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Item 1A. Risk Factors

2023-01-27 compared with 2022-01-27 · 143 added, 124 removed, 205 unchanged (57% of the section changed)

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The risks described below are not the only risks we face.

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

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

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.

The COVID-19 pandemic continues to evolve, and measures remain in place to varying degrees as the rate and pace of recovery from COVID-19 has differed and continues to differ by geography and industry.

Given the economic uncertainty created by the COVID-19 pandemic, we could 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 these events did not have a material adverse impact on our financial results for the fiscal year ended November 30, 2021, 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 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 ISVs, distributors/resellers, and OEMs.

Ongoing enhancements to our product sets (both organically and through acquisitions) 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 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.

Our future success will depend upon our ability to develop, acquire 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 or acquiring new products incorporating new technology on a timely basis, and any new products we develop or acquire may not adequately address the changing needs of the marketplace or may not be accepted by the market.

Failure to develop new products and product enhancements that meet market needs in a timely manner could have a material adverse effect on our business, financial condition and operating results.

We are substantially dependent on our OpenEdge products.

We derive a significant portion of our revenue from software license and maintenance revenue attributable to our OpenEdge product set.

We derive a significant portion of our revenue from software license and maintenance revenue attributable to our OpenEdge product set, which in fiscal year 2022 accounted for approximately 42% of our aggregate revenue on a consolidated basis.

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

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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.

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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.

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.

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

As a result, the marketplace for new products is intensely competitive and characterized by low barriers to entry because others could 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.

New competitors possessing technological, marketing or other competitive advantages that develop their own open source software or hybrid proprietary and open source software offerings, may reduce the demand for, and putting price pressure on, our products enabling them to rapidly acquire market share, and limit the value of our software assets.

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.

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

Any acquisitions that we do complete and their integration involve a number of risks, the occurrence of which could have a material adverse effect on our business, financial condition, operating results or cash flows, including:

• unexpected delays, challenges and related expenses, and the disruption of our business;

• difficulties of assimilating the operations and personnel of acquired companies;

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

Even if an acquisition is successful, integration of a new business involves a number of risks that could have a material adverse effect on our business, financial condition, operating results or cash flows, including:

• difficulties of assimilating the operations and personnel, products or systems of acquired companies;

• our potential inability to realize the value of the acquired assets relative to the price paid;

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• the possibility of incurring significant restructuring charges and amortization expense;

• the risk that an acquired company’s cybersecurity may not have been sufficient and could cause a post-acquisition risk once integrated into our systems;

• risks related to the assumption of the acquired business's liabilities or any ongoing lawsuits;

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• geographic and cultural differences;

• lack of experience operating in the industry or geographic markets of the acquired business;

• lack of experience operating in the industry or markets of the acquired business (e.g., satisfying the requirements of public-sector customers);

• potential loss of key employees and customers;

• the potential for deficiencies in internal controls at the acquired or combined business;

• the potential for deficiencies in internal controls at the acquired or combined business, including but not limited to with regard to any weaknesses or vulnerabilities in a target company’s cybersecurity controls;

• performance problems with the acquired business’s technology;

• exposure to unanticipated liabilities of the acquired business;

• exposure to unanticipated liabilities of the acquired business, including any cybersecurity issues;

• insufficient revenue to offset increased expenses associated with the acquisition;

• adverse tax consequences.

If we fail to complete an announced acquisition, our stock price could fall to the extent the price reflects an assumption that such acquisition will be completed, and we may incur significant unrecoverable costs.

In addition, if we fail to complete an announced acquisition (such as MarkLogic), our stock price could fall to the extent the price reflects an assumption that such acquisition will be completed, and we may incur significant unrecoverable costs.

Further, the failure to consummate an acquisition may result in negative publicity and adversely impact our relationships with our customers, vendors and employees.

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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.

Risks 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.

Our realignment initiatives may disrupt our operations and we may not achieve the expected benefits from our efforts.

