization
capabilities: in addition to analytics across WalkMe usage, our
Digital Experience Analytics provides usage analytics across the
underlying, third-party platforms;
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Cross-platform support for workflows including mobile native
applications (iOS and Android) and desktop (Windows and
macOS);
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Ease of implementation and use;
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Performance, security, scalability and reliability;
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Quality of customer support;
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Total cost of ownership; and
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Brand recognition and reputation.
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We believe that
we compete favorably with respect to the factors listed above.
However, some of the vendors we compete with might have greater
financial, technical and other resources, greater brand
recognition, larger sales forces and marketing budgets, broader
distribution networks, more diverse product and services offerings
and larger and more mature intellectual property portfolios. These
competitors may be able to leverage these resources to gain
business in a manner that discourages customers from purchasing our
offerings. Furthermore, we expect that our industry will continue
to attract new competitors, including smaller emerging companies,
which could introduce new offerings or alternative solutions to the
problems we address. We may also expand into new markets and
encounter additional competitors in such markets.
For
geographical and segmental revenue, see Note 9, reporting segments
and geographical information included within our consolidated
financial statements elsewhere in this Annual Report
We experience
relatively typical seasonality in our quarterly revenue
and operating results consistent with software-as-a-service
companies that sell to enterprise customers. We historically
have received a higher volume of orders from new and existing
customers in the fourth quarter due in part as a result of
software industry procurement patterns. As a result,
our sequential growth in revenue and remaining performance
obligations is typically highest in the fourth quarter of each
year. We expect that these seasonal patterns will become more
pronounced as we execute on our strategy to target larger
enterprise customers. However, as our revenue from
quarter-to-quarter is dependent on various factors including
external factors outside our control, it is difficult to isolate
the impact of these seasonal trends on our business and there
can be no assurance that these patterns
will continue.
Our Intellectual
Property
We consider our
trademarks, trade dress, patents, copyrights, trade secrets and
other intellectual property rights, including those in
our know-how and the software code of our proprietary
technology and products, to be, in the aggregate, material to our
business. We protect our intellectual property rights by relying on
federal and state statutory and common law rights, foreign laws
where applicable, as well as contractual restrictions.
We seek to
control access to our trade secrets and other confidential
information related to our proprietary technology by entering into
confidentiality agreements with our employees, consultants, vendors
and business partners who have access to our confidential
information, and we maintain policies and procedures designed to
control access to and distribution of our confidential
information.
We seek patent
protection covering certain inventions originating from us and,
from time to time, review opportunities to acquire patents to the
extent we believe such patents may be useful or relevant to our
business. As of December 31, 2021, we owned seven issued U.S.
patents, 12 U.S. patent applications and 17 foreign patent
applications.
We pursue the
registration of our domain names, trademarks and service marks in
the United States and in locations outside the United States. As of
December 31, 2021, we owned a registered trademark for the
“WALKME” mark in the United States and eight other countries; a
registered trademark for the “WALKME” logo in 13 countries; and a
registered trademark for the “DAP” mark in the United States. As of
December 31, 2021, we also had three applications for
trademark registrations pending in various countries.
While most of
the intellectual property underlying our technology and products is
developed and owned by us, we have obtained rights to use
intellectual property of third parties through licenses, services
and/or other relevant agreements. Although we believe these
agreements are sufficient for the operation of our business, these
agreements typically limit our use of the third parties’
intellectual property to specific uses and for specific time
periods.
From time to
time, we have faced, and we expect to face in the future,
allegations by third parties, including our competitors, that we
have infringed their trademarks, copyrights, patents and other
intellectual property rights or challenging the validity or
enforceability of our intellectual property rights. We are not
presently a party to any such legal proceedings that, in the
opinion of our management, would individually or taken together
have a material adverse effect on our business, financial
condition, results of operations or cash flows. For additional
information regarding the risks discussed above and other risks
related to our intellectual property, see “Risk Factors—Risks
Related to Information Technology, Intellectual Property and Data
Security and Privacy.”
We are subject
to a variety of laws and regulations in the United States, Europe,
Israel and elsewhere that involve matters central to our business.
Many of these laws and regulations are still evolving and being
tested in courts, and could be interpreted in ways that could harm
our business. These may involve privacy, data protection and
personal information, rights of publicity, content, intellectual
property, advertising, marketing, distribution, data security, data
retention and deletion, electronic contracts and other
communications, competition, consumer protection,
telecommunications, taxation, economic or other trade prohibitions
or sanctions, anti-corruption law compliance, securities law
compliance and online payment services, among others.
In particular,
we are subject to U.S. federal, state, and foreign laws regarding
privacy and protection of data relating to individuals. Foreign
data protection, privacy, content, competition, and other laws and
regulations can impose different obligations or be more restrictive
than those in the United States. U.S. federal and state and foreign
laws and regulations, which in some cases can be enforced by
private parties in addition to government entities, are constantly
evolving and can be subject to significant change. As a result, the
application, interpretation, and enforcement of these laws and
regulations are often uncertain, particularly in the new and
rapidly-evolving industry in which we operate, and may be
interpreted and applied inconsistently from country to country and
inconsistently with our current policies and practices.
We are also
subject to the European General Data Protection Regulation (the
“GDPR”). The GDPR, and national implementing legislation in EEA
member states, impose a strict data protection compliance regime.
Failure to comply with the GDPR could result in penalties for
noncompliance (including possible fines of up to the greater of
€20 million and 4% of our global annual turnover for the
preceding financial year for the most serious violations, as well
as the right to compensation for financial
or non-financial damages claimed by individuals as well
as other regulatory investigations and resulting reputational
damage).
In addition,
following the departure of the United Kingdom as an EU Member State
on January 31, 2020, we are subject to the UK General Data
Protection Regulation and the UK Data Protection Act 2018
(together, the “UK GDPR”). Failure to comply with the UK DP Laws
could lead to fines of up to £17.5 million or 4% of total
annual revenue, whichever is greater. Compliance with the GDPR and
the UK GDPR may require us to modify our data processing practices
and policies and incur substantial compliance-related costs and
expenses and these changes may lead to other additional costs and
increase our overall risk exposure.
The California
Consumer Privacy Act (the “CCPA”), which took effect in January
2020 and to which we are subject, also establishes certain
transparency rules and creates new data privacy rights for users,
including rights to access and delete their personal information
and new ways to opt-out of certain sales or transfers of
their personal information, and provides users with additional
causes of action. Additionally, California voters approved a new
privacy law, the California Privacy Rights Act (the “CPRA”), in the
November 3, 2020 election. Effective starting on
January 1, 2023 (with certain obligations applicable to data
processed from and after January 2022), the CPRA will significantly
modify the CCPA, including by expanding consumers’ rights with
respect to certain sensitive personal information. The CPRA also
creates a new state agency that will be vested with authority to
implement and enforce the CCPA and the CPRA. Similarly, there are a
number of legislative proposals in the United States, at both the
federal and state level, as well as other jurisdictions that could
impose new obligations or limitations in areas affecting our
business. For example, Virginia and Colorado have enacted the
Consumer Data Protection Act (“VCDPA”) and the Colorado Privacy Act
(“COPA”), respectively, which will go into effect in 2023 and will
impose obligations similar to or more stringent than those we may
face under other data protection laws.
As an Israeli
headquartered company, we are also subject to the Israeli
Protection of Privacy Law, 5741-1981 (the “PPL”), and the
regulations enacted thereunder, including the Privacy Protection
Regulations (Data Security), 5777-2017 (the “Data Security
Regulations”). The PPL imposes certain obligations on the owners of
databases containing personal data, including a requirement to
register databases with certain characteristics, an obligation to
notify data subjects of the purposes for which their personal data
is collected and processed and of the disclosure of such data to
third parties, a requirement to respond to certain requests from
data subjects to access, rectify and/or delete personal data
relating to them, and an obligation to maintain the security of
personal data. In addition, the Data Security Regulations, impose
comprehensive data security requirements on the processing of
personal data. The Protection of Privacy Regulations (Transfer of
Data to Overseas Databases), 5761-2001, further impose certain
conditions on cross-border transfers of personal data from
databases in Israel.
Certain
violations of the PPL are considered a criminal and/or a civil
offense and could expose the violating entity to criminal,
administrative, and financial sanctions, as well as to civil
actions. Additionally, the Israel Privacy Protection Authority may
issue a public statement that an entity violated the PPL, and such
a determination could potentially be used against such entity in
civil litigation.
In July 2020,
the Israeli Ministry of Justice indicated that it intends to
promote amendments to the PPL designed, among other things, to
accommodate the PPL to the digital era, enhance the Israel Privacy
Protection Authority’s investigative and enforcement powers
(including powers to impose fines) and to expand data subjects’
rights.
Some countries
are also considering or have passed legislation implementing data
protection requirements or requiring local storage and processing
of data or similar requirements that could increase the cost and
complexity of delivering our services. For information regarding
risks related to these compliance requirements, please see “Risk
Factors—Risks Related to Information Technology, Intellectual
Property and Data Security and Privacy—We are subject to stringent
and changing laws, regulations, standards, and contractual
obligations related to privacy, data protection, and data security.
Our actual or perceived failure to comply with such obligations
could result in significant liability or reputational harm to our
business.” The foregoing description does not include an exhaustive
list of the laws and regulations governing or impacting our
business. See the discussion contained in the “Risk Factors—Risks
Related to Other Legal, Regulatory and Tax Matters” section of this
Annual Report for information regarding how actions by regulatory
authorities or changes in legislation and regulation in the
jurisdictions in which we operate may have a material adverse
effect on our business.
|
C. |
Organizational Structure
|
The legal name
of our Company is WalkMe Ltd. and we are organized under the laws
of the State of Israel.
The following
table sets forth all of our subsidiaries, which are 100% owned
directly by WalkMe Ltd., except for WalkMe K.K. which is majority
owned by WalkMe Ltd.:
|
Name of Subsidiary
|
Place of Incorporation
|
|
WalkMe, Inc.
|
Delaware
|
|
WalkMe UK Limited
|
United Kingdom
|
|
WalkMe Australia PTY Ltd.
|
Australia
|
|
WalkMe Singapore PTE Ltd.
|
Singapore
|
|
WalkMe K.K.
|
Japan
|
|
WalkMe Canada Ltd.
|
Canada
|
|
D. |
Property, Plants and Equipment
|
Our corporate
headquarters is located in Tel-Aviv, Israel, where we
occupy an office space totaling approximately 40,000 square feet,
under a lease agreement that expires in February 2023. Our U.S.
headquarters is located in San Francisco, where we occupy an office
space totaling approximately 40,000 square feet, subject to a lease
agreement that expires in July 2024.
We also lease
office space in Raleigh, North Carolina, as well as in London,
Paris, Tokyo, Sydney and Singapore.
We believe that
these facilities are sufficient to meet our current needs and that
suitable additional space will be available as needed to
accommodate any foreseeable expansion of our operations. We lease
all of our facilities and do not own any real property.
Item 4A.
Unresolved Staff Comments
None.
Item 5. Operating and
Financial Review and Prospects
You should read the following discussion together with the
consolidated financial statements and related notes included
elsewhere in this Annual Report. The statements in this discussion
regarding industry outlook, our expectations regarding our future
performance, planned investments in our expansion into additional
geographies, research and development, sales and marketing and
general and administrative functions as well as other
non-historical statements in this discussion are forward-looking
statements. These forward-looking statements are subject to
numerous risks and uncertainties, including, but not limited to,
the risks and uncertainties described in Item 3.D. entitled “Risk
factors” and “Special note regarding forward-looking statements”
included elsewhere in this Annual Report. Our actual results may
differ materially from those contained in or implied by any
forward-looking statements.
Certain
information called for by this Item 5, including a discussion of
the year ended December 31, 2019 compared to the year ended
December 31, 2020 has been reported previously in our final
prospectus filed pursuant to Rule 424(b)(4) on June 16, 2021 under
the section entitled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
WalkMe is a
platform which enables organizations to better realize the value of
their software investments. Once overlaid, our platform provides
immediate insights that enable a data-first approach to understand
the gaps between user interactions and behavior with technology and
an organization’s business goals. With actionable insights, we then
enable organizations to create and deliver elegant experiences that
enable users to access the full functionality and value of the
software, ensuring digital adoption, and ultimately fulfilling the
promise of digital transformation.
Our success in
helping customers achieve their digital transformation strategies
has enabled us to achieve significant growth. In response to the
COVID-19 pandemic, we implemented a short-term hiring freeze across
our Company, which limited our sales capacity and, together with
the impact on spending across much of the global economy, led to
longer sales cycles in the second quarter of 2020 and have impacted
our recent results. For the years ended December 31, 2020 and
2021, our revenue was $148.3 million and $193.3 million,
respectively, representing year-over-year growth of 30%. For the
years ended December 31, 2020 and 2021, our net loss was
$45.0 million and $80.3 million, respectively, our operating
cash flow was ($8.7) million and ($34.2) million,
respectively, and our free cash flow was ($11.0) million and
($40.8) million, respectively.
WalkMe was
founded in Israel in 2011 to make software easier to use and
deploy. Since our inception, we have achieved a number of key
milestones as we built our Digital Adoption Platform, along the way
creating an entire new category of enterprise software.
We generate
revenue by selling subscriptions to our cloud-based Digital
Adoption Platform, as well as associated professional services. Our
contracts are typically for a period of one to three years. We have
seen a trend towards multi-year contracts as our customers deepen
their investment in WalkMe as a strategic platform underlying their
digital transformation strategies. We primarily bill our customers
annually in advance. Subscription revenue comprised approximately
88% and 91% of our total revenue for 2020 and 2021,
respectively.
We price our
subscriptions based on the number of applications on which WalkMe
is deployed, the number of users, and the breadth of the
capabilities of our Digital Adoption Platform to which our
customers choose to subscribe. Our customers often expand their
subscriptions as they grow the number of users that engage with our
Digital Adoption Platform, the number of applications on which
WalkMe is deployed and the breadth of the capabilities to which
they subscribe. When customers move to an enterprise-wide model,
our pricing changes to a price per user for unlimited
applications.
We have a
diverse customer base consisting of organizations of various sizes
across all major industries, and our largest customer accounted for
less than 1.6% and 2.6% of our ARR in the years ended
December 31, 2020 and 2021, respectively.
Our go-to-market strategy is increasingly focused on
enterprise customers within the Global 2000, as those customers
have larger employee and customer bases, many with a greater need
to transform digitally and a significant opportunity to benefit
from the deployment of our Digital Adoption Platform as many of
them have a need to accelerate their digital transformations. As of
December 31, 2021, our customers included 367 of the Global 2000,
illustrating the applicability of our Digital Adoption Platform for
some of the world’s largest and most sophisticated enterprises, as
well as our potential for future growth. In addition, as of
December 31, 2021, we had 454 customers with ARR greater than
$100,000, increasing from 347 as of December 31, 2020 and 265 as of
December 31, 2019. These customers represented 77% of our ARR as of
December 31, 2021, increasing from 68% as of December 31, 2020.
Also, 19 and 31 customers had ARR of $1,000,000 or more as of
December 31, 2020 and 2021, respectively, which customers
represented 18% and 27% of our ARR, respectively, as of such dates.
Furthermore, of our 367 Global 2000 customers, 213 had ARR greater
than $100,000 and 24 had ARR of $1,000,000 or more as of December
31, 2021. Our revenue from customers outside of the United States
represented approximately 29% and 30% of our total revenue in the
years ended December 31, 2020 and 2021, respectively.
Key Factors
Affecting Our Performance
We believe that
the growth and future success of our business depends on many
factors. While each of these factors presents significant
opportunities for our business, they also pose important challenges
that we must successfully address in order to sustain our growth
and improve our results of operations.
Customer Acquisition and Expansion
We are focused
on continuing to acquire new customers to support our long-term
growth and increasingly have optimized our customer acquisition
efforts to target customers with greater than 500 employees that we
believe can yield greater expansion opportunities over time as
compared to less than 500 employee customer accounts. As of
December 31, 2020 and December 31, 2021, we had 1,996 and
1,994 total customers, respectively. Also, as of December 31,
2020 and December 31, 2021, we had 956 and 1,208 customers with 500
or more employees, respectively. Note, however, that we updated and
enhanced our third-party data sources for identifying customers
with 500 or more employees and, as a result, capture a greater
number of customers in this category as of December 31, 2021 than
we did as of December 31, 2020. If we used the same
data sources in 2021 as we did in 2020, then we would have had
1,040 customers with 500 or more employees as of December 31, 2021
instead of 1,208 customers.
