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Item 1A. Risk Factors

2021-01-27 compared with 2020-01-27 · 208 added, 138 removed, 94 unchanged (79% of the section changed)

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Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results.

Our revenue and quarterly results may fluctuate, which could adversely affect our stock price.

We have experienced, and may in the future experience, significant fluctuations in our quarterly operating results that may be caused by many factors.

These factors include:

changes in demand for our products;

introduction, enhancement or announcement of products by us or our competitors;

market acceptance of our new products;

the growth rates of certain market segments in which we compete;

size and timing of significant orders;

a high percentage of our revenue is generated in the third month of each fiscal quarter and any failure to receive, complete or process orders at the end of any quarter could cause us to fall short of our revenue targets;

budgeting cycles of customers;

mix of distribution channels;

mix of products and services sold;

mix of international and North American revenues;

fluctuations in currency exchange rates;

changes in the level of operating expenses;

changes in management;

restructuring programs;

changes in our sales force;

completion or announcement of acquisitions by us or our competitors;

integration of acquired businesses;

customer order deferrals in anticipation of new products announced by us or our competitors;

general economic conditions in regions in which we conduct business.

Revenue forecasting is uncertain, and the failure to meet our forecasts could result in a decline in our stock price.

Our revenues, particularly new software license revenues, are difficult to forecast.

We use a pipeline system to forecast revenues and trends in our business.

Our pipeline estimates may prove to be unreliable either in a particular quarter or over a longer period of time, in part because the conversion rate of the pipeline into contracts can be difficult to estimate and requires management judgment.

A variation in the conversion rate could cause us to plan or budget incorrectly and result in a material adverse impact on our business or our planned results of operations.

Furthermore, most of our expenses are relatively fixed, including costs of personnel and facilities.

Thus, an unexpected reduction in our revenue, or failure to achieve the anticipated rate of growth, would have a material adverse effect on our profitability.

If our operating results do not meet our publicly stated guidance or the expectations of investors, our stock price may decline.

We recognize a substantial portion of our revenue from sales made through third parties, including our application partners, distributors/resellers, and OEMs, and adverse developments in the businesses of these third parties or in our relationships with them could harm our revenues and results of operations.

Our future results depend in large part upon our continued successful distribution of our products through our application partner, distributor/reseller, and OEM channels.

The activities of these third parties are not within our direct control.

Our failure to manage our relationships with these third parties effectively could impair the success of our sales, marketing and support activities.

A reduction in the sales efforts, technical capabilities or financial viability of these parties, a misalignment of interest between us and them, or a termination of our relationship with a major application partner, distributor/reseller, or OEM could have a negative effect on our sales and financial results.

Any adverse effect on any of our application partners’, distributors'/resellers', or OEMs’ businesses related to competition, pricing and other factors could also have a material adverse effect on our business, financial condition and operating results.

Changes in accounting principles and guidance, or their interpretation or implementation, may materially adversely affect our reported results of operations or financial position.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) These principles are subject to interpretation by the SEC and various bodies formed to create and interpret appropriate accounting principles and guidance.

change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results, as well as our processes and related controls.

A failure of our information technology systems could have a material adverse effect on our business.

A failure or prolonged interruption in our information technology systems, or any difficulty encountered in upgrading our systems or implementing new systems, that compromises our ability to meet our customers’ needs, or impairs our ability to record, process and report accurate information could have a material adverse effect on our financial condition.

Weakness in the U.S.

and international economies may result in fewer sales of our products and may otherwise harm our business.

We are subject to risks arising from adverse changes in global economic conditions, especially those in the U.S., Europe and Latin America.

If global economic conditions weaken, credit markets tighten and/or financial markets become unstable, customers may delay, reduce or forego technology purchases, both directly and through our application partners, resellers/distributors and OEMs.

This could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies and increased price competition.

Further, deteriorating economic conditions could adversely affect our customers and their ability to pay amounts owed to us.

Any of these events would likely harm our business, results of operations, financial condition or cash flows.

Our international operations expose us to additional risks, and changes in global economic and political conditions could adversely affect our international operations, our revenue and our net income .

Approximately 45% of our total revenue is generated from sales outside North America.