We have restructured or made other adjustments to our workforce in response to management changes, product changes, performance issues, changes in strategy, acquisitions and other internal and external considerations;

and we may undertake similar restructuring or realignment initiatives in the future.

As described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 below, we are currently working to realign our go-to-market, product, and operational teams, as well as increase centralization of shared services and functions across our company.

In the past, realignment initiatives have resulted in increased restructuring costs and have temporarily reduced productivity.

Current and future realignment initiatives may be complex and could result in significant costs and expenses, which could negatively impact our reputation, financial condition, operating results and shareholder value.

There can be no assurance that we can accomplish or implement all of the desired initiatives, or that the activities under those initiatives will result in the desired synergies or efficiencies.

Furthermore, management has dedicated, and will continue to dedicate, significant time and effort to implementing such realignment initiatives.

These efforts may divert management’s focus and resources from our core business, other corporate initiatives, or strategic opportunities.

We may also experience a loss of

continuity, loss of accumulated knowledge, or inefficiency during transitional periods.

Additionally, efforts related to the implementation of these initiatives could yield unintended consequences (e.g., adversely affecting our ability to execute on merger and acquisition objectives, confusion or distraction of our management and employees, reduced employee morale and retention, delaying the development and introduction of new products and technologies), which may negatively affect our business, sales, financial condition and results of operations.

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 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.

Approximately 43% of our total fiscal 2022 revenue, was generated from sales outside North America.

Political and/or financial instability, oil price shocks and armed conflict in various regions of the world, including, but not limited to, Russia's invasion of Ukraine in February 2022, or increased cyber incidents as a result therefrom or otherwise, can lead to economic uncertainty and may adversely impact our business.

Political instability may lead to significant, continuing volatility in global stock markets and currency exchange rate fluctuations.

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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.

In addition, our business has been, and could in the future be, adversely affected by regional or global health crises, such as the COVID-19 pandemic.

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.

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.

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.

Our future success will depend in large part upon our ability to attract and retain highly skilled technical, managerial, sales and marketing personnel.

There is significant competition for such personnel in the software industry.

We may not continue to be successful in attracting and retaining the personnel we require to develop new and enhanced products and to continue to grow and operate profitably.

Our periodic workforce restructurings can be disruptive.

We have in the past restructured or made other adjustments to our workforce in response to management changes, product changes, performance issues, changes in strategy, acquisitions and other internal and external considerations.

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.

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.

including but not limited to from loss of customer or company data, loss of customers or otherwise.

As disclosed on December 19, 2022, following the detection of irregular activity on certain portions of our corporate network, we engaged outside cybersecurity experts and other incident response professionals to conduct a forensic investigation and assess the extent and scope of the cyber incident.

During the investigation, we and our external advisors uncovered evidence of unauthorized access to our corporate network, including evidence that certain company data had been exfiltrated.

As the investigation remains ongoing, we continue to assess the potential impact on our business, operations and financial results.

As demonstrated by this cyber incident, 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, corruption or misappropriation and thus legal and financial exposure.

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.

Increased risks of such attacks and disruptions also exist due to the Russian invasion of Ukraine beginning in February 2022.

While we have implemented security procedures and controls aimed at addressing these threats, our security measures could be compromised, could prove to be inadequate 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.

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.

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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.

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.

Depending upon the severity of any such events, 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.

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

This technology infrastructure may be vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, terrorist attacks, the outbreak of wars or other armed conflicts, the escalation of hostilities, geopolitical tensions or trade wars, acts of terrorism or “ acts of God,” particularly involving geographies in which we or third parties on whom we depend have operations, computer intrusions or other similar cyber intrusions, vulnerabilities and viruses, software errors, computer denial-of-service attacks and other similar 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.

In addition, depending upon the severity of any such actions, 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 such technology infrastructure failures or provide us with the ability to cover all contingencies.