We define a
customer as a distinct entity with an active subscription contract
as of the measurement date. For new customers, we typically land in
a specific geography or departmental use case such as HR, ERP or
CRM. We then aim to grow within that customer’s organization by
expanding across other departments, use cases and geographies. For
some customers, we offer enterprise-wide subscriptions that enable
them to use our Digital Adoption Platform on any application and
across any department or geography within their organization. We
believe enterprise-wide subscription agreements such as this
encourage our customers to consume more of our platform and
ultimately can result in greater long-term value to us. We intend
to continue to invest in our go-to-market strategy to
address new customers and use cases across all industries and
customer sizes. Our results will depend in part on the degree to
which these efforts are successful.
We also intend
to focus on expansion with our current customer base. We
demonstrate this by sharing the increase of ARR for each cohort by
year. For example, the 2018 cohort includes all customers that made
their first purchase from us between January 1, 2018 and December
31, 2018. Our ARR from customers for the 2015 cohort, 2016 cohort,
2017 cohort, 2018 cohort, 2019 cohort, 2020 cohort and 2021 cohort
as of December 31, 2021 represented an increase over each cohort’s
initial aggregate ARR by 2.8x, 1.3x, 1.8x, 1.4x, 1.3x, and
1.1x respectively. Our ARR from customers with 500 or more
employees for the 2015 cohort, 2016 cohort, 2017 cohort, 2018
cohort, 2019 cohort, 2020 cohort and 2021 cohort as of December 31,
2021 represented an increase over each cohort’s initial aggregate
ARR by 5.7x, 2.4x, 3.1x, 1.9x, 1.7x, and 1.4x respectively.
These ARR multiples reflect both decreases in customer contract
values and customer cancellations that have occurred since the
comparative ARR calculation date. We track ARR within each customer
cohort because we believe it provides useful information to
management and investors regarding our ability to retain and expand
ARR from our existing customers over time, and for identifying
trends in customer use cycles and gauging the success of our
customer expansion efforts over the long-term, which assists us in
planning for and managing the growth of our business.
Our investments
for growth encompass multiple critical areas, including
international growth, enterprise sales, increasing our ability to
sell to the U.S. federal government and product expansion. We also
intend to continue to expand our sales
and go-to-market efforts in existing markets, increase
our sales territories, and broaden our partner ecosystem. We also
plan to invest in marketing to drive awareness of the category of
digital adoption. We also plan to continue our investment into
research and development to extend our technology leadership,
product functionality and grow the emerging Digital Adoption
category.
We continue to
evolve our technology to ensure that we are best serving our
customers’ needs. We believe this will lead to continued expansion
within our current customers’ organizations and increase sales to
new customers. We continue to invest in research and development to
drive product innovation and development.
In February
2021, we launched WalkMe Beyond, our solution ecosystem which
includes components such as Digital Adoption Platform
professionals, a marketplace and community, product and technology
integrations, open API, and a training institute. We have strong
partnerships with strategic systems integrators such as Accenture,
Cognizant, Deloitte, IBM and PwC, among others. We expect our
partnerships to extend our sales reach and provide implementation
leverage both in the United States and internationally. We intend
to continue to invest in our partnership expansion and integration
development efforts to build a healthy ecosystem that will
contribute to the long-term growth and sustainability of our
business.
In December
2019, COVID-19 was first reported in China; in January
2020, the WHO declared it a Public Health Emergency of
International Concern; and in March 2020, the WHO declared it a
pandemic. This contagious disease outbreak has continued to spread
across the globe, impacting worldwide economic activity and
financial markets.
In response to
the COVID-19 pandemic, we took immediate action following
global shelter-in-place orders to reduce our operating
expenses while we monitored global economic conditions. As part of
this response, we enabled our entire workforce to work remotely and
implemented travel restrictions. The changes we have implemented to
date to enable remote working have not materially affected and are
not expected to materially affect our ability to operate our
business, including our financial reporting systems. The conditions
caused by the pandemic also adversely affected, among other things,
demand, new customer acquisitions and existing customer renewals,
largely driven by changes in customer spending habits and IT
budgets. In response to the pandemic, we implemented a short-term
hiring freeze across our Company, which limited our sales capacity
and, together with the impact on spending across much of the global
economy, led to longer sales cycles in the second quarter of 2020.
As a result of our actions, our operating loss was less than
expected.
Despite these
initial headwinds, demand for our offerings accelerated in the
second half of 2020 and we began reinvesting in our sales capacity
and resumed hiring, the benefits of which we began to see in the
fourth quarter of 2020 and into 2021 as new business growth
returned to pre-pandemic levels. We attribute this
recovery in part to the stabilization of the global economy, as
well as to the rapid transition to remote work in the wake
of COVID-19, which reinforced, in part, the value
proposition of a digital adoption strategy for enterprises
transitioning to remote work forces. While there can be no
assurance that these trends will continue, we believe these factors
show that long-term demand for our offerings remains strong.
Although we
believe our business is well-suited to navigate the current
environment, the full extent to which
the COVID-19 pandemic will impact our business, financial
condition and results of operations is still unknown and will
depend on future developments, which are highly uncertain and
cannot be predicted, including, but not limited to, the duration
and spread of the outbreak, its severity, the actions to contain
the virus or treat its impact, and how quickly and to what
extent pre-COVID-19 economic and operating conditions
resume. For additional information regarding the potential impact
of the COVID-19 pandemic on our business, see “Risk
Factors—Risks Related to Our Business and Industry—The
ongoing COVID-19 pandemic could harm our business,
financial condition and results of operations.”
Key Business and
Financial Metrics
We review a
number of operating and financial metrics, including the following
key metrics, to evaluate our business, measure our performance,
identify trends affecting our business, formulate business plans,
and make strategic decisions.
Annualized Recurring Revenue (“ARR”)
We use ARR as a
measure of our revenue trend and as an indicator of our future
revenue opportunity from existing customer contracts. We define ARR
as the annualized value of customer subscription contracts as of
the measurement date, assuming any contract that expires during the
next 12 months is renewed on its existing terms (including
contracts for which we are negotiating a renewal). Our calculation
of ARR is not adjusted for the impact of any known or projected
future events (such as customer cancellations, upgrades or
downgrades, or price increases or decreases) that may cause any
such contract not to be renewed on its existing terms. In addition,
the amount of actual revenue that we recognize over any 12-month
period is likely to differ from ARR at the beginning of that
period, sometimes significantly. This may occur due to new
bookings, cancellations, upgrades, downgrades or other changes in
pending renewals, as well as the effects of professional services
revenue and acquisitions or divestitures. As a result, ARR should
be viewed independently of, and not as a substitute for or forecast
of, revenue and deferred revenue. Our calculation of ARR may differ
from similarly titled metrics presented by other companies. As of
December 31, 2021, customers having 500 or more employees
represented 92% of our total ARR using the new data sources for 500
or more employees and 87% of our total ARR using the old data
sources compared to 83% of our total ARR as of December 31, 2020
using the old data sources.
|
|
|
As of
December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Annualized Recurring Revenue (millions)
|
|
$
|
164.3
|
|
|
$
|
219.6
|
|
Customers with ARR Greater than $100,000
We measure the
number of customers with ARR greater than $100,000 (“$100,000+
Customers”). We believe our ability to increase these customers is
an indicator of our market penetration, strategic demand for our
Digital Adoption Platform, the growth of our business, and our
potential future business opportunities. Our calculation of this
metric may differ from similarly titled metrics presented by other
companies.
|
|
|
As of
December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
$100,000+ Customers
|
|
|
347
|
|
|
|
454
|
|
We also measure
the number of customers within our $100,000+ Customers who have
purchased enterprise-wide subscriptions or who have department-wide
usage of our Digital Adoption Platform across four or more
applications. We believe these customers are an indication of the
success of our customer acquisition and expansion strategy and
demonstrate the strategic demand for our Digital Adoption Platform,
the growth of our business and our potential future business
opportunities. Our calculation of this metric may differ from
similarly titled metrics presented by other companies. As of
December 31, 2020 and 2021, we had 77 and 126, respectively, of
these customers. As of December 31, 2021, these customers
represented 37% of our ARR, compared to 25% of our ARR as of
December 31, 2020. Additionally, as of December 31, 2021,
these customers had an average ARR of $637 thousand, compared to
$543 thousand as of December 31, 2020.
Dollar-Based Net Retention Rate
We use our
Dollar-Based Net Retention Rate to measure our ability to retain
and expand ARR from our existing customers on a trailing
four-quarter basis. Our Dollar-Based Net Retention Rate compares
the ARR from the same set of subscription customers across
comparable periods. In each of the trailing four quarters, the set
of customers identified from 12 months prior is compared to those
same customers’ subscription ARR in the respective quarter. ARR in
the trailing four quarters includes customer renewals, expansion,
contraction and churn. The calculation of our Dollar-Based Net
Retention Rate in a particular quarter is obtained by averaging the
result from that particular quarter with the corresponding results
from each of the prior three quarters. Our calculation of
Dollar-Based Net Retention Rate may differ from similarly titled
metrics presented by other companies. Our dollar-based net
retention rate for all customers for the years ended December 31,
2020 and 2021 was 112% and 115%, respectively. Our dollar-based net
retention rate for customers having 500 or more employees for the
years ended December 31, 2020 and 2021 was 120% and 121%,
respectively.
|
|
|
As of
December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Dollar-Based Net Retention Rate (all customers)
|
|
|
112
|
%
|
|
|
115
|
%
|
|
Dollar Based Net Retention Rate (customers having 500 or more
employees)
|
|
|
120
|
%
|
|
|
121
|
%
|
Remaining Performance Obligations
Our Remaining
Performance Obligations represents future revenue from committed
contracts that has not been recognized. This calculation includes
deferred revenue and non-cancelable amounts that will be
invoiced and recognized as revenue in future periods. Subscription
contracts with termination for convenience and without any penalty
are excluded. We expect to recognize 56% of our Remaining
Performance Obligations as of December 31, 2021 as revenue
over the next twelve months, and the remainder thereafter, in each
case, in accordance with our revenue recognition policy; however,
we cannot guarantee that any portion of our Remaining Performance
Obligations will be recognized as revenue within the timeframe we
expect or at all.
|
|
|
As of
December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Remaining Performance Obligations (millions)
|
|
$
|
205.1
|
|
|
$
|
316.2
|
|
Non-GAAP Financial Measures
In addition to
our financial results reported in accordance with GAAP, we believe
that Free Cash Flow and Non-GAAP Operating Income (Loss),
both of which are non-GAAP financial measures, are useful
in evaluating the performance of our business.
We define Free
Cash Flow as net cash used in operating activities, less cash used
for purchases of property and equipment and
capitalized internal-use software costs. We believe that
Free Cash Flow is a useful indicator of liquidity that provides
information to management and investors, even if negative, about
the amount of cash used in our business. Free Cash Flow has
limitations as an analytical tool, may differ from similarly titled
metrics presented by other companies, and should not be considered
in isolation or as a substitute for analysis of net cash used in
operating activities, the most directly comparable GAAP liquidity
measure, or any other GAAP financial measures. Our Free Cash Flow
may vary from period to period and be impacted as we continue to
invest for growth in our business. The following table sets forth
our net cash used in operating activities and our Free Cash Flow
for each period presented.
|
|
|
Year Ended
December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Net Cash Used in Operating Activities (millions)
|
|
$
|
(8.7
|
)
|
|
$
|
(34.2
|
)
|
|
Free Cash Flow (millions)
|
|
$
|
(11.0
|
)
|
|
$
|
(40.8
|
)
|
Non-GAAP Operating Income (Loss)
We
define Non-GAAP Operating Income (Loss) as net income
(loss) from operations excluding share-based compensation and
amortization of acquired intangible assets. We
use Non-GAAP Operating Income (Loss) with traditional
GAAP measures to evaluate our financial performance. We believe
that Non-GAAP Operating Income (Loss) provides our
management and investors with useful supplementary information by
facilitating period-to-period comparisons of our results
of operations. Non-GAAP Operating Income (Loss) has
limitations as an analytical tool, may differ from similarly titled
metrics presented by other companies, and should not be considered
in isolation or as a substitute for analysis of operating loss, the
most directly comparable GAAP financial performance measure, or any
other GAAP financial measures. The following table sets forth our
operating loss, as determined in accordance with GAAP, and our
Non-GAAP Operating Loss for each period presented.
|
|
|
Year
Ended
December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Operating Loss (millions)
|
|
$
|
(43.2
|
)
|
|
$
|
(77.8
|
)
|
|
Non-GAAP Operating Loss (millions)
|
|
$
|
(29.1
|
)
|
|
$
|
(50.2
|
)
|
Components of Our
Results of Operations
Revenue
Subscription
Revenue
Subscription
revenue primarily consists of subscription fees from our
cloud-based Digital Adoption Platform. We recognize subscription
revenue ratably over the subscription period, which typically
varies from one to three years. Our customers are generally billed
upfront, and amounts that have been billed are initially recorded
as deferred revenue until recognized in accordance with our revenue
recognition policy. Consequently, a portion of the revenue that we
report in each period is attributable to the recognition of
deferred revenue relating to subscriptions that we entered into
during previous periods.
Professional
Services Revenue
Professional
services consist of services provided to our customers to help them
maximize our platform capabilities in highly complex operational
environments. Professional services are priced on a time and
material basis and, accordingly, revenues are recognized as
services are delivered.
Cost of
Revenue and Gross Margin
Cost of
revenue
Cost of
subscription revenue primarily consists of costs related to
third-party cloud infrastructure providers for hosting our
platform, employee-related costs for operations and global support
(including salaries, benefits, bonuses and share-based
compensation), and depreciation and amortization related to
acquired intangibles and internal-use software. Cost of
professional services revenue primarily consists of
employee-related costs (such as salaries, bonuses and share-based
compensation) and subcontractor costs associated with the delivery
of these services. Additionally, we allocate certain overhead costs
to each of these costs of revenue.
We intend to
continue to invest additional resources in our platform and our
customer support organization as we grow our business. The level
and timing of investment in these areas will affect our cost of
revenue in the future.
Gross profit and
gross margin
Gross margin is
gross profit expressed as a percentage of revenue. Our gross margin
may fluctuate from period to period as a result of the timing and
amount of investments to expand our hosting capacity, and our
continued efforts to build platform support and professional
services teams.
Operating expenses
Research and
development
Research and
development expenses consist primarily of employee-related costs
(including salaries, benefits, bonuses and share-based
compensation) and subcontractor costs associated with our
engineering team responsible for the design, development, and
testing of our products, the cost of development environments and
tools, and allocated overhead. We expect that our research and
development expenses will increase in absolute dollars as our
business grows, particularly as we continue to invest in the
development of our platform. We expect research and development
expenses may fluctuate as a percentage of revenues from period to
period due to the timing and extent of these expenses.
Sales and
marketing
Sales and
marketing expenses primarily consist of employee-related costs
(such as salaries, sales commissions, bonuses and share-based
compensation expenses), costs associated with marketing programs to
promote our brand and awareness, demand generating activities,
customer events, other sales expenses and allocated overhead.
We expect sales
and marketing expenses to increase in absolute dollars as we
continue to make significant investments in our sales and marketing
organizations to drive additional revenues, further penetrate our
target markets, and expand our global customer base. As a
percentage of revenues, we expect our sales and marketing expenses
may fluctuate as a percentage of our revenue from period to period
due to the timing and extent of these expenses.
General and
administrative
General and
administrative expenses consist of employee-related costs (such as
salaries, bonuses and share-based compensation) for executive,
finance, legal, human resources, IT and other administrative
personnel, professional services fees, consulting services and
allocated overhead.
We expect to
incur additional expenses as a result of operating as a public
company. As a result, we expect our general and administrative
expenses to increase in dollar amount. However, we anticipate
general and administrative expenses to decrease as a percentage of
our total revenue over time.
Finance
income (expense)
Finance income
(expenses), net primarily consists of finance expenses such as bank
fees, foreign exchange gains and losses and interest income earned
on our cash investments.
Provision for income taxes
Income tax
expenses primarily consist of income taxes related to U.S. and
other jurisdictions in which we conduct business. We maintain a
valuation allowance for deferred tax assets as we believe that it
is more likely than not that the deferred tax assets will not be
realized. Our effective tax rate is affected by tax rates in the
jurisdictions in which we conduct business and the relative amounts
of income we earn in those jurisdictions, as well
as non-deductible expenses and changes in our valuation
allowance.