Political and/or financial instability, oil price shocks and armed conflict in various regions of the world can lead to economic uncertainty and may adversely impact our business.

For example, the announcement of the Referendum of the United Kingdom’s (the "U.K.") Membership of the European Union ("E.U.") (referred to as "Brexit"), advising for the exit of the U.K.

from the E.U., has led to significant, continuing volatility in global stock markets and currency exchange rate fluctuations.

If customers’ buying patterns, decision-making processes, timing of expected deliveries and timing of new projects unfavorably change due to economic or political conditions, there would be a material adverse effect on our business, financial condition and operating results.

Other potential risks inherent in our international business include:

longer payment cycles;

credit risk and higher levels of payment fraud;

greater difficulties in accounts receivable collection;

varying regulatory and legal requirements;

compliance with international and local trade, labor and export control laws;

compliance with U.S.

laws such as the Foreign Corrupt Practices Act, and local laws prohibiting bribery and corrupt payments to government officials;

restrictions on the transfer of funds;

difficulties in developing, staffing, and simultaneously managing a large number of varying foreign operations as a result of distance, legal impediments and language and cultural differences;

reduced or minimal protection of intellectual property rights in some countries;

laws and business practices that favor local competitors or prohibit foreign ownership of certain businesses;

changes in U.S.

or foreign trade policies or practices that increase costs or restrict the distribution of products;

seasonal reductions in business activity during the summer months in Europe and certain other parts of the world;

economic instability in emerging markets;

potentially adverse tax consequences.

Any one or more of these factors could have a material adverse effect on our international operations, and, consequently, on our business, financial condition and operating results.

Fluctuations in foreign currency exchange rates could have an adverse impact on our financial condition and results of operations.

Changes in the value of foreign currencies relative to the U.S.

dollar could adversely affect our results of operations and financial position.

For example, during periods in which the value of the U.S.

dollar strengthens in comparison to certain foreign currencies, particularly in Europe, Brazil and Australia, our reported international revenue is reduced because foreign currencies translate into fewer U.S.

As approximately one-third of our revenue is denominated in foreign currencies, our revenue results have been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates.

We seek to reduce our exposure to fluctuations in exchange rates by entering into foreign exchange forward contracts to hedge certain actual and forecasted transactions of selected currencies (mainly in Europe, Brazil, India and Australia).

Our currency hedging transactions may not be effective in reducing any adverse impact of fluctuations in foreign currency exchange rates.

Further, the imposition of exchange or price controls or other restrictions on the conversion of foreign currencies could have a material adverse effect on our business.

Risks Related to Our Ability to Grow Our Business

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

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which has spread throughout the United States and the world and has resulted in authorities implementing and re-implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.

These measures are in place to varying degrees.

We are unable to accurately predict the full impact that the COVID-19 pandemic will have on our results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures.

Our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our customers, partners, suppliers and others with whom we work, for an indefinite period of time.

To support the health and well-being of our employees, customers, partners and communities, the vast majority of our employees are working remotely and are expected to continue to work remotely until the pandemic subsides.

In addition, many of our customers and partners are working remotely, which may delay the timing of their purchases of our products and services.

Given the economic uncertainty created by the COVID-19 pandemic, we have and may continue to see delays in our sales cycle, failures of customers to renew at all or to renew at the anticipated scope their subscriptions with us, requests from customers for payment term deferrals as well as pricing or bundling concessions, which, if significant, could materially and adversely affect our business, results of operations and financial condition.

In addition, our third-party service providers may experience financial difficulties or business disruptions that could negatively affect their operations and their ability to supply us with services needed for our products and operations.

Although such events did not have a material adverse impact on our financial results for the fiscal year ended November 30, 2020, there can be no assurance that these events will not have a material adverse impact on our financial results for the full fiscal year or future periods.

The full extent of the COVID-19 pandemic’s impact on our operations and financial performance depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets, the timing of economic recovery, the spread of the virus to other regions, and the actions taken to contain it, among others.

Any of these impacts could have a material adverse impact on our business, results of operations and financial condition and ability to execute and capitalize on our strategies.

Due to the ongoing uncertainty regarding the severity and duration of the COVID-19 pandemic, we cannot predict whether our response to date or the actions we may take in the future will be effective in mitigating the effects of the COVID-19 pandemic on our business, results of operations or financial condition.