Despite any precautions we may take, these problems could result in, among other consequences, a loss, destruction, corruption or misappropriation of company or customer 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.

Catastrophic events, including but not limited to cyber 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.

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 or other future pandemics), cyber-attack or other similar interruptions to our business, war (including the Russian invasion of Ukraine), 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, destruction, misappropriation or corruption of critical company or customer data.

A catastrophic event including a cyber event a war or an act of terrorism that results in the loss, destruction, misappropriation, corruption or disruption of any of our data, our customer’s data or 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.

Adverse developments in our relationships with certain third parties or within the business of such third parties could harm our revenues and results of operations.

We recognize a substantial portion of our revenue from sales made through third parties, including our ISVs, distributors/resellers, and OEMs, and our future results depend in large part upon our continued successful distribution of our products through these 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.

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 or partners delay 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.

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.

Our future success will depend in large part upon our ability to attract and retain highly skilled technical, managerial, sales and marketing personnel.

There is significant competition for such personnel in the software industry.

We may not continue to be successful in attracting and retaining the personnel we require to develop new and enhanced products and to continue to grow and operate profitably.

Risks Related to Laws and Regulations

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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.

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, data privacy or related 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 on a domestic or international basis.

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.

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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.

In response to the Russian invasion of Ukraine, new sanctions have been imposed by the U.S., Canada, the United Kingdom, the European Union, and other countries and companies and organizations against officials, individuals, regions, and industries in Russia and Ukraine.

Although we have policies and procedures in place designed to ensure compliance with applicable sanctions, our employees, contractors, and agents may take actions in violation of such policies and applicable law and ultimately we could be held responsible.

If we are held responsible for a violation of U.S.

sanctions laws, we may be subject to various penalties, any of which could have a material adverse effect on our business, financial condition or results of operations.

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, 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.

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

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

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

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

On October 7, 2022, President Biden signed an executive order implementing the E.U.-U.S.

Data Privacy Framework, which is intended to replace the original E.U.-U.S.

Privacy Shield, and on December 13, 2022, the European Commission initiated a process to adopt an adequacy decision for this new framework.

However, European companies will not be able to rely on the framework for sharing data with certified companies in the U.S.

unless and until a final decision is published.

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.

Also, on June 4, 2021, the European Commission approved new standard contractual clauses to permit transfers of personal data from the European Union to other countries, such as the United States.

The new clauses align more closely with the General Data Protection Regulation (GDPR) of 2018 by, among other things, increasing documentation responsibilities.

The regulatory environment applicable to the handling of EEA residents' personal data, which is governed by the GDPR, 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.

The regulatory environment applicable to the handling of EEA residents' personal data, which is governed by the General Data Protection Regulation of 2018 (“GDPR”), 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 internationally, Brazil’s data privacy law (Lei Geral de Proteção de Dados Pessoais, or LGPD), which is similar to GDPR, became effective in September 2020.

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

The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information, could greatly increase our cost of providing our products and services or even prevent us from offering certain services in jurisdictions that we operate.

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

For example, non-compliance with the GDPR may result in monetary penalties of up to 4% of worldwide revenue.

In addition, governmental entities in the U.S.

and other countries 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, the California Privacy Rights Act (which amends the California Consumer Privacy Act) took effect on January 1, 2023;

Virginia, Colorado, Utah and Connecticut also have privacy laws taking effect in 2023 (and other state legislatures are considering varying privacy laws and regulations);

and several privacy bills are under congressional review at the federal level.

Changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information, could greatly increase our cost of providing our products and services or even prevent us from offering

certain services in jurisdictions that we operate.

Regulators globally are also imposing greater monetary fines for privacy violations (e.g., non-compliance with the GDPR may result in monetary penalties of up to 4% of worldwide revenue).

Additionally, public perception and standards related to the privacy of personal information can shift rapidly, in ways that may affect our reputation or influence regulators to enact regulations and laws that may limit our ability to provide certain products.