A. Operating
Results
The following
tables summarize key components of our results of operations data
and such data as a percentage of total revenue for the periods
presented. The period-to-period comparisons of our historical
results are not necessarily indicative of the results that may be
expected in the future.
|
|
|
Year
ended December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
|
|
(in
thousands)
|
|
|
Revenue
|
|
$
|
148,306
|
|
|
$
|
193,303
|
|
|
Cost of
revenue
|
|
|
39,158
|
|
|
|
46,657
|
|
|
Gross
profit
|
|
|
109,148
|
|
|
|
146,646
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
31,560
|
|
|
|
48,160
|
|
|
Sales
and marketing
|
|
|
87,208
|
|
|
|
127,719
|
|
|
General
and administrative
|
|
|
33,541
|
|
|
|
48,557
|
|
|
Total operating
expenses
|
|
|
152,309
|
|
|
|
224,436
|
|
|
Operating
loss
|
|
|
(43,161
|
)
|
|
|
(77,790
|
)
|
|
Financial
income, net
|
|
|
(156
|
)
|
|
|
(9
|
)
|
|
Loss before
income taxes
|
|
|
(43,317
|
)
|
|
|
(77,799
|
)
|
|
Income
taxes
|
|
|
(1,708
|
)
|
|
|
(2,494
|
)
|
|
Net loss
|
|
$
|
(45,025
|
)
|
|
$
|
(80,293
|
)
|
|
|
|
Year
ended December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
|
|
(as a %
of revenue)
|
|
|
Revenue
|
|
|
100
|
% |
|
|
100
|
% |
|
Cost of
revenue
|
|
|
26
|
|
|
|
24
|
|
|
Gross
profit
|
|
|
74
|
|
|
|
76
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
21
|
|
|
|
25
|
|
|
Sales
and marketing
|
|
|
59
|
|
|
|
66
|
|
|
General
and administrative
|
|
|
23
|
|
|
|
25
|
|
|
Total operating
expenses
|
|
|
103
|
|
|
|
116
|
|
|
Operating
loss
|
|
|
(29
|
)
|
|
|
(40
|
)
|
|
Financial
income, net
|
|
|
*
|
|
|
|
*
|
|
|
Loss before
income taxes
|
|
|
(29
|
)
|
|
|
(40
|
)
|
|
Income
taxes
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Net loss
|
|
|
(30
|
)%
|
|
|
(41
|
)%
|
* Represents amounts of less than
1%
Comparison of the years ended December 31, 2020 and 2021
|
|
|
Year
Ended December 31,
|
|
|
Period-over-Period
Change
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
|
(in
thousands, except percentages)
|
|
|
Subscription revenues
|
|
$
|
130,303
|
|
|
$
|
175,328
|
|
|
$
|
45,025
|
|
|
|
35
|
%
|
|
Professional services revenues
|
|
|
18,003
|
|
|
|
17,975
|
|
|
|
(28
|
)
|
|
|
*
|
|
|
Total
revenue
|
|
$
|
148,306
|
|
|
$
|
193,303
|
|
|
$
|
44,997
|
|
|
|
30
|
%
|
* Represents amounts of less than
1%
The following
table presents our subscription revenues and professional services
revenues as a percentage of our total revenue for each period
presented above.
|
|
|
Year
Ended
December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Subscription revenues
|
|
|
88
|
%
|
|
|
91
|
%
|
|
Professional services revenues
|
|
|
12
|
|
|
|
9
|
|
|
Total
revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
Subscription
revenues increased by $45.0 million, or 35%, to
$175.3 million for the year ended December 31, 2021
compared to $130.3 million for the year ended
December 31, 2020. This increase was primarily due to
expansion from existing customers within and across lines of
business, as well as new customer additions. Approximately 71% of
the increase in revenue was attributable to the growth from
existing customers, and the remaining increase in revenue was
attributable to new customers.
Professional Services Revenues
Professional
services revenues remained at $18.0 million for the year ended
December 31, 2021 compared to the year ended December 31,
2020.
Cost of Revenues and Gross Margin
|
|
|
Year
Ended
December 31,
|
|
|
Period-over-Period
Change
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
|
(in
thousands, except percentages)
|
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
subscription revenues
|
|
$
|
19,141
|
|
|
$
|
24,025
|
|
|
$
|
4,884
|
|
|
|
26
|
%
|
|
Cost of
professional services revenues
|
|
|
20,017
|
|
|
|
22,632
|
|
|
|
2,615
|
|
|
|
13
|
%
|
|
Total
cost of revenues
|
|
$
|
39,158
|
|
|
$
|
46,657
|
|
|
$
|
7,499
|
|
|
|
19
|
%
|
|
Gross
margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
|
85
|
%
|
|
|
86
|
%
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
|
(11
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Total
gross margin
|
|
|
74
|
%
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
Cost
of Subscription Revenues
Cost of
subscription revenues increased by $4.9 million, or 26%, to
$24.0 million for the year ended December 31, 2021 compared to
$19.1 million for the year ended December 31, 2020. This
increase was primarily attributable to an increase of $2.9 million
in third-party cloud hosting costs, $1.9 million in
employee-related costs as a result of increased headcount, $0.5
million in share-based compensation expense partially offset by a
$0.4 million decrease in allocated overhead and other
costs.
Gross
Margin—Subscription
Our gross
margin for subscription revenue remained substantially consistent
during the year ended December 31, 2021, compared to the year
ended December 31, 2020. While our gross margins for
subscription revenue may fluctuate in the near-term as we invest in
our growth, we expect our subscription revenue gross margin to
improve over the long-term as we achieve additional economies of
scale.
Cost
of Professional Services Revenues
Cost of
professional services revenues increased by $2.6 million, or 13%,
to $22.6 million for the year ended December 31, 2021
compared to $20.0 million for the year ended December 31,
2020. This increase was primarily attributable to an increase of
$1.5 million in employee-related costs as a result of increased
headcount, $1.1 million in share-based compensation expense, $1.0
million in outsourcing and professional service fees partially
offset by a $1.0 million decrease in allocated overhead and
other costs.
Gross
Margin—Professional Services
Our gross
margin for professional services revenue decreased primarily due to
our continuing investment in our professional services
organization.
|
|
|
Year
Ended
December 31,
|
|
|
Period-over-Period
Change
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
|
(in
thousands, except percentages)
|
|
|
Research
and development
|
|
$
|
31,560
|
|
|
$
|
48,160
|
|
|
$
|
16,600
|
|
|
|
53
|
%
|
Research and
development expenses increased by $16.6 million, or 53%, to
$48.2 million for the year ended December 31, 2021
compared to $31.6 million for the year ended December 31,
2020. The increase was primarily attributable to an increase of
$11.9 million in employee-related costs as a result of increased
headcount, $2.3 million in share-based compensation expense, $2.1
million in outsourcing and professional service fees, $1.1 million
in hosting, $1.1 million in allocated overhead costs and $0.5
million in other expenses. These increases were partially offset by
a $2.4 million increase in capitalization of software development
costs.
|
|
|
Year
Ended
December 31,
|
|
|
Period-over-Period
Change
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
|
(in
thousands, except percentages)
|
|
|
Sales
and marketing
|
|
$
|
87,208
|
|
|
$
|
127,719
|
|
|
$
|
40,511
|
|
|
|
46
|
%
|
Sales and
marketing expenses increased by $40.5 million, or 46%, to $127.7
million for the year ended December 31, 2021 compared to
$87.2 million for the year ended December 31, 2020. The
increase in sales and marketing expenses was primarily attributable
to an increase of $44.2 million in employee-related costs as a
result of increased headcount and variable compensation for our
sales personnel, $7.1 million in share-based compensation expense,
$5.9 million in marketing programs and $1.0 million in allocated
overhead and other sales and marketing costs. These increases were
partially offset by a $17.7 million increase in deferred contract
acquisition costs driven by an increase in total sales.
General and Administrative
|
|
|
Year
Ended
December 31,
|
|
|
Period-over-Period
Change
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
|
(in
thousands, except percentages)
|
|
|
General
and administrative
|
|
$
|
33,541
|
|
|
$
|
48,557
|
|
|
$
|
15,016
|
|
|
|
45
|
%
|
General and
administrative expenses increased by $15.0 million, or 45%, to
$48.6 million for the year ended December 31, 2021 compared to
$33.5 million for the year ended December 31, 2020. The
increase was primarily attributable to an increase of $7.0 million
in employee-related costs as a result of increased headcount, $2.3
million in share-based compensation expense, $2.2 million in
outsourcing and professional services, $2.0 in insurance costs,
$1.6 million in allocated overhead and other general and
administrative expenses.
Financial Income (Expense), Net
|
|
|
Year
Ended
December 31,
|
|
|
Period-over-Period
Change
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
|
(in
thousands, except percentages)
|
|
|
Financial income (expense), net
|
|
$
|
(156
|
)
|
|
$
|
(9
|
)
|
|
$
|
147
|
|
|
|
(94
|
)%
|
Financial
expense, net decreased by approximately $0.1 million, or 94%, to
$(0.01) million of expense for the year ended December 31,
2021 compared to $(0.2) million of expense for the year ended
December 31, 2020. This decrease was primarily attributable to
an increase in interest income partially offset by an increase in
foreign currency exchange rates expenses and bank fees.
|
|
|
Year
Ended
December 31,
|
|
|
Period-over-Period
Change
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
|
(in
thousands, except percentages)
|
|
|
Income
tax expenses
|
|
$
|
1,708
|
|
|
$
|
2,494
|
|
|
$
|
786
|
|
|
|
46
|
%
|
Income tax
expenses increased by $0.8 million, or 46%, to $2.5 million for the
year ended December 31, 2021 compared to $1.7 million for
the year ended December 31, 2020. The increase in income tax
expenses was primarily due to an increase in taxes on our
operations in the United States.
B. Liquidity and
Capital Resources
In June 2021,
upon completion of our IPO, we received net proceeds of $263.9
million, after deducting underwriters’ discounts and commissions
and offering expenses of $22.8 million.
Prior to our
IPO, we have financed operations to date primarily through our
operating cash flows and the net proceeds we have received from
sales of equity securities. Our primary requirements for liquidity
and capital are to finance working capital, capital expenditures
and general corporate purposes. As of December 31, 2021, our
principal sources of liquidity were cash and cash equivalents of
$276.9 million and short-term bank deposits of $65.5
million.
In August 2021,
we entered into a loan and security agreement with Silicon Valley
Bank (SVB) to establish a Revolving Credit Facility. We may borrow,
repay and re-borrow funds under the Revolving Credit Facility up to
the amount of $50 million for a period of three years. Interest on
borrowings under the revolving credit facility accrues at the
greater of the Prime Rate +0.00% or 3.25%. Pursuant to the terms of
the Revolving Credit Facility, we are also required to pay a yearly
fixed fee for the availability of this facility.
Upon
utilization of this credit facility certain covenants may apply
according to the agreement. The Revolving Credit Facility is
secured by a fixed and floating first priority blanket lien on all
assets of the company as well as a negative pledge on our
intellectual property. As of December 31, 2021 this facility
remains unutilized.
We believe that
our existing cash and cash equivalents and short-term bank
deposits, together with cash flow from operations, will be
sufficient to support our liquidity and capital requirements for at
least the next 12 months. Our future capital requirements will
depend on many factors, including our revenue growth, the timing
and extent of investments to support such growth, the expansion of
sales and marketing activities, increases in general and
administrative costs and many other factors, including those
described elsewhere in this section under “—Key Factors Affecting
Our Performance” and elsewhere in this Annual Report under “Risk
Factors.” We may, in the future, enter into arrangements to acquire
or invest in complementary technologies, solutions or businesses.
We may be required to seek additional equity or debt financing. In
the event we require additional financing, we may not be able to
raise such financing on terms acceptable to us or at all. In
particular, the widespread COVID-19 pandemic has resulted
in, and may continue to result in, significant disruption of global
financial markets, which may reduce our ability to access capital.
If we are unable to raise additional capital or generate cash flows
necessary to expand our operations and invest in continued
innovation, we may not be able to compete successfully, which would
adversely affect our business, financial condition and results of
operations.
The following
table summarizes our cash flows for the periods presented:
|
|
|
Year
Ended
December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Net cash
used in operating activities
|
|
$
|
(8,653
|
)
|
|
$
|
(34,225
|
)
|
|
Net cash
used in investing activities
|
|
|
(45,729
|
)
|
|
|
(27,523
|
)
|
|
Net cash
provided by financing activities
|
|
|
41,614
|
|
|
|
276,789
|
|
|
Effect
of foreign currency exchange rate changes on cash, cash
equivalents, and restricted cash
|
|
|
248
|
|
|
|
(685
|
)
|
|
Net
increase (decrease) in cash, cash equivalents and restricted
cash
|
|
|
(12,520
|
)
|
|
|
214,356
|
|
|
Cash,
cash equivalents and restricted cash at beginning of year
|
|
|
75,415
|
|
|
|
62,895
|
|
|
Cash,
cash equivalents and restricted cash at end of the year
|
|
$
|
62,895
|
|
|
$
|
277,251
|
|
Our largest
source of operating cash is cash collection from sales of
subscriptions to our customers. Our primary uses of cash from
operating activities are for employee-related expenses, marketing
expenses, hosting expenses and allocated overhead expenses. We have
generated negative cash flows and have supplemented working capital
requirements through net proceeds from the sale of equity
securities.
Cash used in
operating activities for the year ended December 31, 2020 of
$8.7 million was primarily related to our net loss of
$45.0 million, adjusted for non-cash charges of
$18.7 million and net cash inflows of approximately
$17.6 million provided by changes in our operating assets and
liabilities. Non-cash charges primarily consisted of
share-based compensation, depreciation and amortization of property
and equipment, amortization of capitalized software and
amortization of acquired intangibles. The main drivers of the
changes in operating assets and liabilities were related to a
$7.9 million increase in accrued expenses and other
liabilities, mainly due to an increase in rent related accruals, a
$5.2 million increase in deferred revenues, mainly due to
increased billing, and a $5.0 million increase in
employee-related accruals due to higher commission payments and
deferral of payroll taxes.
Cash used in
operating activities for the year ended December 31, 2021 of
$34.2 million was primarily related to our net loss of $80.3
million, adjusted for non-cash charges of $32.1 million
and net cash inflows of approximately $14.0 million provided by
changes in our operating assets and
liabilities. Non-cash charges primarily consisted of
share-based compensation, depreciation of property and equipment,
amortization of capitalized software and amortization of acquired
intangibles. The main drivers of the changes in operating assets
and liabilities were related to a $28.6 increase in deferred
revenues, mainly due to increased billing, $15.0 million increase
in employee-related accruals, $4.6 million increase in accrued
expenses and other liabilities and $1.7 increased in deferred
taxes, net. This amounts were partially offset by a $29.8 million
increase in prepaid expenses and other assets primarily due to an
increase in deferred contract acquisition costs and $7.0 million
increase in trade receivables, net, due to increases in
sales.
Cash used in
investing activities of $45.7 million for the year ended
December 31, 2020 was related to net investment in short-term
investments of $43.4 million, capital expenditures of
$0.8 million and capitalization of software development costs
of $1.5 million.
Cash used in
investing activities of $27.5 million for the year ended
December 31, 2021 was related to net investment in short-term
and long-term investments of $19.6 million, capitalization of
software development costs of $3.9 million, capital expenditures of
$2.6 million and $1.3 purchase of intangible asset.
Cash provided
by financing activities of $41.6 million for the year ended
December 31, 2020 was primarily related to $38.5 million
in proceeds from equity financings, net of issuance costs, as well
as $2.3 million in proceeds from
the non-controlling interest of our Japan joint venture
and $0.8 million of proceeds from the exercise of share
options.
Cash provided
by financing activities of $276.8 million for the year ended
December 31, 2021 was primarily due to net proceeds from our
initial public offering of $263.9 million after deducting
underwriting discounts and commissions and other issuance costs,
$10.0 million in proceeds from equity financing, net of issuance
costs and $2.9 million of proceeds from the exercise of share
options.
Commitments and
Contractual Obligations
The following
table summarizes our non-cancellable contractual
obligations as of December 31, 2021:
|
|
|
Less
than
1 year
|
|
|
1 to
3
years
|
|
|
3 to
5
years
|
|
|
Total
|
|
|
|
|
(in
thousands)
|
|
|
Operating lease obligations
|
|
$
|
5,621
|
|
|
$
|
8,212
|
|
|
$
|
102
|
|
|
$
|
13,935
|
|
|
Purchase
obligations, including hosting services
|
|
|
12,931
|
|
|
|
13,146
|
|
|
|
154
|
|
|
|
26,231
|
|
|
Total
|
|
$
|
18,552
|
|
|
$
|
21,358
|
|
|
$
|
256
|
|
|
$
|
40,166
|
|
The contractual
commitment amounts in the table above are associated with
agreements that are enforceable and legally binding. Obligations
under contracts that we can cancel without a significant penalty
are not included in the table above. For additional information,
please refer to note 6 to the consolidated financial statements
included elsewhere in this Annual Report.
