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Item 1A. Risk Factors

2023-02-23 compared with 2022-02-22 · 98 added, 115 removed, 498 unchanged (30% of the section changed)

An investment in our common stock involves a high degree of risk.

You should carefully consider the risks and uncertainties described below, and all other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, before making a decision to invest in our common stock.

You should carefully consider the risks and uncertainties described below, and all other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, before making a decision to invest in our common stock.

Our business, operating results, financial condition, or prospects could be materially and adversely affected by any of these risks and uncertainties.

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Risks Related to Our Business and Industry

The continued spread of COVID-19, or any similar widespread infectious disease outbreak, could harm our business, financial condition and results of operations.

In December 2019, an outbreak of COVID-19 originated in Wuhan, China and has since spread to countries around the world.

On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.

The continued spread of COVID-19 and the resurgence of infection rates in certain regions has resulted in authorities imposing, and businesses and individuals implementing, numerous unprecedented measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns.

These measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners.

The pandemic has significantly increased economic and demand uncertainty and disrupted the global supply chain.

It is possible that the pandemic could cause an economic slowdown or a global recession, which could decrease demand for our solutions and negatively impact our operating results.

There is a significant degree of uncertainty and lack of visibility as to the extent and duration of any such slowdown or recession.

The ultimate extent of the impact of COVID-19 on our business, financial position, results of operations and cash flows will depend on future developments, which are highly uncertain and cannot be predicted at this time, including but not limited to, the duration of the pandemic, its severity, the actions to contain the virus or treat its impact, future spikes of COVID-19 infections resulting in additional preventative measures to contain or mitigate the spread of the virus, the effectiveness, distribution and acceptance of COVID-19 vaccines, including the vaccines’

efficacy against emerging COVID-19 variants, and how quickly and to what extent normal economic and operating conditions can resume.

These impacts, individually or in the aggregate, could have a material and adverse effect on our business, financial position, results of operations and cash flows.

Such effect may be exacerbated in the event the pandemic and the measures taken in response to it persist for an extended period of time.

Under any of these circumstances, the resumption of normal business operations may be delayed or hampered by lingering effects of COVID-19 on our operations, partners, and customers.

Our quarterly operating results may vary from period to period, which could result in our failure to meet expectations with respect to operating results and cause the trading price of our stock to decline.

Our quarterly and annual operating results may vary from period to period, which could result in our failure to meet expectations with respect to operating results and cause the trading price of our stock to decline.

Our operating results have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control, including:

the level of demand for our solutions;

publicity regarding security breaches generally and the level of perceived threats to IT security;

expenses associated with our existing and new products and services;

changes in customer renewals of our solutions;

the level of demand for our solutions, from both existing and new customers;

the extent to which customers subscribe for additional solutions;

changes in customer renewals of our solutions;

timing of deals signed within the applicable fiscal period;

seasonal buying patterns of our customers;

actual or perceived security breaches, technical difficulties or interruptions with our service;

changes in the growth rate of the IT, security and compliance market;

timely invoicing or changes in billing terms of customers;

the length of our sales cycle for our products and services;

price competition;

the timing and success of new product or service introductions by us or our competitors or any other changes in the competitive landscape of our industry, including consolidation among our competitors;

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decisions by potential customers to purchase IT, security and compliance products or services from other vendors;

general economic conditions, both domestically and in the foreign markets in which we sell our solutions;

changes in foreign currency exchange rates;

changes in the growth rate of the IT, security and compliance market;

actual or perceived security breaches, technical difficulties or interruptions with our service;

failure of our products and services to operate as designed;

publicity regarding security breaches generally and the level of perceived threats to IT security;

the announcement or adoption of new regulations and policy mandates or changes to existing regulations and policy mandates;

the amount and timing of operating costs and capital expenditures related to the operations and expansion of our business;

pace and cost of hiring employees;

expenses associated with our existing and new products and services;

the timing of sales commissions relative to the recognition of revenues;

the announcement or adoption of new regulations and policy mandates or changes to existing regulations and policy mandates;

failure of our products and services to operate as designed;

price competition;

the length of our sales cycle for our products and services;

insolvency or credit difficulties confronting our customers, affecting their ability to purchase or pay for our solutions;

timely invoicing or changes in billing terms of customers;

timing of deals signed within the quarter;

pace and cost of hiring employees;

changes in foreign currency exchange rates;

general economic conditions, both domestically and in the foreign markets in which we sell our solutions;

our ability to integrate any products or services that we have acquired or may acquire in the future into our product suite or migrate existing customers of any companies that we have acquired or may acquire in the future to our products and services;

future accounting pronouncements or changes in our accounting policies;

our ability to integrate any products or services that we may acquire in the future into our product suite or migrate existing customers of any companies that we may acquire in the future to our products and services;

our effective tax rate, changes in tax rules, tax effects of infrequent or unusual transactions, and tax audit settlements;