Accordingly, we are unable at this time to predict the future impact of the COVID-19 pandemic on our operations, liquidity, and financial results, and, depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material.

Technology and customer requirements evolve rapidly in our industry, and if we do not continue to develop new products and enhance our existing products in response to these changes, our business could be harmed.

Ongoing enhancements to our product sets will be required to enable us to maintain our competitive position and the competitive position of our application partners, distributors/resellers, and OEMs.

Ongoing enhancements to our product sets will be required to enable us to maintain our competitive position and the competitive position of our ISVs, distributors/resellers, and OEMs.

We may not be successful in developing and marketing enhancements to our products on a timely basis, and any enhancements we develop may not adequately address the changing needs of the marketplace.

Overlaying the risks associated with our existing products and enhancements are ongoing technological developments and rapid changes in customer and partner requirements.

Our future success will depend upon our ability to develop and introduce in a timely manner new products that take advantage of technological advances and respond to new customer and partner requirements.

Our future success will depend upon our ability to develop and introduce new products in a timely manner that take advantage of technological advances and respond to new customer and partner requirements.

We may not be successful in developing new products incorporating new technology on a timely basis, and any new products we develop may not adequately address the changing needs of the marketplace or may not be accepted by the market.

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Accordingly, our future results depend on continued market acceptance of OpenEdge.

If consumer demand declines, or new technologies emerge that are superior to, or are more responsive to customer requirements than, OpenEdge such that we are unable to maintain OpenEdge’s competitive position within its marketplace, our business, financial condition and operating results may be materially adversely affected.

If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings.

We acquire other companies and intangible assets and may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangibles.

We review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

We test goodwill for impairment at least annually.

Factors that may cause a change in circumstances, indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in industry segments in which we participate.

We may be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively affecting our results of operations.

During the fiscal fourth quarter, we evaluated the ongoing value of the intangible assets associated with the technologies and trade names obtained in the acquisitions of DataRPM and Kinvey.

In accordance with ASC 360-10, we record impairment losses on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.

As a result of our decision to reduce our current and ongoing spending levels within our cognitive application product lines, which consist primarily of our DataRPM and Kinvey products, we determined that the intangible assets were fully impaired.

As a result, we incurred an impairment charge of $22.7 million in the fourth quarter of fiscal year 2019 (Note 4).

We may make additional acquisitions of businesses, products or technologies that involve additional risks, which could disrupt our business or harm our financial condition, results of operations or cash flows.

A key element of our strategy includes the acquisition of businesses that offer complementary products, services and technologies, augment our revenues and cash flows, and meet our strict financial criteria, such as our recent acquisition of Ipswitch.

If consumer demand declines, or new technologies emerge that are superior to, or are more responsive to customer requirements than, OpenEdge such that we are unable to maintain OpenEdge’s

competitive position within its marketplace, our business, financial condition and operating results may be materially adversely affected.

The segments of the software industry in which we participate are intensely competitive, and our inability to compete effectively could harm our business.

We experience significant competition from a variety of sources with respect to the marketing and distribution of our products.

Many of our competitors have greater financial, marketing or technical resources than we do and may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the promotion and sale of their products than we can.

Increased competition could make it more difficult for us to maintain our market presence or lead to downward pricing pressure.

In addition, the marketplace for new products is intensely competitive and characterized by low barriers to entry.

For example, an increase in market acceptance of open source software may cause downward pricing pressures.

One of the characteristics of open source software is that the governing license terms generally allow liberal modifications of the code and distribution thereof to a wide group of companies and/or individuals.

As a result, others could easily develop new software products or services based upon those open source programs that compete with existing open source software that we support and incorporate into our Chef products.

As a result, new competitors possessing technological, marketing or other competitive advantages may emerge and develop their own open source software or hybrid proprietary and open source software offerings, potentially reducing the demand for, and putting price pressure on, our products enabling them to rapidly acquire market share.

In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, thereby increasing their ability to deliver products that better address the needs of our prospective customers.

Current and potential competitors may also be more successful than we are in having their products or technologies widely accepted.

We may be unable to compete successfully against current and future competitors, and our failure to do so could have a material adverse effect on our business, prospects, financial condition and operating results.