In addition to
the obligations described above, our subscription agreements
contain standard indemnification obligations. Pursuant to these
agreements, we will indemnify, defend, and hold the other party
harmless with respect to a claim, suit, or proceeding brought
against the other party by a third party alleging that our
intellectual property infringes upon the intellectual property of
the third party, or results from a breach of our representations
and warranties or covenants, or that results from any acts of
negligence or willful misconduct. The term of these indemnification
agreements is generally perpetual any time after the execution of
the agreement. Typically, these indemnification provisions do not
provide for a maximum potential amount of future payments we could
be required to make. However, in the past we have not been
obligated to make significant payments for these obligations and no
liabilities have been recorded for these obligations on our
consolidated balance sheets as of December 31, 2020 or
2021.
We also
indemnify our officers and directors for certain events or
occurrences, subject to certain limits, while the officer is or was
serving at our request in such capacity. The maximum amount of
potential future indemnification is unlimited. However, our
director and officer insurance policy limits our exposure and
enables us to recover a portion of any future amounts paid.
Historically, we have not been obligated to make any payments for
these obligations and no liabilities have been recorded for these
obligations on our consolidated balance sheet as of
December 31, 2020 or 2021.
Off-Balance Sheet Arrangements
We did not have
during the periods presented, and we do not currently have,
any off-balance sheet financing arrangements or any
relationships with unconsolidated entities or financial
partnerships, including entities sometimes referred to as
structured finance or special purpose entities, that were
established for the purpose of
facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes.
During the year
ended December 31, 2018, we established WalkMe K.K., a
Japanese company in which we own a controlling interest, for
purposes of facilitating our entry into the Japanese market. We
have consolidated the results of operations and financial condition
of WalkMe K.K. since its inception. Pursuant to an agreement with
the holders of the non-controlling interest in
WalkMe K.K., beginning in 2027 we may
redeem the non-controlling interest, or be
required to redeem such interest by the holders thereof, based on a
prescribed formula derived from the relative revenues of WalkMe
K.K. and the Company. The balance of
the redeemable non-controlling interest is
reported on our balance sheet below total liabilities but above
shareholders’ equity (deficit) at the greater of the initial
carrying amount adjusted for
the redeemable non-controlling interest’s share
of earnings or losses and other comprehensive income or loss, or
its estimated redemption value. As of December 31, 2020 and
2021,
the redeemable non-controlling interest of non-controlling interests in
WalkMe K.K. amounted to $8.6 million and $23.9 million,
respectively.
C. Research and
Development, Patents and Licenses, etc.
For a
discussion of our research and development policies, see
“Research and Development”
and “Our Intellectual Property” in Item 4.B above.
D. Trend
Information
Other than as
disclosed elsewhere in this Annual Report, we are not aware of any
trends, uncertainties, demands, commitments or events since
December 31, 2021 that are reasonably likely to have a material
adverse effect on our revenues, income, profitability, liquidity or
capital resources, or that would cause the disclosed financial
information to be not necessarily indicative of future operating
results or financial conditions.
E. Critical
Accounting Estimates
Our
consolidated financial statements and the related notes thereto
included elsewhere in this Annual Report are prepared in accordance
with GAAP. The preparation of consolidated financial statements in
accordance with GAAP requires us to make estimates, judgments and
assumptions that affect the amounts reported in our consolidated
financial statements and the related disclosures. Our management
believes that the estimates, judgments and assumptions used are
reasonable based upon information available at the time they are
made. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the dates set forth in the
consolidated financial statements, and the reported amounts of
revenue and expenses during the applicable reporting periods.
Actual results could differ from those estimates.
We believe that
the accounting policies described below require management’s most
difficult, subjective or complex judgments. Judgments or
uncertainties affecting the application of these policies may
result in materially different amounts being reported under
different conditions or using different assumptions. Accordingly,
we believe these are the most critical to aid in fully
understanding and evaluating our financial condition and results of
operations. See note 2 to the consolidated financial statements
included elsewhere in this Annual Report for a summary of
significant accounting policies and the effect on our financial
statements.
We generate
revenue primarily from sales of subscriptions to access our Digital
Adoption Platform, together with related services to our customers.
Arrangements with customers do not provide the customer with the
right to take possession of the software operating our platform at
any time. Instead, customers are granted continuous access to our
platform over the contractual period. Revenue is recognized when
control of these services is transferred to our customers, which is
based on the customer’s usage of the product and reflects the
consideration we expect to receive in exchange for those services.
Revenue excludes sales and other indirect taxes.
We account for
revenue contracts with customers through the following steps:
|
• |
identify the contract with a customer;
|
|
• |
identify the performance obligations in the contract;
|
|
• |
determine the transaction price;
|
|
• |
allocate the transaction price to the performance obligations
in the contract; and
|
|
• |
recognize revenue when or as, we satisfy a performance
obligation.
|
Our contracts
with customers often include promises to transfer multiple
performance obligations. In these contracts, we identify each
performance obligation and evaluate whether the performance
obligations are distinct within the context of the contract at
contract inception. Performance obligations that are not distinct
at contract inception are combined.
We allocate the
transaction price to each distinct performance obligation based on
the stand-alone selling price for each performance obligation.
Judgment is required to determine the stand-alone selling price for
each distinct performance obligation. We generally estimate the
stand-alone selling price of our subscription and professional
services based on the actual renewal prices in stand-alone
transactions.
Cost to Obtain a Contract
We capitalize
sales commissions and associated payroll taxes paid to sales
personnel that are incremental to the acquisition of customer
contracts. These costs are recorded as deferred contract
acquisition costs on the consolidated balance sheets. We determine
whether costs should be deferred based on our sales compensation
plans and if the commissions are incremental and would not have
occurred absent the customer contract.
Sales
commissions for the renewal of a contract are not considered
commensurate with the sales commissions paid for the acquisition of
the initial contract given a substantive difference in commission
rates in proportion to their respective contract values. Sales
commissions paid for the renewal of a contract to sales personnel
are amortized over the contractual term of the renewals. Sales
commissions paid upon the initial acquisition of a customer
contract for sales personnel are amortized over a period of four
years. We determine the period of benefit for sales commissions
paid for the acquisition of the initial customer contract by taking
into consideration the length of terms in its customer contracts,
life of the technology and other factors.
Amortization of
sales commissions are included in sales and marketing expense in
the consolidated statements of operations. We have applied the
practical expedient in ASC 606 to expense costs as incurred for
costs to obtain a contract with a customer when the amortization
period would have been one year or less. We periodically review
these deferred contract acquisition costs to determine whether
events or changes in circumstances have occurred that could impact
the period of benefit.
As of December
31, 2021, we had $56.4 million of deferred contract acquisition
costs, of which $20.4 million will be amortized over the next 12
months.
Share-based
compensation expense related to employees, consultants,
and non-employee directors is measured based on the
grant-date fair value of the awards. We establish fair value as the
measurement objective in accounting for share-based payment
transactions and recognize expenses on a straight-line basis over
the requisite service period, which is generally the vesting term
of four years. The fair value of each share option granted is
estimated using the Black-Scholes option-pricing model and, for
ESPP awards, we used a Monte Carlo option-pricing model.
The fair value
of each RSU is based on the fair value of our ordinary shares on
the date of grant.
Determining the
fair value of share-based awards at the grant date requires
significant judgement. The determination of the grant date fair
value of share-based awards using the option-pricing models was
affected by our estimated ordinary share fair value as well as
other subjective assumptions including the expected term of the
awards, the expected volatility over the expected term of the
awards, expected dividend yield and risk-free interest rates. The
assumptions used in our option-pricing model represent management’s
best estimates. These assumptions and estimates are as
follows:
|
• |
Fair Value of Ordinary Shares. For the period in which our
ordinary shares were not publicly traded, we estimated the fair
value of our ordinary shares based on contemporaneous valuations
and other factors deemed relevant by management.
|
|
• |
Expected Term. The expected term of the share options reflects
the period for which we believe the option will remain outstanding.
To determine the expected term, we generally apply the simplified
method approach. The simplified method deems the term to be the
average of the time-to-vesting and the contractual life
of the options.
|
|
• |
Expected Volatility. As we do not have sufficient trading
history for our ordinary shares, the selected volatility used is
representative of expected future volatility. We base expected
future volatility on the historical and implied volatility of
comparable publicly traded companies over a similar expected
term.
|
|
• |
Expected Dividend Yield. We have never declared or paid any
cash dividends and do not presently intend to pay cash dividends in
the foreseeable future. As a result, we used an expected dividend
yield of zero.
|
|
• |
Risk-Free Interest Rates. We use the U.S. Treasury yield for
our risk-free interest rate that corresponds with the expected
term.
|
The following
table reflects the weighted average assumptions used to estimate
the fair value of share options and ESPP granted during the years
ended December 31, 2020 and 2021:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Expected
dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
Expected
volatility
|
|
|
60
|
%
|
|
|
41-60
|
%
|
|
Expected
term (years)
|
|
|
6.08
|
|
|
|
0.57-6.55
|
|
|
Risk-free interest rate
|
|
|
0.28-1.45
|
%
|
|
|
0.06-1.06
|
%
|
Assumptions
used in valuing non-employee share options are generally
consistent with those used for employee share options with the
exception that the expected term is over the contractual life, or
10 years.
We will
continue to use judgment in evaluating the assumptions related to
our share-based compensation on a prospective basis. As we continue
to accumulate additional data related to our ordinary shares, we
may have refinements to our estimates, which could materially
impact our future share-based compensation expense.
Ordinary Share Valuations
Prior to the
IPO, the fair value of our ordinary shares was determined by our
board of directors, with input from management, taking into account
our most recent valuations from an independent third-party
valuation specialist. The valuations of our ordinary shares were
determined 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. The assumptions we used in the valuation models were
based on future expectations combined with management judgment and
considered numerous objective and subjective factors to determine
the fair value of our ordinary shares as of the date of each option
grant, including the following factors:
|
• |
Contemporaneous valuations performed at periodic intervals by
unrelated third-party specialists;
|
|
• |
The liquidation preferences, rights, preferences and
privileges of our protected shares relative to our ordinary
shares;
|
|
• |
Our actual operating and financial performance;
|
|
• |
The price of ordinary shares sold to third-party investors in
secondary transactions
in arm’s-length transactions;
|
|
• |
Current business conditions and projections;
|
|
• |
Our stage of development;
|
|
• |
The likelihood and timing of achieving a liquidity event for
the ordinary shares underlying the share options, such as a sale of
our Company, given prevailing market conditions;
|
|
• |
Any adjustment necessary to recognize a lack of marketability
of the ordinary shares underlying the granted options; and
|
|
• |
The market performance of comparable publicly traded
companies.
|
In valuing our
ordinary shares, the fair value of our business was determined
using various valuation methods, including combinations of income
and market approaches with input from management. The income
approach estimates value based on the expectation of future cash
flows that a company will generate. These future cash flows are
discounted to their present values using a discount rate that is
derived from an analysis of the cost of capital of comparable
publicly traded companies in our industry or similar business
operations as of each valuation date and is adjusted to reflect the
risks inherent in our cash flows. The market approach estimates
value based on a comparison of the subject company to comparable
public companies in a similar line of business. From the comparable
companies, a representative market value multiple is determined and
then applied to the subject company’s financial forecasts to
estimate the value of the subject company.
For each
valuation, the fair value of our business determined by the income
and market approaches was then allocated to the ordinary shares
using either the option-pricing method (“OPM”), or a hybrid of the
probability-weighted expected return method (“PWERM”) and OPM
methods.
In addition, we
also considered any secondary transactions involving our ordinary
shares. In our evaluation of those transactions, we considered the
facts and circumstances of each transaction to determine the extent
to which they represented a fair value exchange and assigned the
transactions an appropriate weighting in the valuation of our
ordinary shares. Factors considered include the number of different
buyers and sellers, transaction volume, timing relative to the
valuation date, whether the transactions occurred between willing
and unrelated parties, and whether the transactions involved
investors with access to our financial information.
In some cases,
we considered the amount of time between the valuation date and the
grant date to determine whether to use the latest ordinary share
valuation determined pursuant to the method described above or a
straight-line calculation between 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.
Application of
these approaches and methodologies involves the use of estimates,
judgments, 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 public companies, and the probability of and timing
associated with 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 ordinary
shares.
Internal Use Software Development Costs
We capitalize
certain costs related to the development of our platform and other
software applications for internal use. In accordance with
authoritative guidance, we begin to capitalize our costs to develop
software when preliminary development efforts are successfully
completed, management has authorized and committed project funding,
and it is probable that the project will be completed and the
software will be used as intended. We stop capitalizing these costs
when the software is substantially complete and ready for its
intended use, including the completion of all significant testing.
These costs are amortized on a straight-line basis over the
estimated useful life of the related asset, generally estimated to
be three years. We also capitalize costs related to specific
upgrades and enhancements when it is probable the expenditure will
result in additional functionality and expense costs incurred for
maintenance and minor upgrades and enhancements. Costs incurred
prior to meeting these criteria together with costs incurred for
training and maintenance are expensed as incurred and recorded
within research and development expenses in our consolidated
statements of operations.
We exercise
judgment in determining the point at which various projects may be
capitalized, in assessing the ongoing value of the capitalized
costs and in determining the estimated useful lives over which the
costs are amortized. To the extent that we change the manner in
which we develop and test new features and functionalities related
to our platform, assess the ongoing value of capitalized assets or
determine the estimated useful lives over which the costs are
amortized, the amount of internal-use software
development costs we capitalize and amortize could change in future
periods.
During the year
ended December 31, 2021, we capitalized internal use software
development costs in the amount of $3.9 million.
Recently Adopted
Accounting Pronouncements
See the section
titled “Summary of Significant Accounting Policies” in note 2 to
our consolidated financial statements included elsewhere in this
Annual Report for more information.
JOBS Act
Accounting Election
We are an
emerging growth company, as defined in the JOBS Act. The JOBS Act
provides that 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 certain accounting standards until
those standards would otherwise apply to private companies. We have
elected to take advantage of this extended transition period until
the earlier of the date we (x) are no longer an emerging
growth company, or (y) affirmatively and irrevocably opt out
of the extended transition period. As a result, our operating
results and financial statements may not be comparable to those of
companies that comply with new or revised accounting pronouncements
as of public company effective dates.
Item
6. Directors, Senior Management and Employees
|
A. |
Directors and Senior
Management
|
The following
table sets forth the name and position of each of our executive
officers and directors as of February 28, 2022:
|
Name
|
|
Age
|
|
Position
|
| |
|
|
|
Executive Officers
|
|
|
|
|
|
Dan
Adika
|
|
36
|
|
Chief
Executive Officer and Chairperson
|
|
Rafael
Sweary
|
|
50
|
|
President and Director
|
|
Andrew
Casey
|
|
52
|
|
Chief
Financial Officer
|
|
Non-Employee Directors
|
|
|
|
|
|
Haleli
Barath
|
|
47
|
|
Director
|
|
Michele
Bettencourt (1)
|
|
61
|
|
Director
|
|
Menashe
Ezra (3)
|
|
69
|
|
Director
|
|
Ron
Gutler (1)
(2) (3)
|
|
64
|
|
Director
|
|
Jeff
Horing (3)
|
|
57
|
|
Director
|
|
Rory
O’Driscoll (2)
|
|
57
|
|
Director
|
|
Michael
Risman (3)
|
|
53
|
|
Director
|
|
Roy
Saar (1)
(2)
|
|
51
|
|
Director
|
|
(1)
|
Member of the audit committee
|
|
(2)
|
Member of the compensation
committee
|
|
(3)
|
Member of the nominating, governance
and sustainability committee
|
Dan Adika is
our Co-Founder and has served as our Chief Executive
Officer and a member of our board of directors since March 2012.
Prior to co-founding our Company, Mr. Adika served
as a software engineer at Hewlett-Packard Company, a computer and
information technology company, from May 2010 to May 2011. Before
that, from January 2005 to March 2010, Mr. Adika served as a
computer programmer in the Israel Defense Forces. We believe that
Mr. Adika’s technical experience and knowledge of our Company
qualify him to serve on our board of directors.
Rafael Sweary is
our Co-Founder and has served as our President and as a
member of our board of directors since March 2012. Prior
to co-founding our Company, Mr. Sweary served as
the Entrepreneur-in-Residence at Ocean Assets from June
2005 to November 2007. Before that, from June 2001 to June 2005,
Mr. Sweary served as the President and Chief Executive Officer
at Jetro Platforms, an enterprise software company which
he co-founded. Mr. Sweary holds a B.A. in economics
from the College of Management Academic Studies in Israel and an
M.B.A. from the University of Baltimore. We believe that
Mr. Sweary’s broad leadership and industry experience and
knowledge of our Company qualify him to serve on our board of
directors.