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Further, the interpretation and application of international laws and regulations in many cases is uncertain, and our legal and regulatory obligations in foreign jurisdictions are subject to frequent and unexpected changes, including the potential for various regulatory or other governmental bodies to enact new or additional laws or regulations or to issue rulings that invalidate prior laws or regulations.

Each factor above or discussed elsewhere in this Annual Report on Form 10-K or the cumulative effect of some of these factors may result in fluctuations in our operating results.

Each factor above or discussed elsewhere in this Annual Report on Form 10-K or the cumulative effect of some of these factors may result in fluctuations in our operating results.

This variability and unpredictability could result in our failure to meet expectations with respect to operating results, or those of securities analysts or investors, for a particular period.

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Our future success will depend on our ability to enhance existing solutions, introduce new solutions on a timely and cost-effective basis, meet changing customer needs, extend our core technology into new applications, and anticipate and respond to emerging standards and business models.

We must also continually change and improve our solutions in response to changes in operating systems, application software, computer and communications hardware, networking software, data center architectures, programming tools and computer language technology.

We must also continually change and improve our solutions in response to changes in operating systems, application software, computer and communications hardware, networking software, shared cloud platform infrastructures, programming tools and computer language technology.

We may not be able to anticipate future market needs and opportunities or develop enhancements or new solutions to meet such needs or opportunities in a timely manner or at all.

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If we fail to continue to effectively scale and adapt our platform to meet the performance and other requirements of our customers, our operating results and our business would be harmed.

Our future growth depends upon our ability to continue to meet the expanding needs of our customers as their use of our cloud platform grows.

Our future growth depends to a significant extent on our ability to continue to meet the expanding needs of our customers as their use of our cloud platform grows.

As these customers gain more experience with our solutions, the number of users and the number of locations where our solutions are being accessed may expand rapidly in the future.

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If we fail to attract new customers, our revenues may grow more slowly than expected and our operating results would be harmed.

If the market for cloud solutions for IT, security and compliance does not evolve as we anticipate, our revenues may not grow and our operating results would be harmed.

Our success depends to a significant extent on the willingness of organizations to increase their use of cloud solutions for their IT, security and compliance.

To date, some organizations have been reluctant to use cloud solutions because they have concerns regarding the risks associated with the reliability or security of the technology delivery model associated with these solutions.

If other cloud service providers experience security incidents, loss of customer data, disruptions in service delivery or other problems, the market for cloud solutions as a whole, including our solutions, may be negatively impacted.

Moreover, many organizations have invested substantial personnel and financial resources to integrate on-premise software into their businesses, and as a result may be reluctant or unwilling to migrate to a cloud solution.

Organizations that use on-premise security products, such as network firewalls, security information and event management products or data loss prevention solutions, may also believe that these products sufficiently protect their IT infrastructure and deliver adequate security.

Therefore, they may continue spending their IT security budgets on these products and may not adopt our IT, security and compliance solutions in addition to or as a replacement for such products.

If customers do not recognize the benefits of our cloud solutions over traditional on-premise enterprise software products, and as a result we are unable to increase sales of subscriptions to our solutions, then our revenues may not grow or may decline, and our operating results would be harmed.

Our current research and development efforts may not produce successful products or enhancements to our platform that result in significant revenue, cost savings or other benefits in the near future.

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We notified affected customers, as we deemed was required or appropriate.

We have incurred costs to respond to this incident and may continue to incur costs to support our efforts to enhance our security measures.

We have incurred costs to respond to this incident and may continue to incur costs to support our efforts to enhance our security measures. Additionally, due to political uncertainty and military actions associated with Russia’s invasion of Ukraine, we and our service providers are vulnerable to heightened risks of cybersecurity incidents and security and privacy breaches from or affiliated with nation-state actors, including attacks that could materially disrupt our systems, operations and services.