We intend to make additional acquisitions of businesses, products or technologies that involve additional risks, which could disrupt our business or harm our financial condition, results of operations or cash flows.

A key element of our strategy includes the acquisition of businesses that offer complementary products, services and technologies, augment our revenues and cash flows, and meet our strict financial and other criteria, such as our recent acquisitions of Ipswitch and Chef.

We may not be able to identify suitable acquisition opportunities, or to consummate any such transactions.

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Failure to manage and successfully integrate acquired businesses, achieve anticipated levels of profitability of the acquired business, improve margins of the acquired businesses and products, or realize other anticipated benefits of an acquisition could materially harm our business, operating results and margins.

The segments of the software industry in which we participate are intensely competitive, and our inability to compete effectively could harm our business.

We experience significant competition from a variety of sources with respect to the marketing and distribution of our products.

Increased competition could make it more difficult for us to maintain our market presence or lead to downward pricing pressure.

In addition, the marketplace for new products is intensely competitive and characterized by low barriers to entry.

For example, an increase in market acceptance of open source software may cause downward pricing pressures.

As a result, new competitors possessing technological, marketing or other competitive advantages may emerge and rapidly acquire market share.

Current and potential competitors may also be more successful than we are in having their products or technologies widely accepted.

If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings.

We acquire other companies and intangible assets and may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangibles.

We review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

We test goodwill for impairment at least annually.

We face various risks in connection with our acquisition of Chef.

On October 5, 2020, we completed our acquisition of Chef.

We face various risks in connection with this acquisition, including the effects of disruption from the transaction making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities, other business effects, including the effects of industry, economic or political conditions outside of our control, transaction costs, actual or contingent liabilities, diversion of management, uncertainties as to whether anticipated synergies will be realized and uncertainties as to whether Chef’s business will be successfully integrated with our business.

Any one or more of these factors could have a material adverse effect on the combined business, our results of operations and our financial condition.

We may incur significant debt or issue a material amount of debt or equity securities to finance an acquisition, which could adversely affect our operating flexibility and financial statements.

If we were to incur a significant amount of debt, whether by borrowing funds or issuing new debt securities, to finance an acquisition, our interest expense, debt service requirements and leverage would increase significantly.

The increases in these expenses and in our leverage could adversely impact our ability to operate the company as we might otherwise and to borrow additional amounts.

If we were to issue a significant amount of equity securities in connection with an acquisition, existing stockholders would be diluted and earnings per share could decrease.

Risk Related to the Operation of Our Business

We recognize a substantial portion of our revenue from sales made through third parties, including our ISVs, distributors/resellers, and OEMs, and adverse developments in the businesses of these third parties or in our relationships with them could harm our revenues and results of operations.

Our future results depend in large part upon our continued successful distribution of our products through our ISV, distributor/reseller, and OEM channels.

The activities of these third parties are not within our direct control.

Our failure to manage our relationships with these third parties effectively could impair the success of our sales, marketing and support activities.

A reduction in the sales efforts, technical capabilities or financial viability of these parties, a misalignment of interest between us and them, or a termination of our relationship with a major ISV, distributor/reseller, or OEM could have a negative effect on our sales and financial results.

Any adverse effect on any of our ISV's, distributors'/resellers', or OEMs’ businesses related to competition, pricing and other factors could also have a material adverse effect on our business, financial condition and operating results.

A failure of our information technology systems could have a material adverse effect on our business.

We rely on our technology infrastructure, and the technology infrastructure of third parties, for many functions, including selling our products, supporting our ISVs and other third-party channels, fulfilling orders and billing, and collecting and making payments.

This technology infrastructure may be vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, terrorist attacks, computer intrusions, vulnerabilities and viruses, software errors, computer denial-of-service attacks and other events.

A significant number of the systems making up this infrastructure are not redundant, and our disaster recovery planning may not be sufficient for every eventuality.

This technology infrastructure may fail or be vulnerable to damage or interruption because of actions by third parties or employee error or malfeasance.

We may not carry business interruption insurance sufficient to protect us from all losses that may result from interruptions in our services as a result of technology infrastructure failures or to cover all contingencies.