Andrew Casey has served as our
Chief Financial Officer since March 2020. Prior to joining our
Company, Mr. Casey served as Senior Vice President Finance and
Business Operations at ServiceNow, Inc., a cloud computing company,
from June 2014 to March 2020. Before that, Mr. Casey served in
senior finance roles at several technology companies, including
Vice President, Finance at Hewlett-Packard from September 2011 to
June 2014; Senior Director Finance, Enterprise Sales and Services
at NortonLifeLock Inc. (formerly Symantec) from September 2007 to
October 2011; Senior Director, Corporate Finance at Oracle
Corporation from July 2005 to September 2007; and Director,
FP&A at Sun Microsystems from June 1996 to July 2005.
Mr. Casey holds a B.A. in economics from the University of
Redlands, an M.B.A. from Claremont Graduate University and is a
certified Managerial Accountant.
Haleli Barath has served as a
member of our board of directors since February 2021. Since 2009,
Ms. Barath has served as Managing Partner at BFP & Co. law firm
which she co-founded. Since 2014, Ms. Barath has served as a
General Partner at Cerca Partners, a venture capital firm which she
co-founded. Since February 2021, Ms. Barath has also served on
the board of IM Cannabis Corp., a publicly traded company. Ms.
Barath also currently serves on the boards of directors of several
privately-held companies. Ms. Barath holds a Bachelor of Laws
(LL.B.) from Hebrew University in Jerusalem, Israel. We believe
that Ms. Barath’s corporate law and business expertise gained from
her experience in the legal profession and in the venture capital
industry, including her time spent serving on boards of directors
of various companies and familiarity with Israeli companies,
qualifies her to serve on our board of directors.
Michele Bettencourt has served as
a member of our board of directors since March 2021. From February
2017 to February 2020, Ms. Bettencourt served
as Co-Chief Executive Officer of He Said She Said
Productions NYC, a film production company which she founded. From
August 2014 to February 2018, Ms. Bettencourt also served as
chairperson of the board of directors of Imperva, Inc., a
cybersecurity company, where she also served as Chief Executive
Officer from August 2014 to July 2017. Before that, from November
2010 to March 2014, Ms. Bettencourt served as Chief Executive
Officer of Coverity Inc., a software company, through its
acquisition by Synopsys, Inc. From January 2006 to October 2009,
Ms. Bettencourt served as Senior Vice President of Special
Projects at Autonomy Corporation plc. Before that, from 2003 to
2005, Ms. Bettencourt served as Chief Executive Officer of
Verity Inc., an enterprise search company, and led the company
through its acquisition by Autonomy in 2005. Ms. Bettencourt
served on the board of directors of Proofpoint, Inc., an enterprise
security company, from April 2012 until January 2017, and on the
board of directors of Versant Corporation from January 2012 to
December 2012 through its acquisition by Actian Corporation.
Ms. Bettencourt holds a B.A. in English from Santa Clara
University. We believe that Ms. Bettencourt’s extensive
management experience and service on the board of directors of
technology companies qualifies her to serve on our board of
directors.
Menashe Ezra has served as a
member of our board of directors since December 2014. Since 2008, Mr. Ezra has
served as Managing Partner at Gemini Israel Ventures, a venture
capital firm. Before joining Gemini Israel Ventures, from October
2001 to October 2007, Mr. Ezra served as Managing Partner at
BRM Capital, a venture capital firm. Before that, from 1993 to
1998, Mr. Ezra served as Chief Executive Officer at
WaveAccess, a wireless communications company which he founded and
which was sold to Lucent Technologies Inc., a telecommunications
company, or Lucent, in 1998. From December 1998 to April 2001,
Mr. Ezra served as VP Wireless Network Solutions at Lucent.
Mr. Ezra also serves on the boards of directors of several
privately-held companies. Mr. Ezra holds a B.Sc. in electrical
engineering from Tel Aviv University. We believe that
Mr. Ezra’s experience in the venture capital industry,
including his time spent serving on the boards of directors of
various companies and familiarity with Israeli companies, qualifies
him to serve on our board of directors.
Ron Gutler has served as a member
of our board of directors since October 2020. Mr. Gutler
currently serves on the boards of directors of Fiverr International
Ltd., Wix.com Ltd., CyberArk Software Ltd. and several private
companies. From May 2002 through February 2013, Mr. Gutler
served as the Chairman of the board of directors of NICE Systems
Ltd., a public company specializing in voice recognition, data
security and surveillance. Between 2002 and 2011, Mr. Gutler
served as the Chairman of G.J.E. 121 Promoting Investments Ltd., a
real estate company. Mr. Gutler is a former Managing Director
and Partner of Bankers Trust Company, which is currently part of
Deutsche Bank. Mr. Gutler holds a B.A. and an M.B.A. from the
Hebrew University of Jerusalem. We believe that Mr. Gutler’s
extensive management experience serving on the board of directors
of technology companies qualifies him to serve on our board of
directors.
Jeff Horing has served as a member
of our board of directors since December 2015. Since January 1995,
Mr. Horing has served as Managing Director at Insight Venture
Partners, a private equity firm which
he co-founded. Mr. Horing has served on the boards
of directors of JFrog Ltd., a software company, since September
2018; nCino, Inc., a financial technology company, since February
2015; and Alteryx, Inc., a software company, since September 2014.
Mr. Horing also currently serves on the boards of directors of
several privately-held companies and has previously served on the
boards of directors of numerous publicly-held companies, including
the board of directors of Tintri, Inc., a software company, from
February 2014 to June 2017. Mr. Horing holds a B.S. and B.A.
from the University of Pennsylvania’s Moore School of Engineering
and the Wharton School, respectively, and an M.B.A. from the M.I.T.
Sloan School of Management. We believe that Mr. Horing’s
corporate finance and business expertise gained from his experience
in the venture capital industry, including his time spent serving
on boards of directors of various companies and familiarity with
Israeli companies, qualifies him to serve on our board of
directors.
Rory O’Driscoll has served as a
member of our board of directors since February 2014. Since 2007, Mr. O’Driscoll
has served as a Managing Partner at Scale Venture Partners, a
venture capital firm. Mr. O’Driscoll has also served as a
member of the board of directors of Bill.com Holdings, Inc., a
software company, since July 2013. Mr. O’Driscoll previously
served on the board of directors of Box, Inc., a data storage and
file management software company, from March 2010 to July 2020, and
DocuSign, Inc., an eSignature and digital transaction management
company, from December 2010 to August 2018. Mr. O’Driscoll
also currently serves on the boards of directors of several
privately held companies. Mr. O’Driscoll holds a B.Sc. in
Economics from the London School of Economics. We believe that
Mr. O’Driscoll’s extensive experience in the venture capital
industry and his knowledge of technology companies qualify him to
serve on our board of directors.
Michael Risman has served as a
member of our board of directors since June 2021. Prior to then and
since December 2019, he also served as the representative of the
former corporate director, Vitruvian Directors I Limited. Since May
2006, Mr. Risman has served as Managing Partner of Vitruvian
Partners, a private equity firm which he co-founded. Prior to that,
from September 1995 to May 2006, Mr. Risman served as a Global
Equity Partner at Apax Partners, a private equity firm, where he
led their Information Technology Investment Team in Europe.
Mr. Risman has previously served on the boards of directors of
Farfetch, a fashion technology company, from November 2014 to
August 2020; Just Eat, an online food ordering company from April
2012 to March 2016; and Dialog Semiconductor, a semiconductor
solutions manufacturer, from August 1999 to July 2006.
Mr. Risman also currently serves on the board of directors of
several privately-held companies in which funds managed by
Vitruvian Partners have invested. Mr. Risman holds an M.A. in
electrical engineering from Cambridge University and an M.B.A. from
the Harvard Business School. We believe that Mr. Risman’s
extensive experience in the venture capital industry and his
knowledge of technology companies qualify him to serve on our board
of directors.
Roy Saar has served as a member of
our board of directors since March 2012. Since 2008, Mr. Saar
has served in positions of increasing responsibility at Mangrove
Capital Partners, an investment firm, most recently serving as
Partner. In 2002, Mr. Saar co-founded RFcell
Technologies Ltd., a wireless product and service provider. Before
that, in 1999, he co-founded Sphera Corporation, a
virtual server technology vendor for SaaS providers, which was
acquired by Parallels in 2007. Since January 2007, Mr. Saar
has also served as a member of the board of directors of Wix.com
Ltd. Mr. Saar also currently serves on the boards of directors
of several privately-held companies. Mr. Saar holds a B.A. in
Business Administration and Economics from Tel Aviv University. We
believe that Mr. Saar’s extensive experience in the venture
capital industry and with technology companies qualify him to serve
on our board of directors.
Board Diversity Matrix
The table below
provides certain information regarding the diversity of our board
of directors as of the date of this Annual Report.
|
Board Diversity Matrix
|
|
Country of Principal Executive Offices:
|
Israel
|
|
Foreign Private Issuer
|
Yes
|
|
Disclosure Prohibited under Home Country Law
|
No
|
|
Total Number of Directors
|
10
|
|
|
Female
|
Male
|
Non-
Binary/Transgender
|
Did Not
Disclose
Gender
|
|
Part I: Gender Identity
|
|
|
Directors
|
1
|
6
|
1
|
2
|
|
Part II: Demographic Background
|
|
|
Underrepresented Individual in Home Country Jurisdiction
|
1
|
|
LGBTQ+
|
1
|
|
Did
Not Disclose Demographic Background
|
5
|
Directors. Under the
Companies Law, the compensation of our directors requires the
approval of our compensation committee, the subsequent approval of
the board of directors and, unless exempted under regulations
promulgated under the Companies Law, the approval of the
shareholders at a general meeting. If the compensation of our
directors is inconsistent with our stated compensation policy,
then, those provisions that must be included in the compensation
policy according to the Companies Law must have been considered by
the compensation committee and board of directors, and shareholder
approval by a simple majority will also be required, provided
that:
|
• |
at least a majority of the shares held by all shareholders who
are not controlling shareholders and do not have a personal
interest in such matter, present and voting at such meeting, are
voted in favor of the compensation package, excluding abstentions;
or
|
|
• |
the total number of shares of non-controlling shareholders and
shareholders who do not have a personal interest in such matter
voting against the compensation package does not exceed two percent
(2%) of the aggregate voting rights in the Company.
|
Executive Officers other than the
Chief Executive Officer. The Companies Law requires the
approval of the compensation of a public company’s executive
officers (other than the chief executive officer) in the following
order: (1) the compensation committee, (2) the company’s board of
directors, and (3) if such compensation arrangement is inconsistent
with the company’s stated compensation policy, the company’s
shareholders (by a special majority vote as discussed above with
respect to the approval of director compensation). However, if the
shareholders of the company do not approve a compensation
arrangement with such executive officer that is inconsistent with
the company’s stated compensation policy, the compensation
committee and board of directors may override the shareholders’
decision if each of the compensation committee and the board of
directors provide detailed reasons for their decision.
An amendment to an existing arrangement with an office holder (who
is not a director) requires only the approval of the compensation
committee, if the compensation committee determines that the
amendment is not material in comparison to the existing
arrangement. However, under the Companies Law, an amendment to an
existing arrangement with an office holder (who is not a director)
who is subordinate to the chief executive officer will not require
the approval of the compensation committee, if (1) the amendment is
approved by the chief executive officer, (2) the company’s
compensation policy provides that a non-material amendment to the
terms of service of an office holder (other than the chief
executive officer) may be approved by the chief executive officer
and (3) the engagement terms are consistent with the company’s
compensation policy.
Chief Executive
Officer. Under the Companies Law, the compensation of a
public company’s chief executive officer is required to be approved
by: (1) the company’s compensation committee; (2) the company’s
board of directors, and (3) the company’s shareholders (by a
special majority vote as discussed above with respect to the
approval of director compensation). However, if the shareholders of
the company do not approve the compensation arrangement with the
chief executive officer, the compensation committee and board of
directors may override the shareholders’ decision if each of the
compensation committee and the board of directors provide detailed
reasons for their decision. The approval of each of the
compensation committee and the board of directors should be in
accordance with the company’s stated compensation policy; however,
in special circumstances, they may approve compensation terms of a
chief executive officer that are inconsistent with such policy
provided that they have considered those provisions that must be
included in the compensation policy according to the Companies Law
and that shareholder approval is obtained (by a special majority
vote as discussed above with respect to the approval of director
compensation). In addition, the compensation committee may waive
the shareholder approval requirement with regards to the approval
of the engagement terms of a candidate for the chief executive
officer position, if they determine that the compensation
arrangement is consistent with the company’s compensation policy
and that the chief executive officer candidate did not have a prior
business relationship with the company or a controlling shareholder
of the company and that subjecting the approval of the engagement
to a shareholder vote would impede the company’s ability to employ
the chief executive officer candidate.
Compensation of
Directors and Executive Officers
The aggregate
compensation paid by us and our subsidiaries to our directors and
executive officers, including share-based compensation expenses
recorded in our financial statements, for the year ended December
31, 2021, was approximately $12.2 million. This amount includes
deferred or contingent compensation accrued for such year (and
excludes deferred or contingent amounts accrued for during the year
ended December 31, 2020 and paid during the year ended December 31,
2021). This amount includes approximately $0.2 million set aside or
accrued to provide pension, severance, retirement or similar
benefits or expenses, but does not include business travel,
relocation, professional and business association dues and expenses
reimbursed to our directors and executive officers.
During the year
ended December 31, 2021, our directors and officers were granted
options to purchase an aggregate of 2,201,035 ordinary shares, at a
weighted average exercise price of $13.85 per share, and 16,440
restricted share units under our 2021 Share Incentive Plan, or the
2021 Plan, our 2021 Employee Share Purchase Plan, or the 2021 ESPP
Plan, and our Restated 2012 Share Option Plan, or the Restated 2012
Plan.
The following
is a summary of the salary expenses and social benefit costs of our
five most highly compensated executive officers in 2021, or the
“Covered Executives.” All amounts reported reflect the cost to the
Company as recognized in our financial statements for the year
ended December 31, 2021. U.S. dollar amounts indicated for
compensation of our Covered Executives are in thousands of
dollars.
|
• |
Mr. Dan Adika, Chief Executive Officer and Chairperson of the
Board. Compensation expenses recorded in 2021 of $0.4 million in
salary expenses and $0.1 million in social benefits costs.
|
|
• |
Mr. Rafael Sweary, President and Director. Compensation
expenses recorded in 2021 of $0.4 million in salary expenses and
$0.1 million in social benefits costs.
|
|
• |
Mr. Andrew Casey, Chief Financial Officer. Compensation
expenses recorded in 2021 of $0.4 million in salary expenses and
$0.1 million in social benefits costs.
|
|
• |
Mr. Shane Orlick, former Chief Revenue Officer. Compensation
expenses recorded in 2021 of $0.3 million in salary expenses and
$0.1 million in social benefits costs.
|
|
• |
Mr. Ofer Karp, EVP Engineering. Compensation expenses recorded
in 2021 of $0.3 million in salary expenses and $0.1 million in
social benefits costs.
|
The salary
expenses summarized above include the gross salary paid to the
Covered Executives, and the benefit costs include the social
benefits paid by us on behalf of the Covered Executives,
convalescence pay, contributions made by the company to an
insurance policy or a pension fund, work disability insurance,
severance, educational fund and payments for social security.
In accordance
with the Company’s compensation policy, we also paid cash bonuses
and commissions to our Covered Executives upon compliance with
predetermined performance parameters and an over achievement bonus
as set by the compensation committee and the board of directors.
The 2021 cash bonus and commissions expenses for Mr. Dan Adika, Mr.
Rafael Sweary, Mr. Andrew Casey, Mr. Shane Orlick and Mr. Ofer
Karp, as provided for in our 2021 financial statements, were $0.2
million, $0.2 million , $0.2 million, $0.5 million and $0.1
million, respectively.
We recorded
equity-based compensation expenses in our financial statements for
the year ended December 31, 2021 for Mr. Dan Adika, Mr. Rafael
Sweary, Mr. Andrew Casey, Mr. Shane Orlick and Mr. Ofer Karp of
$4.2 million, $4.2 million, $1.2 million, $0.7 million and $0.2
million, respectively.
All
equity-based compensation grants to our Covered Executives were
made in accordance with the parameters of our Company’s
compensation policy and were approved by the company’s compensation
committee and board of directors. Assumptions and key variables
used in the calculation of such amounts are described in Note 7 to
our audited consolidated financial statements included in Item 18
of this Annual Report.