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.

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

federal, state, or international 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 and if we fail to protect our technology, we could incur material harm to our business.

We rely principally on a combination of contract provisions and copyright, trademark, patent and trade secret laws to protect our proprietary technology.

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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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We provide products and services, directly and indirectly, to a variety of government entities, both domestically and internationally.

Risks associated with licensing and selling products and services to government entities include more extended sales and collection cycles, varying governmental budgeting processes and adherence to complex procurement regulations and other government-specific contractual requirements.

We may be subject to audits and investigations relating to our government contracts and any violations could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, payment of fines, and suspension or debarment from future government business, as well as harm to our reputation and financial results.

We may be subject to audits and investigations relating to our government contracts and any violations could result in various civil and criminal penalties and administrative sanctions, including termination of contracts for default or for the convenience of the government, payment of fines, and suspension or debarment from future government business, as well as harm to our reputation and financial results.

These risks will increase if we successfully complete the acquisition of MarkLogic, which will increase the amount and variety of government entities that we contract with.

Risks Related to Financial Performance or General Economic Conditions

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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.

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

and other international economies continue to experience inflationary pressures, which may increase our expenses (including the cost of labor), negatively affect credit and securities markets generally, and further impact customer demand for our products and their ability to make payments.

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

We are currently operating in a period of economic uncertainty and capital markets disruption due to various geopolitical and macro-economic factors, which may materially adversely affect our business, financial condition, and results of operations.

and global markets are continuing to experience volatility and disruption following among other things the escalation of geopolitical tensions in February 2022 with Russia’s invasion of Ukraine.

The overall macro global economy, including the ongoing military conflict in Ukraine is highly unpredictable and has already led to market disruptions, including volatile capital markets, higher interest rates and debt capital costs, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, as well as supply chain disruptions and increases in costs of certain raw materials and transportation, which have in turn contributed to global inflationary pressures.

These and related actions, responses, and consequences may contribute to world-wide economic downturns.

In addition, prolonged unrest, military activities, or broad-based sanctions could have a material adverse effect on our operations and business outlook.

Given our meaningful reliance on revenue generated outside of North America (which constituted 43% of our total revenue in fiscal 2022) and our reliance on revenue generated in EMEA (which constituted 35% of our total revenue in fiscal 2022), disruption of commercial activities in these regions may materially adversely affect our financial condition and results of operations.

Russia’s invasion of Ukraine has also elevated the risk of cyber-attacks on U.S.

and global companies, and as discussed elsewhere herein, any such cyber-attack could similarly impact or disrupt our commercial activities.

Although we cannot predict what the impacts may be, our global operations and reliance on interconnected technology increase the risk to our operations.

The extent and duration of the conflict in Ukraine, geopolitical tensions, inflationary pressures and resulting market disruptions are impossible to predict but could be substantial.

Fluctuations in foreign currency exchange rates or interest rates have had, and could continue to 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 and related changes in interest rates have adversely affected our results of operations and financial position and could continue to do so.

In recent periods, as the value of the U.S.

dollar has strengthened in comparison to certain foreign currencies (particularly in EMEA), our reported international revenue has been reduced because foreign currencies translate into fewer U.S.

As approximately one-third of our revenue is denominated in foreign currencies, these exchange rate fluctuations have impacted, and we expect will continue to impact, our revenue results.

Please see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 for additional information.

however, our currency hedging transactions may not be effective in reducing the adverse impact of fluctuations in foreign currency exchange rates.

Further, as geopolitical volatility around the world increases, there is increasing risk of the imposition of exchange or price controls, or other restrictions on the conversion of foreign currencies, which could have a material adverse effect on our 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.

Our revenues, particularly new software license revenues or economic impacts from M&A activities, are difficult to forecast.

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

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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.

Thus, an unexpected reduction in our revenue, or failure to achieve the anticipated rate of growth or realize synergies from M&A activity, 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 or analysts, our stock price may decline.