Any interruption in the availability of our websites and on-line interactions with customers or partners may cause a reduction in customer or partner satisfaction levels, which in turn could cause additional claims, reduced revenue or loss of customers or partners.

Despite any precautions we may take, these problems could result in,

among other consequences, a loss of data, loss of confidence in the stability and reliability of our offerings, damage to our reputation, and legal liability, all of which may adversely affect our business, financial condition, operating results and cash flows.

Approximately 41% of our total revenue is generated from sales outside North America.

Political and/or financial instability, oil price shocks and armed conflict in various regions of the world can lead to economic uncertainty and may adversely impact our business.

For example, political instability, such as the Referendum of the United Kingdom’s (the "U.K.") Membership of the European Union ("E.U.") (referred to as "Brexit"), led to significant, continuing volatility in global stock markets and currency exchange rate fluctuations.

Other potential risks inherent in our international business include:

• longer payment cycles;

• credit risk and higher levels of payment fraud;

• greater difficulties in accounts receivable collection;

• varying regulatory and legal requirements;

• compliance with international and local trade, labor and export control laws;

• restrictions on the transfer of funds;

• difficulties in developing, staffing, and simultaneously managing a large number of varying foreign operations as a result of distance, legal impediments and language and cultural differences;

• reduced or minimal protection of intellectual property rights in some countries;

• laws and business practices that favor local competitors or prohibit foreign ownership of certain businesses;

• changes in U.S.

or foreign trade policies or practices that increase costs or restrict the distribution of products;

• seasonal reductions in business activity during the summer months in Europe and certain other parts of the world;

• economic instability in emerging markets;

• potentially adverse tax consequences.

Any one or more of these factors could have a material adverse effect on our international operations, and, consequently, on our business, financial condition and operating results.

In addition, our business has been, and could in the future be, adversely affected by regional or global health crises, including an outbreak of contagious disease such as COVID-19.

A significant outbreak of contagious diseases and other adverse public health developments, or the fear of such events that results in a widespread health crisis could adversely affect global supply chains and the economies and financial markets of many countries.

Any prolonged economic disruption could affect demand for our products and services and adversely impact our results of operations and financial condition.

The full impact of the coronavirus outbreak is unknown at this time.

We continue to monitor developments and the potential effect on our business.

Fluctuations in foreign currency exchange rates could have an adverse impact on our financial condition and results of operations.

Changes in the value of foreign currencies relative to the U.S.

dollar could adversely affect our results of operations and financial position.

For example, during periods in which the value of the U.S.

Our currency hedging transactions may not be effective in reducing any adverse impact of fluctuations in foreign currency exchange rates.

Further, the imposition of exchange or price controls or other restrictions on the conversion of foreign currencies could have a material adverse effect on our business.

Our customers and partners may delay payment or fail to pay us in accordance with the terms of their agreements, necessitating action by us to compel payment.

If customers and partners delay the payment or fail to pay us under the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our contracts, including litigation.

Furthermore, some of our customers and partners may seek bankruptcy protection or other

similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect our operating results, financial position and cash flow.

The ongoing global COVID-19 pandemic has also increased the likelihood of these risks.

We rely on the experience and expertise of our skilled employees, and must continue to attract and retain qualified technical, marketing and managerial personnel in order to succeed.

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In the past, these restructurings have resulted in increased restructuring costs and have temporarily reduced productivity.

These effects could recur in connection with any future restructurings or we may not

achieve or sustain the expected growth or cost savings benefits of any such restructurings, or do so within the expected timeframe.

These effects could recur in connection with any future restructurings or we may not achieve or sustain the expected growth or cost savings benefits of any such restructurings, or do so within the expected timeframe.

As a result, our revenues and other results of operations could be negatively affected.

If our products contain software defects or security flaws, it could harm our revenues and expose us to litigation.

Our products, despite extensive testing and quality control, may contain defects or security flaws, especially when we first introduce them or when new versions are released.

We may need to issue corrective releases of our software products to fix any defects or errors.

The detection and correction of any security flaws can be time consuming and costly.

Errors in our software products could affect the ability of our products to work with other hardware or software products, delay the development or release of new products or new versions of products, adversely affect market acceptance of our products and expose us to potential litigation.

If we experience errors or delays in releasing new products or new versions of products, such errors or delays could have a material adverse effect on our revenue.