Additionally,
we annually pay to each of our non-employee directors a cash
retainer of up to $30,000 with an additional annual payment for
service on board committees as follows: $10,000 (or $20,000 for the
chairperson) per membership of the audit committee, or $7,500 (or
$15,000 for the chairperson) per membership of the compensation
committee and $4,000 (or $8,000 for the chairperson) per membership
of the nominating, governance and sustainability committee or any
other board committee. In addition, upon election, non-employee
directors, will be granted equity awards under our incentive plan
at a value of $400,000, which will vest on a monthly basis over a
period of three years. In addition, each non-employee director will
be granted equity awards under our incentive plan (provided the
director is still in office) at a value of $180,000, which will
vest on the earlier of the first anniversary of the date on which
such options and restricted share units were granted or the date
upon which our next annual general meeting of the shareholders is
convened, subject to such director’s continued service through such
date. Any unvested equity grants will accelerate and fully vest
upon the occurrence of a change in control transaction.
Employment and consulting agreements with
executive officers and
directors
We have entered
into written employment agreements with each of our executive
officers. These agreements provide for notice periods of varying
duration for termination of the agreement by us or by the relevant
executive officer, during which time the executive officer will
continue to receive base salary and benefits. These agreements also
contain customary provisions regarding non-competition,
confidentiality of information and assignment of inventions.
However, the enforceability of the non-competition provisions may
be limited under applicable law.
Employment Agreements. We have
entered into employment agreements with each of our executive
officers who works for us as an employee. These agreements each
contain provisions regarding noncompetition, confidentiality of
information and assignment of inventions. The enforceability of
covenants not to compete is subject to limitations.
The provisions
of certain of our executive officers’ employment agreements contain
termination or change of control provisions. With respect to
certain executive officers, either we or the executive officer may
terminate his or her employment by giving 90 calendar days’ advance
written notice to the other party. We may also terminate an
executive officer’s employment agreement for good reason (as
defined the applicable employment agreement) or in the event of a
merger or acquisition transaction.
Equity Awards. Since our
inception, we have granted options to purchase our ordinary shares
to our executive officers and certain of our directors. In November
2021, we began granting restricted share units, or RSUs, to our
executive officers. Such equity agreements may contain acceleration
provisions upon certain merger, acquisition or change of control
transactions.
Exculpation, Indemnification and
Insurance. Our Articles of Association permit us to
exculpate, indemnify and insure our office holders to the fullest
extent permitted by the Companies Law. We have entered into
agreements with certain office holders, exculpating them from a
breach of their duty of care to us to the fullest extent permitted
by law and undertaking to indemnify them to the fullest extent
permitted by law, subject to certain exceptions (including with
respect to our IPO) to the extent that these liabilities are not
covered by insurance.
Equity incentive
plans
The Restated
2012 Plan was adopted by our board of directors on June 29,
2012, amended as of December 6, 2012, and further amended and
restated on June 4, 2020 and further amended on May 11, 2021.
The Restated 2012 Plan provides for the grant of options to our
employees, directors, office holders, consultants and other
eligible service providers. The Restated 2012 Plan terminated upon
the effective date of our initial public offering, or the IPO, and
we will not grant any additional awards under the Restated 2012
Plan. However, the Restated 2012 Plan will continue to govern the
terms and conditions of the outstanding awards previously granted
under the Restated 2012 Plan.
Authorized Shares. Ordinary shares
subject to options granted under the Restated 2012 Plan that expire
or become unexercisable without having been exercised in full will
become available again for future grant under the 2021 Plan.
Administration. Our board of directors,
or a duly authorized committee of our board of directors, or the
administrator, administers the Restated 2012 Plan. Under the
Restated 2012 Plan, the administrator has the authority, subject to
applicable law, to interpret the terms of the Restated 2012 Plan
and any notices of grant or options granted thereunder, appoint a
trustee, designate recipients of option grants, designate the types
of options and elect the Israel tax track with respect to the
options, determine and amend the terms of awards, including the
exercise price of an option award, the fair market value of an
ordinary share, the time and vesting schedule applicable to an
option grant or the method of payment for an award, accelerate or
amend the vesting schedule applicable to an option grant, prescribe
the forms of agreement for use under the Restated 2012 Plan and
take all other actions and make all other determinations necessary
for the administration of Restated 2012 Plan. If the administrator
is a duly authorized committee of our board of directors, our board
of directors will determine the grant of options to be made, if
any, to members of such committee.
The
administrator also has the authority to amend and rescind rules and
regulations relating to the Restated 2012 Plan or terminate the
Restated 2012 Plan.
Eligibility. The Restated 2012 Plan
provides for granting options in compliance with Section 102
of the Israeli Income Tax Ordinance (New Version), 5721-1961 (the
“Ordinance”), or, for options granted to consultants, advisors,
service providers or controlling shareholders of the company, under
Section 3(i) of the Ordinance.
Section 102 of the Ordinance allows employees, directors and
officers who are not controlling shareholders and are considered
Israeli residents to receive favorable tax treatment for
compensation in the form of shares or options.
Our non-employee service providers and controlling
shareholders may only be granted options under section 3(i) of the
Ordinance, which does not provide for similar tax benefits.
Section 102 includes two alternatives for tax treatment
involving the issuance of options or shares to a trustee for the
benefit of the grantees and also includes an additional alternative
for the issuance of options or shares directly to the grantee.
Section 102(b)(2) of the Ordinance, the most favorable tax
treatment for the grantee, permits the issuance to a trustee under
the “capital gain track.”
Grant. All options granted pursuant to
the Restated 2012 Plan are evidenced by a notice of grant, in a
form approved by the administrator in its sole discretion. The
notice of grant will set forth the terms and conditions of the
option grant. Each option will expire ten years from the date of
the grant thereof, unless such shorter term of expiration is
otherwise designated by the administrator.
Unless
otherwise determined by the administrator and stated in the option
agreement, and subject to the conditions of the Restated 2012 Plan,
options vest and become exercisable under the following schedule:
twenty-five percent (25%) of the shares covered by the option, on
the first anniversary of the vesting commencement date determined
by the administrator, and 1/36 of the shares covered by the award
at the end of each subsequent month thereafter over the course of
the following three (3) years; provided that the grantee
remains continuously as an employee or provides services to the
Company throughout such vesting dates.
Exercise. An option under the Restated
2012 Plan may be exercised by providing the company with a written
or electronic notice of exercise and full payment of the exercise
price for such shares with respect to which the option is
exercised, in such form and method as may be determined by the
administrator and permitted by applicable law, and any other
deliverable as may be stipulated in the option agreement. An option
may not be exercised for a fraction of a share.
Transferability. Other than by will,
the laws of descent and distribution or as otherwise provided under
the Restated 2012 Plan, neither the options nor any right in
connection with such options are assignable or transferable.
Termination of Employment. In the event
of termination of an optionee’s employment or service with the
company or any of its affiliates for any reason other than “cause”
(as defined in the Restated 2012 Plan) or due to such optionee’s
death or disability, all vested and exercisable options held by
such optionee as of the date of termination may be exercised within
three months after such date of termination, unless otherwise
provided by the administrator. After such three month period, all
unexercised options will terminate and the shares covered by such
options shall again be available for issuance under the 2021
Plan.
In the event of
termination of an optionee’s employment or service with the company
or any of its affiliates due to such optionee’s death or
disability, all vested and exercisable options held by such
optionee as of the date of termination may be exercised by the
optionee, the optionee’s legal guardian, the optionee’s estate, or
by a person who acquired the right to exercise the option by
bequest or inheritance, as applicable, within twelve months after
such date of termination, unless otherwise provided by the
administrator. Any options which are unvested as of the date of
death or disability or which are vested but not then exercised
within the twelve month period following such date, will terminate
and the shares covered by such options shall again be available for
issuance under the 2021 Plan.
Notwithstanding
any of the foregoing, if an optionee’s employment or services with
the company or any of its affiliates is terminated for “cause,” all
outstanding options held by such optionee (whether vested or
unvested) will terminate on the date of such termination and the
shares covered by such options shall again be available for
issuance under the 2021 Plan.
Right of Repurchase. If, after an
optionee has exercised an option under the Restated 2012 Plan, an
event defined as “cause” occurs while the optionee remains employed
or engaged by the Company or the optionee violates the terms of any
confidentiality, non-competition or other agreement with
the Company, then the Company shall have the right to repurchase
all of the shares held by the optionee in exchange for payment of
the exercise price, forfeit all such shares, redeem all such shares
at par value (or for less than that amount if allowed by applicable
law), convert such shares into deferred shares entitling their
holder only to their par value upon liquidation, or take any other
action which may be required in order to achieve similar
results.
Adjustments. In the event of a share
split, reverse share split, share dividend, recapitalization,
combination or reclassification of our shares, or any other
increase or decrease in the number of issued shares effected
without receipt of consideration by the company (but not including
the conversion of any convertible securities of the company), the
administrator shall make an appropriate adjustment in the number of
shares related to each outstanding option and to the number of
shares reserved for issuance under the Restated 2012 Plan, to the
class and kind of shares subject to the Restated 2012 Plan, as well
as the exercise price per share of each outstanding option,
provided however, that any fractional shares resulting from such
adjustment shall be rounded down to the nearest whole share unless
otherwise determined by the administrator. Except as expressly
provided herein, no issuance by the company of shares of any class,
or securities convertible into shares of any class, shall affect,
and no adjustment by reason thereof shall be made with respect to,
the number or price of shares subject to an option.
Merger or Acquisition. In the event of
a sale of all or substantially all of the assets or shares of the
company, or a merger or other reorganization of the company with or
into another corporation or a scheme of arrangement for the purpose
of effecting such sale or merger, the administrator shall have
discretion to (i) cause any outstanding option to be assumed
or an equivalent award substituted by the successor company or one
of its affiliates, or (ii) in the event such options are not
assumed or substituted for, provide the optionee the right to
exercise the award as to all or part of the shares, including
discretion to accelerate vesting of unvested awards and provide for
cancellation of unexercised options upon closing of the
transaction, and/or provided for cancellation of each outstanding
option in exchange for a cash payment for each vested share equal
to the fair market value foregoing of the underlying shares, as
reflected in the terms of the transaction, less the exercise price,
or (iii) notwithstanding the foregoing, provide that upon
completion of the transaction that the terms of any option will be
otherwise amended, modified or terminated and/or that the option
will confer the right to receive any other security or asset,
including cash, as the administrator shall deem in good faith to be
appropriate.
U.S. Appendix. Our United States
Appendix to the Restated 2012 Plan (the “U.S. Appendix”) governs
option awards granted to our United States employees or service
providers, including those who are deemed to be residents of the
United States for tax purposes. The U.S. Appendix will share in the
option pool discussed above. Each option will be evidenced by a
notice of grant, which will contain the terms and conditions upon
which such option will be issued and exercised. Each option which
is intended to be an incentive stock option will be granted in
compliance with the requirements of Section 422 of the Code
and applicable law. Only our United States employees are eligible
to be granted incentive stock options. With respect to any option
granted to a United States optionee, in the event of a conflict
between the terms of the U.S. Appendix and the Restated 2012 Plan,
the terms of the U.S. Appendix will prevail.
2021
Share Incentive Plan
We adopted the
2021 Plan immediately prior to the IPO. The 2021 Plan provides for
the grant of equity-based incentive awards to our employees,
directors, office holders, service providers and consultants in
order to incentivize them to increase their efforts on behalf of
the Company and to promote the success of the Company’s
business.
Shares Available for Grants. The
maximum number ordinary shares available for issuance under the
2021 Plan is equal to the sum of (i) 9,954,480 shares, (ii) any
shares subject to awards under the Restated 2012 Plan which have
expired, or were cancelled, terminated, forfeited or settled in
cash in lieu of issuance of shares or became unexercisable without
having been exercised and (iii) an annual increase on the first day
of each year beginning in 2022 and on January 1st of each calendar
year thereafter and ending on January 1, 2031, equal to the lesser
of (A) 5% of the outstanding ordinary shares of the Company on the
last day of the immediately preceding calendar year; and (B) such
amount as determined by our board of directors if so determined
prior to January 1 of a calendar year, provided that no more than
99,544,800 ordinary shares may be issued upon the exercise of
Incentive Stock Options. If permitted by our board of directors,
shares tendered to pay the exercise price or withholding tax
obligations with respect to an award granted under the 2021 Plan or
the Restated 2012 Plan may again be available for issuance under
the 2021 Plan, unless determined otherwise by the Board. Our board
of directors may also reduce the number of ordinary shares reserved
and available for issuance under the 2021 Plan in its
discretion.
Administration. Our board of
directors, or a duly authorized committee of our board of
directors, or the administrator, will administer the 2021 Plan.
Under the 2021 Plan, the administrator has the authority, subject
to applicable law, to interpret the terms of the 2021 Plan and any
award agreements or awards granted thereunder, designate recipients
of awards, determine and amend the terms of awards, including the
exercise price of an option award, the fair market value of an
ordinary share, the time and vesting schedule applicable to an
award or the method of payment for an award, accelerate or amend
the vesting schedule applicable to an award, prescribe the forms of
agreement for use under the 2021 Plan and take all other actions
and make all other determinations necessary for the administration
of the 2021 Plan.
The
administrator also has the authority to approve the conversion,
substitution, cancellation or suspension under and in accordance
with the 2021 Plan of any or all option awards or ordinary shares,
and the authority to modify option awards to eligible individuals
who are foreign nationals or are individuals who are employed
outside Israel to recognize differences in local law, tax policy or
custom, in order to effectuate the purposes of the 2021 Plan but
without amending the 2021 Plan.
The
administrator also has the authority to amend and rescind rules and
regulations relating to the 2021 Plan or terminate the 2021 Plan at
any time before the date of expiration of its ten year term.
Eligibility. The 2021 Plan
provides for granting awards under various tax regimes, including,
without limitation, in compliance with Section 102 of the
Ordinance, and Section 3(i) of the Ordinance and for awards granted
to our United States employees or service providers, including
those who are deemed to be residents of the United States for tax
purposes, Section 422 of the Code and Section 409A of the
Code.
Grants. All awards granted
pursuant to the 2021 Plan will be evidenced by an award agreement,
in a form approved, from time to time, by the administrator in its
sole discretion. The award agreement will set forth the terms and
conditions of the award, including the type of award, number of
shares subject to such award, vesting schedule and conditions
(including performance goals or measures) and the exercise price,
if applicable. Certain awards under the 2021 Plan may constitute or
provide for a deferral of compensation, subject to Section 409A of
the Code, which may impose additional requirements on the terms and
conditions of such awards.
Unless
otherwise determined by the administrator and stated in the award
agreement, and subject to the conditions of the 2021 Plan, awards
vest and become exercisable under the following schedule: 25% of
the shares covered by the award on the first anniversary of the
vesting commencement date determined by the administrator (and in
the absence of such determination, the date on which such award was
granted) and 6.25% of the shares covered by the award at the end of
each subsequent three-month period thereafter over the course of
the following three years; provided that the grantee remains
continuously as an employee or provides services to the company
throughout such vesting dates.
Each award will
expire ten years from the date of the grant thereof, unless such
shorter term of expiration is otherwise designated by the
administrator.
Awards. The 2021 Plan provides for
the grant of stock options (including incentive stock options and
nonqualified stock options), ordinary shares, restricted shares,
RSUs, stock appreciation rights and other share-based awards.
Options granted
under the 2021 Plan to the Company employees who are U.S. residents
may qualify as “incentive stock options” within the meaning of
Section 422 of the Code, or may be non-qualified stock options. The
exercise price of an option may not be less than the par value of
the shares (if the shares bear a par value) for which such option
is exercisable. The exercise price of an Incentive Stock Option may
not be less than 100% of the fair market value of the underlying
share on the date of grant or such other amount as may be required
pursuant to the Code, and in the case of Incentive Stock Options
granted to ten percent stockholders, not less than 110%.
Exercise. An award under the 2021
Plan may be exercised by providing the Company with a written or
electronic notice of exercise and full payment of the exercise
price for such shares underlying the award, if applicable, in such
form and method as may be determined by the administrator and
permitted by applicable law. An award may not be exercised for a
fraction of a share. With regard to tax withholding, exercise price
and purchase price obligations arising in connection with awards
under the 2021 Plan, the administrator may, in its discretion,
accept cash, provide for net withholding of shares in a cashless
exercise mechanism or direct a securities broker to sell shares and
deliver all or a part of the proceeds to the Company or the
trustee.
Transferability. Other than by
will, the laws of descent and distribution or as otherwise provided
under the 2021 Plan, neither the options nor any right in
connection with such options are assignable or transferable.