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

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

• market acceptance of our new products;

• market acceptance of our new products, including acquired products;

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

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• fluctuations in currency exchange rates;

• changes in the level of operating expenses;

• changes in the level of operating expenses, including unforeseen expenses incurred in connection with items such as cyber security instances;

• changes in management;

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• completion or announcement of acquisitions by us or our competitors;

• integration of acquired businesses;

• integration of acquired businesses or inability to realize expected synergies;

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

• general economic conditions in regions in which we conduct business;

• other factors such as political or social unrest, terrorist attacks, other hostilities, natural disasters, and potential public health crises, such as COVID-19.

• other factors such as political or social unrest, terrorist attacks, other hostilities, natural disasters, cyber-attacks, and potential public health crises, such as pandemics.

Our common stock price may continue to be volatile, which could result in losses for investors.

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• limiting our flexibility to plan for, or react to, changes in our business;

diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the Notes;

• diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of our Convertible Senior Notes with an aggregate principal amount of $325 million, due April 15, 2026 (the "Notes");

• placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

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any failure to comply with those covenants or to make scheduled payments could cause amounts borrowed under the facility to become immediately due and payable or prevent us from borrowing under the facility.

In January 2022, we entered into an amended and restated credit agreement, which provides for a $275.0 million term loan and a $300.0 million revolving loan (which may be increased by an additional $260.0 million if the existing or additional lenders are willing to make such increased commitments).

In January 2022, we entered into an amended and restated credit agreement, which provides for a $275.0 million term loan and a $300.0 million

revolving loan (which may be increased by an additional $260.0 million if the existing or additional lenders are willing to make such increased commitments).

This facility matures in January 2027, at which time any amounts outstanding will be due and payable in full.

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In addition, if we are not in compliance with the financial and operating covenants at the time we wish to borrow funds, we will be unable to borrow funds.

We may be required to repay the Credit Agreement prior to the stated maturity date, if the springing maturity feature is triggered.

On January 25, 2022, we entered into an amended and restated credit agreement (the "Credit Agreement"), which provides for a $275.0 million secured term loan and a $300.0 million secured revolving line of credit.

The Credit Agreement has a stated maturity date of January 25, 2027, but includes a springing maturity feature that will cause the stated maturity date to spring ahead to the date that is 181 days prior to the maturity date of our Notes subject to certain conditions as set forth in the Credit Agreement, including the repayment of the Notes, the refinancing of the Notes including a maturity date that is at least 181 days after January 25, 2027 and compliance with a liquidity test when all amounts outstanding will be due and payable in full.

If such springing maturity feature is triggered, we will be required to pay all amounts outstanding under the credit facility sooner than they would otherwise be due, we may not have sufficient funds available to pay such amounts at that time, and we may not be able to raise additional funds to pay such amounts on a timely basis, on terms we find acceptable, or at all.

The capped call transactions may affect the value of our common stock.

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The capped call transactions are generally expected to reduce the potential dilution to our common stock upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.

or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes.

From time to time, the option counterparties that are parties to the capped call transactions or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes.

This activity could cause a decrease in the market price of our common stock.

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In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate.

In either case, and in other cases, our obligations under the Notes and the indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that Noteholders or holders of our common stock may view as favorable.

In either case, and in other cases, our obligations under the Notes and the indenture could increase the cost of acquiring us or otherwise discourage a third

party from acquiring us or removing incumbent management, including in a transaction that Noteholders or holders of our common stock may view as favorable.

Conversion of the Notes may dilute the ownership interest of existing stockholders.

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Unresolved Staff Comments

As of the date of this report, we do not have any open comments from the Securities and Exchange Commission (SEC) related to our financial statements or periodic filings with the SEC.

As of the date of this report, we do not have any open comments from the SEC related to our financial statements or periodic filings.

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What changed 10-K

Item 1A. Risk Factors