If our security measures are breached, our products and services may be perceived as not being secure, customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.

Our products and services involve the storage and transmission of our customers’ proprietary information and may be vulnerable to unauthorized access, computer viruses, cyber-attacks, distributed denial of service attacks and other disruptive problems Due to the actions of outside parties, employee error, malfeasance, or otherwise, an unauthorized party may obtain access to our data or our customers’ data, which could result in its theft, destruction or misappropriation.

Security risks in recent years have increased significantly given the increased sophistication and activities of hackers, organized crime, including state-sponsored organizations and nation-states, and other outside parties.

Cyber threats are continuously evolving, increasing the difficulty of defending against them.

While we have implemented security procedures and controls to address these threats, our security measures could be compromised or could fail.

Any security breach or unauthorized access could result in significant legal and financial exposure, increased costs to defend litigation, indemnity and other contractual obligations, government fines and penalties, damage to our reputation and our brand, and a loss of confidence in the security of our products and services that could potentially have an adverse effect on our business and results of operations.

Breaches of our network could disrupt our internal systems and business applications, including services provided to our customers.

Additionally, data breaches could compromise technical and proprietary information, harming our competitive position.

We may need to spend significant capital or allocate significant resources to ensure effective ongoing protection against the threat of security breaches or to address security related concerns.

If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose customers.

In addition, our insurance coverage may not be adequate to cover all costs related to cybersecurity incidents and the disruptions resulting from such events.

Catastrophic events may disrupt our business.

We rely on our network infrastructure and enterprise applications, internal technology systems and website for our development, marketing, operations, support and sales activities.

In addition, we rely on third-party hosted services, and we do not control the operation of third-party data center facilities, which increases our vulnerability.

A disruption, infiltration or failure of these systems or third-party hosted services in the event of a major earthquake, fire, flood, tsunami or other weather event, power loss, telecommunications failure, software or hardware malfunctions, pandemics (including the COVID-19 pandemic), cyber-attack, war, terrorist attack or other catastrophic event that our disaster recovery plans do not adequately address, could cause system interruptions, reputational harm, loss of intellectual property, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data.

A catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected, and the adverse effects of any such catastrophic event would be exacerbated if experienced at the same time as another unexpected and adverse event, such as the COVID-19 pandemic.

Risk Related to Laws and Regulations

We are subject to risks associated with compliance with laws and regulations globally, which may harm our business.

We are a global company subject to varied and complex laws, regulations and customs, both domestically and internationally.

These laws and regulations relate to a number of aspects of our business, including trade protection, import and export control, data and transaction processing security, payment card industry data security standards, records management, user-generated content hosted on websites we operate, privacy practices, data residency, corporate governance, anti-trust and competition, employee and third-party complaints, anti-corruption, gift policies, conflicts of interest, securities regulations and other regulatory requirements affecting trade and investment.

The application of these laws and regulations to our business is often unclear and may at times conflict.

For example, in many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by U.S.

regulations applicable to us, including the Foreign Corrupt Practices Act.

We cannot provide assurance that our employees, contractors, agents and business partners will not take actions in violation of our internal policies or U.S.

Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability.

Non-compliance could also result in fines, damages, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business, and damage to our reputation.

In response to the COVID-19 pandemic, federal, state, local and foreign governmental authorities have imposed, and may continue to impose, protocols and restrictions intended to contain the spread of the virus, including limitations on the size of gatherings, closures of work facilities, schools, public buildings and businesses, quarantines, lockdowns and travel restrictions.

Such restrictions have disrupted and may continue to disrupt our business operations and limit our ability to perform critical functions.

Our business practices with respect to the collection, use and management of personal information could give rise to operational interruption, liabilities or reputational harm as a result of governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection.

As regulatory focus on privacy issues continues to increase and worldwide laws and regulations concerning the handling of personal information expand and become more complex, potential risks related to data collection and use within our business will intensify.

For example, the E.U.

and the United States ("U.S.") formally entered into a framework in July 2016 that provides a mechanism for companies to transfer data from E.U.

member states to the U.S.

This framework, called the Privacy Shield, is intended to address shortcomings identified by the Court of Justice of the E.U.

in the previous E.U.-U.S.