Termination of Employment. In the
event of termination of a grantee’s employment or service with the
Company or any of its affiliates, all vested and exercisable awards
held by such grantee as of the date of termination may be exercised
within three months after such date of termination, unless
otherwise determined by the administrator, but in no event later
than the date of expiration of the award as set forth in the award
agreement. After such three-month period, all such unexercised
awards will terminate and the shares covered by such awards shall
again be available for issuance under the 2021 Plan.
In the event of
termination of a grantee’s employment or service with the Company
or any of its affiliates due to such grantee’s death or permanent
disability, or in the event of the grantee’s death within the three
month period (or such longer period as determined by the
administrator) following his or her termination of service, all
vested and exercisable awards held by such grantee as of the date
of termination may be exercised by the grantee or the grantee’s
legal guardian, estate or by a person who acquired the right to
exercise the award by bequest or inheritance, as applicable, within
one year after such date of termination, unless otherwise provided
by the administrator, but in no event later than the date of
expiration of the award as set forth in the award agreement. Any
awards which are unvested as of the date of such termination or
which are vested but not then exercised within the one year period
following such date, will terminate and the shares covered by such
awards shall again be available for issuance under the 2021
Plan.
Notwithstanding
any of the foregoing, if a grantee’s employment or services with
the Company or any of its affiliates is terminated for “cause” (as
defined in the 2021 Plan), all outstanding awards held by such
grantee (whether vested or unvested) will terminate on the date of
such termination and the shares covered by such awards shall again
be available for issuance under the 2021 Plan.
Voting Rights. Except with respect
to restricted share awards, grantees will not have the rights as a
shareholder of the Company with respect to any shares covered by an
award until the award has vested and/or the grantee has exercised
such award, paid any exercise price for such award and becomes the
record holder of the shares. With respect to restricted share
awards, grantees will possess all incidents of ownership of the
restricted shares, including the right to vote and receive
dividends on such shares.
Dividends. Grantees holding
restricted share awards will be entitled to receive dividends and
other distributions with respect to the shares underlying the
restricted share award. Any stock split, stock dividend,
combination of shares or similar transaction will be subject to the
restrictions of the original restricted share award. Grantees
holding RSUs will not be eligible to receive dividend but may be
eligible to receive dividend equivalents.
Transactions. In the event of a
share split, reverse share split, share dividend, recapitalization,
combination or reclassification of the Company’s shares, the
administrator in its sole discretion may, and where required by
applicable law shall, without the need for a consent of any holder,
make an appropriate adjustment in order to adjust (i) the number
and class of shares reserved and available for the outstanding
awards, (ii) the number and class of shares covered by outstanding
awards, (iii) the exercise price per share covered by any award,
(iv) the terms and conditions concerning vesting and exercisability
and the term and duration of the outstanding awards, (v) the type
or class of security, asset or right underlying the award (which
need not be only that of the Company, and may be that of the
surviving corporation or any affiliate thereof or such other entity
party to any of the above transactions), and (vi) any other terms
of the award that in the opinion of the administrator should be
adjusted; provided that any fractional shares resulting from such
adjustment shall be rounded to the nearest whole share unless
otherwise determined by the administrator. In the event of a
distribution of a cash dividend to all shareholders, the
administrator may determine, without the consent of any holder of
an award, that the exercise price of an outstanding and unexercised
award shall be reduced by an amount equal to the per share gross
dividend amount distributed by the Company, subject to applicable
law.
In the event of
a merger or consolidation of the Company or a sale of all, or
substantially all, of the Company’s shares or assets or other
transaction having a similar effect on the Company, or change in
the composition of the board of directors, or liquidation or
dissolution, or such other transaction or circumstances that our
board of directors determines to be a relevant transaction, then
without the consent of the grantee, (i) unless otherwise determined
by the administrator, any outstanding award will be assumed or
substituted by such successor corporation, or (ii) regardless of
whether or not the successor corporation assumes or substitutes the
award (a) provide the grantee with the option to exercise the award
as to all or part of the shares, and may provide for an
acceleration of vesting of unvested awards, (b) cancel the award
and pay in cash, shares of the Company, the acquirer or other
corporation which is a party to such transaction or other property
as determined by the administrator as fair in the circumstances, or
(c) provide that the terms of any award shall be otherwise amended,
modified or terminated, as determined by the administrator to be
fair in the circumstances.
2021
Employee Share Purchase Plan
We adopted the
ESPP immediately prior to the IPO. The ESPP is comprised of two
distinct components: (1) the component intended to qualify for
favorable U.S. federal tax treatment under Section 423 of the Code
(the “Section 423 Component”) and (2) the component not intended to
be tax qualified under Section 423 of the Code to facilitate
participation for employees who are not eligible to benefit from
favorable U.S. federal tax treatment and, to the extent applicable,
to provide flexibility to comply with non U.S. law and other
considerations (the “Non Section 423 Component”).
Authorized Shares. A total of
1,824,988 of our ordinary shares will be available for sale under
the ESPP, subject to adjustment as provided for in the ESPP. In
addition, on the first day of each fiscal year beginning with our
2022 fiscal year and through our 2031 fiscal year, such pool of
ordinary shares shall be increased by that number of our ordinary
shares equal to the lesser of:
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1% of the outstanding ordinary shares as of the last day of
the immediately preceding fiscal year, determined on a fully
diluted basis; or
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such other amount as our board of directors may
determine.
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In no event
will more than ordinary shares be available for issuance under the
Section 423 Component.
ESPP Administration. Unless
otherwise determined by our board of directors, the compensation
committee of our board of directors; or the administrator; will
administer the ESPP and will have the authority to interpret the
terms of the ESPP and determine eligibility under the ESPP, to
impose a mandatory holding period under which employees may not
dispose or transfer shares under the ESPP, prescribe, revoke and
amend forms, rules and procedures relating to the ESPP, and
otherwise exercise such powers and to perform such acts as the
administrator deems necessary or expedient to promote the best
interests of the Company and its subsidiaries and to carry out the
intent that the ESPP be treated as an “employee stock purchase
plan” within the meaning of Section 423 of the Code for the Section
423 Component.
Eligibility. Participation in the
Section 423 Component may be limited in the terms of any offering
to employees of the Company and any of its designated subsidiaries
(a) who customarily work 20 hours or more per week, (b) whose
customary employment is for more than five months per calendar year
and (c) who satisfy the procedural enrollment and other
requirements set forth in the ESPP. Under the Section 423
Component, designated subsidiaries include any subsidiary (within
the meaning of Section 424(f) of the Code) of the Company that has
been designated by our board of directors or the compensation
committee as eligible to participate in the ESPP (and if an entity
does not so qualify within the meaning of Section 424(f) of the
Code, it shall automatically be deemed to be a designated
subsidiary in the Non-Section 423 Component). In addition, with
respect to the Non-Section 423 Component, designated subsidiaries
may include any corporate or noncorporate entity in which the
Company has a direct or indirect equity interest or significant
business relationship. Under the Section 423 Component, no employee
may be granted a purchase right if, immediately after the purchase
right is granted, the employee would own (or, under applicable
statutory attribution rules, would be deemed to own) shares
possessing 5% or more of the total combined voting power or value
of all classes of shares of the Company or any of its subsidiaries.
In addition, in order to facilitate participation in the ESPP, the
compensation committee may provide for such special terms
applicable to participants who are citizens or residents of a
non-U.S. jurisdiction, or who are employed by a designated
subsidiary outside of the U.S., as the compensation committee may
consider necessary or appropriate to accommodate differences in
local law, tax policy or custom. Except as permitted by Section 423
of the Code, with respect to the Section 423 Component, such
special terms may not be more favorable than the terms of rights
granted under the Section 423 Component to eligible employees who
are residents of the United States.
Offering Periods. The ESPP provides for
offering periods, not to exceed 27 months each, during which we
will grant rights to purchase our ordinary shares to our employees.
The timing of the offering periods will be determined by the
administrator. The terms and conditions applicable to each offering
period will be set forth in an offering document adopted by the
administrator for the particular offering period. The provisions of
offerings during separate offering periods under the ESPP need not
be identical.
Contributions. The ESPP will
permit participants to purchase our ordinary shares through
contributions (in the form of payroll deductions, or otherwise, to
the extent permitted by the administrator). The percentage of
compensation designated by an eligible employee as payroll
deductions for participation in an offering may not be less than 1%
and may not be more than the maximum percentage specified by the
administrator in the applicable offering document (which maximum
percentage shall be 20% in the absence of any such specification).
A participant may increase or decrease the percentage of
compensation designated in his or her subscription agreement, or
may suspend his or her payroll deductions, at any time during an
offering period; provided, however, that the administrator may
limit the number of changes a participant may make in the
applicable offering document. In the absence of any specific
designation by the administrator, a participant may decrease (but
not increase) his or her payroll deduction elections one time
during each offering period Exercise of Purchase Right. Amounts
contributed and accumulated by the participant will be used to
purchase our ordinary shares at the end of each offering period.
Unless otherwise determined by the administrator, the purchase
price of the shares will be 85% of the lower of the fair market
value of our ordinary shares on (i) the first trading day of the
offering period or (ii) the last trading day of the offering period
(and may not be lower than such amount with respect to the Section
423 Component).
Participants
may end their participation at any time during an offering period
and will be paid their accrued contributions that have not yet been
used to purchase our ordinary shares. Participation ends
automatically upon termination of employment with us.
Non-Transferability. A participant
may not transfer contributions credited to his or her account nor
any rights granted under the ESPP other than by will, the laws of
descent and distribution or as otherwise provided under the
ESPP.
Corporate Transactions. In the
event of certain transactions or events such as a consolidation,
merger or similar transaction, a sale or transfer of all or
substantially all of the Company’s assets, or a dissolution or
liquidation of the Company, with respect to which the administrator
determines that an adjustment is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits
intended by the Company to be made available under the ESPP or with
respect to any outstanding purchase rights under the ESPP, the
administrator shall make equitable adjustments, if any, to reflect
such change with respect to (a) the aggregate number and type of
shares that may be issued under the ESPP; (b) the class(es) and
number of shares and price per share subject to outstanding rights;
and (c) the purchase price with respect to any outstanding rights.
In addition, in any such situation, the administrator may, in its
discretion, make other adjustments, including:
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providing for either (i) termination of any outstanding right
in exchange for an amount of cash, or (ii) the replacement of such
outstanding right with other rights or property;
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b. |
providing that the outstanding rights under the ESPP shall be
assumed by the successor or survivor corporation, with appropriate
adjustments as to the number and kind of shares and prices;
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making adjustments in the number and type of shares (or other
securities or property) subject to outstanding rights under the
ESPP and/or in the terms and conditions of outstanding rights and
rights that may be granted in the future;
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d. |
providing that participants’ accumulated payroll deductions
may be used to purchase shares prior to the next occurring purchase
date on such date as the administrator determines and the
participants’ rights under the ongoing offering period(s) shall be
terminated; and
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e. |
providing that all outstanding rights shall terminate without
being exercised.
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Amendment; Termination. The
administrator will have the authority to amend, suspend or
terminate the ESPP. The ESPP is not subject to a specific
termination date.
Corporate
Governance Practices
As an Israeli
company, we are subject to various corporate governance
requirements under the Companies Law. However, pursuant to
regulations promulgated under the Companies Law, companies with
shares traded on certain U.S. stock exchanges, including Nasdaq,
may, subject to certain conditions, “opt out” from the Companies
Law requirements to appoint external directors and related
Companies Law rules concerning the composition of the audit
committee and compensation committee of the board of directors
(other than the gender diversification rule under the Companies
Law, which requires the appointment of a director from the other
gender if at the time a director is appointed all members of the
board of directors are of the same gender). In accordance with
these regulations, we elected to “opt out” from those requirements
of the Companies Law. Under these regulations, the exemptions from
such Companies Law requirements will continue to be available to us
so long as: (i) we do not have a “controlling shareholder” (as
such term is defined under the Companies Law), (ii) our shares are
traded on certain U.S. stock exchanges, including Nasdaq, and
(iii) we comply with the director independence requirements
and the audit committee and compensation committee composition
requirements under U.S. laws (including applicable rules of Nasdaq)
applicable to U.S. domestic issuers.
We are a
“foreign private issuer” (as such term is defined in Rule 3b-4
under the Exchange Act). As a foreign private issuer, we are
permitted to comply with Israeli corporate governance practices
instead of the corporate governance rules of Nasdaq, provided that
we disclose which requirements we are not following and the
equivalent Israeli requirement. As a foreign private issuer,
we are exempt under the Exchange Act from, among other things, the
rules prescribing the furnishing and content of proxy statements,
and our officers, directors and principal shareholders are exempt
from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we are
not be required under the Exchange Act to file periodic reports and
financial statements with the SEC as frequently or as promptly as
U.S. companies whose securities are registered under the Exchange
Act. For more information regarding our corporate governance
practices and foreign private issuer status, see Item 16G.
“Corporate Governance.”
Under the
Companies Law and our Articles of Association, our business and
affairs are managed under the direction of our board of directors.
Our board of directors may exercise all powers and may take all
actions that are not specifically granted to our shareholders or to
executive management. Our Chief Executive Officer (referred to as a
“general manager” under the Companies Law) is responsible for
our day-to-day management. Our Chief Executive Officer is
appointed by, and serves at the discretion of, our board of
directors, subject to the employment agreement that we have entered
into with him. All other executive officers are appointed by the
Chief Executive Officer, subject to applicable corporate approvals,
and are subject to the terms of any applicable employment or
consulting agreements that we may enter into with them.
Under our
Articles of Association, our board of directors must consist of not
less than three but no more than ten directors divided into three
classes with staggered three-year terms, provided, however, that in
the event at any time our board of directors is comprised of nine
or less members, the maximum number of members permitted under our
Articles of Association shall not exceed nine. Each class of
directors consists, as nearly as possible,
of one-third of the total number of directors
constituting the entire board of directors. At each annual general
meeting of our shareholders, the election
or re-election of directors following the expiration of
the term of office of the directors of that class of directors will
be for a term of office that expires on the third annual general
meeting following such election or re-election, such that
from the annual general meeting of 2022 and thereafter, each year
the term of office of only one class of directors will
expire.
Our directors
is divided among the three classes as follows:
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the Class I directors will be Roy Saar, Michael Risman,
Menashe Ezra and Dan Adika, and their terms will expire at our
annual general meeting of our shareholders to be held in
2022;
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the Class II directors, will be Michele Bettencourt,
Rafael Sweary and Rory O’Driscoll, and their terms will expire at
our annual general meeting of our shareholders to be held in 2023;
and
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the Class III directors will be Jeff Horing, Ron Gutler
and Haleli Barath, and their terms will expire at our annual
general meeting of our shareholders to be held in 2024.
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Our directors
will be appointed by a simple majority vote of holders of our
ordinary shares, participating and voting at an annual general
meeting of our shareholders, provided that (i) in the event of
a contested election, the method of calculation of the votes and
the manner in which the resolutions will be presented to our
shareholders at the general meeting will be determined by our board
of directors in its discretion, and (ii) in the event that our
board of directors does not or is unable to make a determination on
such matter, then the directors will be elected by a plurality of
the voting power represented at the general meeting in person or by
proxy and voting on the election of directors.
Each director
will hold office until the annual general meeting of our
shareholders for the year in which such director’s term expires,
unless the tenure of such director expires earlier pursuant to the
Companies Law or unless such director is removed from office as
described below.
Under
our Articles of Association, the approval of the holders of at
least 65% of the total voting power of our shareholders is
generally required to remove any of our directors from office or
any amendment to this provision shall require the approval of at
least 65% of the total voting power of our shareholders to remove
any of our directors from office. In addition, vacancies on our
board of directors may only be filled by a vote of a simple
majority of the directors then in office. A director so appointed
will hold office until the next annual general meeting of our
shareholders for the election of the class of directors in respect
of which the vacancy was created, or in the case of a vacancy due
to the number of directors being less than the maximum number of
directors stated in our Articles of Association, the new director
filling the vacancy will serve until the next annual general
meeting of our shareholders for the election of the class of
directors to which such director was assigned by our board of
directors.
Our Articles of Association provide that the Chairperson of
our board of directors is appointed by the members of our board of
directors from among them. Under the Companies Law, the chief
executive officer of a public company, or a relative of the chief
executive officer, may not serve as the chairperson of the board of
directors of such public company, and the chairperson of the board
of directors of a public company, or a relative of the chairperson,
may not be vested with authorities of the chief executive officer
of such public company without shareholder approval consisting of a
majority vote of the shares present and voting at a shareholders
meeting, and in addition, either:
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at least a majority of the shares
of non-controlling shareholders and shareholders that do
not have a personal interest in the approval voted at the meeting
are voted in favor (disregarding abstentions); or
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the total number of shares
of non-controlling shareholders and shareholders who do
not have a personal interest in such appointment that re voted
against such appointment does not exceed two percent (2%) of the
aggregate voting rights in the company.