Our solutions, platforms, and system, and those of our service providers, may also suffer security incidents as a result of non-technical issues, including intentional or inadvertent acts or omissions by our employees or service providers. With the increase in personnel working remotely during the current COVID-19 pandemic, we and our service providers are at increased risk for security breaches.

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Further, the length of time that potential customers devote to their testing and evaluation, contract negotiation and budgeting processes varies significantly, which has also made our sales cycle long and unpredictable.

The length of the sales cycle for our solutions typically ranges from six to twelve months but can be more than eighteen months.

The length of the sales cycle for our solutions typically ranges from six to twelve months but can be more than eighteen months.

In addition, we might devote substantial time and effort to a particular unsuccessful sales effort, and as a result we could lose other sales opportunities or incur expenses that are not offset by an increase in revenues, which could harm our business.

Adverse economic conditions or reduced IT spending may adversely impact our business.

Our business depends on the overall demand for IT and on the economic health of our current and prospective customers.

Economic weakness, customer financial difficulties, and constrained spending on IT security may result in decreased revenue and earnings.

Such factors could make it difficult to accurately forecast our sales and operating results and could negatively affect our ability to provide accurate forecasts to our contract manufacturers.

In addition, continued governmental budgetary challenges in the United States and Europe and geopolitical turmoil in many parts of the world have and may continue to put pressure on global economic conditions and overall spending on IT security.

Our business depends to a significant extent on the overall demand for IT and on the economic health of our current and prospective customers.

Economic weakness, customer financial difficulties, supply chain constraints, change in interest rates, inflationary pressures and potential for a recession, and constrained spending on IT security, which factors we have experienced in 2022, have resulted and may in the future result in decreased revenue and earnings.

Such factors have made and could in the future make it difficult to accurately forecast our sales and operating results and could negatively affect our ability to provide accurate forecasts to our contract manufacturers.

In addition, continued governmental budgetary challenges in the United States and Europe, inflationary pressures and potential for a recession, and geopolitical turmoil in many parts of the world, including the ongoing military conflict between Russia and Ukraine, and other disruptions to global and regional economies and markets in many parts of the world, as well as uncertainties related to changes in public policies such as domestic and international regulations, taxes or international trade agreements, have and may continue to put pressure on global economic conditions and overall spending on IT security and may further increase inflation, both in the U.S.

and globally, which could increase our operating costs in the future and reduce overall spending on IT security.

General economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, restructuring initiatives and associated expenses, and impairment of investments.

Furthermore, the continued weakness and uncertainty in worldwide credit markets, including the sovereign debt situation in certain countries in the European Union, may adversely impact our customers' available budgetary spending, which could lead to delays in planned purchases of our solutions.

Additionally, uncertainties related to changes in public policies such as domestic and international regulations, taxes or international trade agreements as well as geopolitical turmoil and other disruptions to global and regional economies and markets in many parts of the world, have and may continue to put pressure on global economic conditions and overall spending on IT security.

We have operations, as well as current and potential customers, throughout most of Europe.

If economic conditions in Europe and other key markets for our platform continue to remain uncertain or deteriorate further, many customers may delay or reduce their IT spending.

Furthermore, the continued weakness and uncertainty in worldwide credit markets, including the sovereign debt situation in certain countries in the European Union, may adversely impact our European operations, as well as our current and potential customers' available budgetary spending, which could lead to delays or reductions in planned purchases of our solutions.

Uncertainty about future economic conditions also makes it difficult to forecast operating results and to make decisions about future investments.

Future or continued economic weakness for us or our customers, failure of our customers and markets to recover from such weakness, customer financial difficulties, and reductions in spending on IT security could have a material adverse effect on demand for our platform and consequently on our business, financial condition and results of operations.

Our IT, security and compliance solutions are delivered from eleven shared cloud platforms, and any disruption of service at these facilities would interrupt or delay our ability to deliver our solutions to our customers which could reduce our revenues and harm our operating results.

We currently host substantially all of our solutions from third-party shared cloud platforms in the United States, Canada, Switzerland, the Netherlands, United Arab Emirates, Australia, United Kingdom and India.

Our IT, security and compliance solutions are delivered from 11 shared cloud platforms , and any disruption of service at these facilities would interrupt or delay our ability to deliver our solutions to our customers which could reduce our revenues and harm our operating results.