Safe Harbor Framework, which the Court of Justice invalidated in October 2015.

The Privacy Shield and other data transfer mechanisms are likely to be reviewed by the European courts, which may lead to uncertainty about the legal basis for data transfers to the U.S.

or interruption of such transfers.

In the event any court blocks transfers to or from a particular jurisdiction on the basis that no transfer mechanisms are legally adequate, this could give rise to operational interruption in the performance of services for customers and internal processing of employee information, regulatory liabilities or reputational harm.

For example, on July 16, 2020, the Court of Justice of the European Union ("CJEU") invalidated the E.U.-U.S.

Privacy Shield framework – a system for complying with EU data protection requirements when transferring personal data from the European Economic Area ("EEA") to the U.S.

– with immediate effect.

Other data transfer mechanisms remain intact although still subject to considerable scrutiny by certain member states and their Data Protection Authorities.

While legislators are said to be considering a replacement for the Privacy Shield, no action seems imminent.

As a result, we may experience reluctance or refusal by current or prospective European customers to use our products, and we may find it necessary or desirable to make further changes to our handling of

personal data of EEA residents.

The regulatory environment applicable to the handling of EEA residents' personal data, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs, and could result in our business, operating results and financial condition being harmed.

Additionally, we and our customers may face a risk of enforcement actions by data protection authorities in the EEA relating to personal data transfers to us and by us from the EEA.

Any such enforcement actions could result in substantial costs and diversion of resources, distract management and

technical personnel and negatively affect our business, operating results and financial condition.

In addition, U.S.

and foreign governments have enacted or are considering enacting legislation or regulations, or may in the near future interpret existing legislation or regulations, in a manner that could significantly impact our ability and the ability of our customers and data partners to collect, augment, analyze, use, transfer and share personal and other information that is integral to certain services we provide.

For example, in the U.S., the California Consumer Privacy Act ("CCPA") became effective in January 2020, and the U.S.

Congress is considering several privacy bills at the federal level, and other state legislatures are considering privacy laws.

Internationally, Brazil has recently enacted its national data privacy law (Lei Geral de Proteção de Dados Pessoais, or LGPD), which is similar to GDPR.

Regulators globally are also imposing greater monetary fines for privacy violations.

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Any failure, or perceived failure, by us to comply with U.S.

federal, state, or foreign laws and regulations, including laws and regulations regulating privacy, data security, or consumer protection, or other policies, public perception, standards, self-regulatory requirements or legal obligations, could result in lost or restricted business, proceedings, actions or fines brought against us or levied by governmental entities or others, or could adversely affect our business and harm our reputation.

If our products contain software defects or security flaws, it could harm our revenues and expose us to litigation.

Our products, despite extensive testing and quality control, may contain defects or security flaws, especially when we first introduce them or when new versions are released.

We may need to issue corrective releases of our software products to fix any defects or errors.

The detection and correction of any security flaws can be time consuming and costly.

If we experience errors or delays in releasing new products or new versions of products, such errors or delays could have a material adverse effect on our revenue.

federal, state, or foreign laws and regulations, including laws and regulations regulating privacy, data security, or consumer protection, or other policies, public perception, standards, self-

regulatory requirements or legal obligations, could result in lost or restricted business, proceedings, actions or fines brought against us or levied by governmental entities or others, or could adversely affect our business and harm our reputation.

We could incur substantial cost in protecting our proprietary software technology or if we fail to protect our technology, which would harm our business.

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moreover, others could independently develop similar technology.

The value of our Chef software assets may be limited by open source development and licensing practices .

Our Chef offerings incorporate software components licensed to the general public under open source licenses.

We obtain many components from software developed and released by contributors to independent open source components of our offerings.

Open source licenses grant licensees broad permissions to use, copy, modify and redistribute our platform.

As a result, open source development and licensing practices can limit the value of our software copyright assets.

We could be subject to claims that we infringe intellectual property rights of others, which could harm our business, financial condition, results of operations or cash flows.

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Any such litigation could also result in our being prohibited from selling one or more of our products, unanticipated royalty payments, reluctance by potential customers to purchase our products, or liability to our customers and could have a material adverse effect on our business, financial condition, operating results and cash flows.