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The
shareholders’ approval can be effective for a period of up to five
years following an initial public offering, and subsequently, for
additional periods of up to three years.
In addition, a
person who is subordinated, directly or indirectly, to the chief
executive officer may not serve as the chairperson of the board of
directors; the chairperson of the board of directors may not be
vested with authorities that are granted to persons who are
subordinated to the chief executive officer; and the chairperson of
the board of directors may not serve in any other position in the
company or in a controlled subsidiary, but may serve as a director
or chairperson of a controlled subsidiary.
During a
special and annual general meeting of our shareholders held on June
6, 2021, our shareholders approved the appointment of Dan Adika as
Chairperson of our board of directors in addition to his role as
our Chief Executive Officer. According to the Companies Law and the
regulations promulgated thereunder, such appointment is valid for
an initial term of five years following the closing of the IPO.
Following such initial term, each renewal of the appointment of our
Chief Executive Officer as Chairperson of the board of directors
will be subject to the shareholder approval described above and
will be limited to a three-year term.
Under the
Companies Law, companies incorporated under the laws of the State
of Israel that are “public companies,” including companies with
shares listed on Nasdaq, are required to appoint at least two
external directors. Pursuant to regulations promulgated under the
Companies Law, companies with shares traded on certain U.S. stock
exchanges, including Nasdaq, which do not have a “controlling
shareholder,” may, subject to certain conditions, “opt out” from
the Companies Law requirements to appoint external directors and
related Companies Law rules concerning the composition of the audit
committee and compensation committee of the board of directors. In
accordance with these regulations, we have elected to “opt out”
from the Companies Law requirement to appoint external directors
and related Companies Law rules concerning the composition of the
audit committee and compensation committee of our board of
directors.
Pursuant to our
articles of association in effect prior to the IPO, certain of our
shareholders had rights to appoint members of our board of
directors. All rights to appoint directors terminated upon the
closing of the IPO. Our currently serving directors were appointed
as follows:
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Dan Adika was appointed by a majority vote based on the number
of shares held by Mr. Eyal Cohen, Brooks S.M. Projects Ltd.
and Mr. Dan Adika;
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Haleli Barath was appointed by resolution of our board of
directors;
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Michele Bettencourt was appointed by resolution of our board
of directors;
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Menashe Ezra was appointed by Gemini Israel V, L.P. and Gemini
Partners Investors V, L.P;
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Ron Gutler was appointed by unanimous consent of our board of
directors;
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Jeff Horing was appointed by Insight Venture Partners IX,
L.P., Insight Venture Partners (Cayman) IX, L.P., Insight Venture
Partners IX (Co-Investors), L.P. and Insight Venture
Partners (Delaware) IX, L.P.;
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Rory O’Driscoll was appointed by Scale Venture Partners IV,
L.P.;
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Michael Risman was appointed by Vitruvian Directors I
Limited on behalf of Ambleside S.a.r.l;
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Roy Saar was appointed by Mangrove III Investments
S.a.r.l.; and
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Rafael Sweary was appointed by a majority vote based on the
number of shares held by Mr. Eyal Cohen, Brooks S.M. Projects
Ltd. and Mr. Dan Adika.
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Committees of our
Board of Directors
Audit Committee
Companies Law Requirements
Under the
Companies Law, the board of directors of a public company must
appoint an audit committee. The audit committee must be comprised
of at least three directors.
Under Nasdaq
corporate governance rules, we are required to maintain an audit
committee consisting of at least three independent directors, each
of whom is financially literate and one of whom has accounting or
related financial management expertise.
Our audit
committee consists of Ron Gutler, Michele Bettencourt and Roy Saar.
Ron Gutler serves as the chairperson of the audit committee. All
members of our audit committee meet the requirements for financial
literacy under the applicable rules and regulations of the SEC and
Nasdaq corporate governance rules. Our board of directors has
determined that each of Ron Gutler, Michele Bettencourt and Roy
Saar is an audit committee financial expert as defined by the SEC
rules and has the requisite financial experience as defined by
Nasdaq corporate governance rules.
Our board of
directors has determined that each member of our audit committee is
“independent” as such term is defined under the Nasdaq corporate
governance rules and under Rule 10A-3(b)(1) under the
Exchange Act, which is different from the general test for
independence of board and committee members.
Our board of
directors has adopted an audit committee charter setting forth the
responsibilities of the audit committee consistent with the
Companies Law, the SEC rules and Nasdaq corporate governance rules,
which include:
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retaining and terminating our independent auditors, subject to
ratification by our board of directors, and in the case of
retention, to ratification by the shareholders;
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pre-approving audit and non-audit services to
be provided by the independent auditors and related fees and
terms;
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overseeing the accounting and financial reporting processes of
our Company and audits of our financial statements, the
effectiveness of our internal control over financial reporting and
making such reports as may be required of an audit committee under
the rules and regulations promulgated under the Exchange Act;
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reviewing with management and our independent auditor our
annual and quarterly financial statements prior to publication or
filing (or submission, as the case may be) to the SEC;
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recommending to our board of directors the retention and
termination of the internal auditor, and the internal auditor’s
engagement fees and terms, in accordance with the Companies Law as
well as approving the yearly or periodic work plan proposed by the
internal auditor;
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reviewing policies and procedures with respect to transactions
(other than transactions related to the compensation or terms of
services) between us and our officers and directors, or affiliates
of our officers or directors, or transactions that are not in the
ordinary course of our business and deciding whether to approve
such acts and transactions if so required under the Companies Law;
and
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establishing procedures for the handling of employees’
complaints as to the management of our business and the protection
to be provided to such employees.
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Companies Law Requirements
Under the
Companies Law, the board of directors of a public company must
appoint a compensation committee, which must be comprised of at
least three directors.
Under the
Nasdaq corporate governance rules, we are required to maintain a
compensation committee consisting of at least two independent
directors.
Our
compensation committee consists of Rory O’Driscoll, Ron Gutler and
Roy Saar. Rory O’Driscoll serves as chairperson of the compensation
committee. Our board of directors has determined that each member
of our compensation committee is independent under Nasdaq corporate
governance rules, including the additional independence
requirements applicable to the members of a compensation
committee.
Compensation Committee Role
In accordance
with the Companies Law, the roles of the compensation committee
are, among others, as follows:
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making recommendations to our board of directors with respect
to the approval of the compensation policy for office holders and,
once every three years, regarding any extensions to a compensation
policy that was adopted for a period of more than three
years;
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reviewing the implementation of the compensation policy and
periodically making recommendations to our board of directors with
respect to any amendments or updates of the compensation
policy;
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resolving whether or not to approve arrangements with respect
to the terms of office and employment of office holders; and
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exempting, under certain circumstances, a transaction with our
Chief Executive Officer from the approval of our
shareholders.
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An “office
holder” is defined in the Companies Law as a general manager, chief
business manager, deputy general manager, vice general manager, any
other person assuming the responsibilities of any of these
positions regardless of such person’s title, a director and any
other manager directly subordinate to the general manager. Certain
of the persons listed in the table under the section titled
“Management—Executive Officers and Directors” are office holders
under the Companies Law.
Our board of
directors has adopted a compensation committee charter setting
forth the responsibilities of the committee, which are consistent
with Nasdaq corporate governance rules and the Companies Law, and
include among others:
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recommending to
our board of directors for its approval a compensation policy in
accordance with the requirements of the Companies Law as well as
other compensation policies, incentive-based compensation plans and
equity-based compensation plans, and overseeing the development and
implementation of such policies and recommending to our board of
directors any amendments or modifications the committee deems
appropriate, including as required under the Companies Law;
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reviewing and
approving the granting of options and other incentive awards to our
Chief Executive Officer and other executive officers, including
reviewing and approving corporate goals and objectives relevant to
the compensation of our Chief Executive Officer and other executive
officers, including evaluating their performance in light of such
goals and objectives;
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Reviewing and making recommendations to the Board regarding
director compensation.
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approving and exempting certain transactions regarding office
holders’ compensation pursuant to the Companies Law; and
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administering our equity-based compensation plans, including
without limitation, approving the adoption of such plans, amending
and interpreting such plans and the awards and agreements issued
pursuant thereto, and making awards to eligible persons under the
plans and determining the terms of such awards.
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Compensation Policy under the Companies Law
In general,
under the Companies Law, a public company must have a compensation
policy approved by the board of directors after receiving and
considering the recommendations of the compensation committee. In
addition, our compensation policy must be approved at least once
every three years, first, by our board of directors, upon the
recommendation of our compensation committee, and second, by a
simple majority of the ordinary shares present, in person or by
proxy, and voting (excluding abstentions) at a general meeting of
shareholders, provided that either:
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such majority includes at least a majority of the shares held
by shareholders who are not controlling shareholders and
shareholders who do not have a personal interest in such
compensation policy; or
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the total number of shares
of non-controlling shareholders and shareholders who do
not have a personal interest in the compensation policy and who
vote against the policy does not exceed two percent (2%) of the
aggregate voting rights in the Company.
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Under special
circumstances, the board of directors may approve the compensation
policy despite the objection of the shareholders on the condition
that the compensation committee and then the board of directors
decide, on the basis of detailed grounds and after discussing again
the compensation policy, that approval of the compensation policy,
despite the objection of shareholders, is for the benefit of the
company.
If a company
that initially offers its securities to the public, like us, adopts
a compensation policy in advance of its initial public offering,
and describes it in its prospectus for such offering, then such
compensation policy shall be deemed a validly adopted policy in
accordance with the Companies Law requirements described above.
Furthermore, if the compensation policy is established in
accordance with the aforementioned relief, then it will remain in
effect for a term of five years from the date such company becomes
a public company.
The
compensation policy must be based on certain considerations,
include certain provisions and reference certain matters as set
forth in the Companies Law. The compensation policy must serve as
the basis for decisions concerning the financial terms of
employment or engagement of office holders, including exculpation,
insurance, indemnification or any monetary payment or obligation of
payment in respect of employment or engagement. The compensation
policy must be determined and later reevaluated according to
certain factors, including: the advancement of the company’s
objectives, business plan and long-term strategy; the creation of
appropriate incentives for office holders, while considering, among
other things, the company’s risk management policy; the size and
the nature of the company’s operations; and with respect to
variable compensation, the contribution of the office holder
towards the achievement of the company’s long-term goals and the
maximization of its profits, all with a long-term objective and
according to the position of the office holder. The compensation
policy must furthermore consider the following additional
factors:
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the education, skills, experience, expertise and
accomplishments of the relevant office holder;
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the office holder’s position and responsibilities;
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prior compensation agreements with the office holder;
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the ratio between the cost of the terms of employment of an
office holder and the cost of the employment of other employees of
the company, including employees employed through contractors who
provide services to the company, in particular the ratio between
such cost to the average and median salary of such employees of the
company, as well as the impact of disparities between them on the
work relationships in the company;
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if the terms of employment include variable components — the
possibility of reducing variable components at the discretion of
the board of directors and the possibility of setting a limit on
the value of non-cash variable equity-based components;
and
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if the terms of employment include severance compensation —
the term of employment or office of the office holder, the terms of
the office holder’s compensation during such period, the company’s
performance during such period, the office holder’s individual
contribution to the achievement of the company goals and the
maximization of its profits and the circumstances under which he or
she is leaving the company.
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The
compensation policy must also include, among other things:
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with regards to variable components:
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with the exception of office holders who report to the chief
executive officer, a means of determining the variable components
on the basis of long-term performance and measurable criteria;
provided that the company may determine that an immaterial part of
the variable components of the compensation package of an office
holder shall be awarded based on non-measurable criteria,
or if such amount is not higher than three months’ salary per
annum, taking into account such office holder’s contribution to the
company; and
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the ratio between variable and fixed components, as well as
the limit of the values of variable components at the time of their
payment, or in the case of equity-based compensation, at the time
of grant;
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a condition under which the office holder will return to the
company, according to conditions to be set forth in the
compensation policy, any amounts paid as part of the office
holder’s terms of employment, if such amounts were paid based on
information later to be discovered to be wrong, and such
information was restated in the company’s financial
statements;
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the minimum holding or vesting period of variable equity-based
components to be set in the terms of office or employment, as
applicable, while taking into consideration long-term incentives;
and
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a limit to retirement grants.
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Our
compensation policy is designed to promote retention and motivation
of directors and executive officers, incentivize superior
individual excellence, align the interests of our directors and
executive officers with our long-term performance and provide a
risk management tool. To that end, a portion of our executive
officer compensation package is targeted to reflect our short and
long-term goals, as well as the executive officer’s individual
performance. On the other hand, our compensation policy includes
measures designed to reduce the executive officer’s incentives to
take excessive risks that may harm us in the long-term, such as
limits on the value of cash bonuses and equity-based compensation,
limitations on the ratio between the variable and the total
compensation of an executive officer and minimum vesting periods
and performance based vesting for equity-based compensation.
Our
compensation policy also addresses our executive officers’
individual characteristics (such as their respective position,
education, scope of responsibilities and contribution to the
attainment of our goals) as the basis for compensation variation
among our executive officers and considers the internal ratios
between compensation of our executive officers and directors and
other employees. Pursuant to our compensation policy, the
compensation that may be granted to an executive officer may
include: base salary, annual bonuses and other cash bonuses (such
as a signing bonus and special bonuses with respect to any special
achievements, such as outstanding personal achievement, outstanding
personal effort or outstanding company performance), equity-based
compensation, benefits and retirement and termination of service
arrangements. All cash bonuses are limited to a maximum amount
linked to the executive officer’s base salary.
An annual cash
bonus may be awarded to executive officers upon the attainment
of pre-set periodic objectives and individual targets.
The annual cash bonus that may be granted to our executive officers
other than our Chief Executive Officer will be based on performance
objectives and a discretionary evaluation of the executive
officer’s overall performance by our Chief Executive Officer and
subject to minimum thresholds. The annual cash bonus that may be
granted to executive officers other than our Chief Executive
Officer may alternatively be based entirely on a discretionary
evaluation. Furthermore, our Chief Executive Officer will be
entitled to approve performance objectives for executive officers
who report to him.
The measurable
performance objectives of our Chief Executive Officer will be
determined annually by our compensation committee and board of
directors. A non-material portion of the Chief Executive
Officer’s annual cash bonus, as provided in our compensation
policy, may be based on a discretionary evaluation of the Chief
Executive Officer’s overall performance by the compensation
committee and the board of directors.
The
equity-based compensation under our compensation policy for our
executive officers (including members of our board of directors) is
designed in a manner consistent with the underlying objectives in
determining the base salary and the annual cash bonus, with its
main objectives being to enhance the alignment between the
executive officers’ interests with our long-term interests and
those of our shareholders and to strengthen the retention and the
motivation of executive officers in the long term. Our compensation
policy provides for executive officer compensation in the form of
share options or other equity-based awards, such as restricted
shares and restricted share units, in accordance with our equity
incentive plan then in place. The equity-based compensation shall
be granted from time to time and be individually determined and
awarded according to the performance, educational background, prior
business experience, qualifications, role and the personal
responsibilities of the executive officer.
In addition,
our compensation policy contains compensation recovery provisions
which allow us under certain conditions to recover bonuses paid in
excess, enable our Chief Executive Officer to approve an immaterial
change in the terms of employment of an executive officer who
reports directly him (provided that the changes of the terms of
employment are in accordance with our compensation policy) and
allow us to exculpate, indemnify and insure our executive officers
and directors to the maximum extent permitted by Israeli law
subject to certain limitations set forth therein.
Our
compensation policy also provides for compensation to the members
of our board of directors either (i) in accordance with the
amounts provided in the Companies Regulations (Rules Regarding the
Compensation and Expenses of an External Director) of 2000, as
amended by the Companies Regulations (Relief for Public Companies
Traded in Stock Exchange Outside of Israel) of 2000, as such
regulations may be amended from time to time, or (ii) in
accordance with the amounts determined in our compensation
policy.
Our
compensation policy was approved by our board of directors and
shareholders and became effective upon the closing of our
IPO.
Nominating, Governance and Sustainability Committee
Our nominating,
governance and sustainability committee consists of Menashe Ezra,
Jeff Horing, Ron Gutler and Michael Risman. Menashe Ezra
serves as chairman of the nominating and governance committee. Our
board of directors has adopted a nominating, governance and
sustainability committee charter setting forth the responsibilities
of the committee, which include:
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overseeing and assisting our board in reviewing and
recommending nominees for election as directors;
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