We currently host substantially all of our solutions from third-party shared cloud platforms located in the United States, Canada, Switzerland, the Netherlands, United Arab Emirates, Australia, United Kingdom and India.

These facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cybersecurity attacks, terrorist attacks, employee negligence, power losses, telecommunications failures and similar events.

The facilities also could be subject to break-ins, sabotage, intentional acts of vandalism and other misconduct.

The facilities also could be subjec t to break-ins, sabotage, intentional acts of vandalism and other misconduct.

The occurrence of a natural disaster, an act of terrorism or misconduct, a decision to close the facilities without adequate notice or other unanticipated problems could result in interruptions in our services.

Some of our shared cloud platforms are not currently redundant and we may not be able to rapidly move our customers from one shared cloud platform to another, which may increase delays in the restoration of our service for our customers if an adverse event occurs.

We have added shared cloud platforms to provide additional capacity and to enable disaster recovery.

Some of our shared cloud platforms are not currently redundant and we may not be able to rapidly move our customers from one shared cloud platform to another, which may increase delays in the restoration of our service for our customers if an adverse event occurs.

We have added shared cloud platforms to provide additional capacity and to enable disaster recovery.

We continue to build out these facilities;

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We face significant competition for each of our solutions from companies with broad product suites and greater name recognition and resources than we have, as well as from small companies focused on specialized security solutions.

We compete with large and small public companies, such as Belden (Tripwire), Broadcom (Symantec Enterprise Security), CrowdStrike, Palo Alto Networks, Rapid7, and Tenable Holdings, as well as privately held security providers including Axonius, Checkmarx, Flexera, Ivanti, Netsparker, Tanium, Trustwave Holdings and Veracode.

We compete with large and small public companies, such as Broadcom (Symantec Enterprise Security), CrowdStrike, Palo Alto Networks, Rapid7, Tenable Holdings, as well as privately held security providers including Axonius, Checkmarx, Flexera, Invicti, Ivanti, Tanium, HelpSystems (Tripwire), Trustwave Holdings and Veracode.

We also seek to replace IT, security and compliance solutions that organizations have developed internally.

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In addition, our solutions do not currently extend to cover all mobile and personal devices that employees may bring into an organization.

As such, our solutions would not identify or address vulnerabilities in all mobile and personal devices, and our customers’

As such, our solutions would not identify or address vulnerabilities in all mobile and personal devices, and our customers’

IT infrastructures may be compromised by attacks that infiltrate their networks through such devices.

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We rely on third-party channel partners to generate a substantial amount of our revenues, and if we fail to expand and manage our distribution channels, our revenues could decline and our growth prospects could suffer.

Our success significantly depends upon establishing and maintaining relationships with a variety of channel partners and we anticipate that we will continue to depend on these partners in order to grow our business.

For the years ended December 31, 2021, 2020 and 2019, we derived approximately 41%, 42% and 42%, respectively, of our revenues from sales of subscriptions for our solutions through channel partners, and the percentage of revenues derived from channel partners may increase in future periods.

Our success significantly depends to a significant extent on establishing and maintaining relationships with a variety of channel partners and we anticipate that we will continue to depend on these partners in order to grow our business.

For th e years ended December 31, 2022, 2021 and 2020,  we derived approximately 42%, 41% 

and 42%, respectively, 

o f our revenues from sales of subscriptions for our solutions through channel partners, and the percentage of revenues derived from channel partners may increase in future periods.

Our agreements with our channel partners are generally non-exclusive and do not prohibit them from working with our competitors or offering competing solutions, and many of our channel partners have more established relationships with our competitors.

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multiple and possibly overlapping tax structures.

Some of our business partners also have international operations and are subject to the risks described above.

Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage these risks.

Our business, including the sales of subscriptions of our solutions, may be subject to foreign governmental regulations, which vary substantially from country to country and change from time to time.

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If we are unable to successfully manage the challenges of international operations, our business and operating results could be adversely affected.

In addition, as of December 31, 2021 , approximately 75% of our employees were located outside of the United States, with 67% of our employees located in Pune, India. Accordingly, we are exposed to changes in laws governing our employee relationships in various U.S.

In addition, as of December 31, 2022, approximately 75% of our employees were located outside of the United States, with 66% of our employees located in Pune, India.

Accordingly, we are exposed to changes in laws governing our employee relationships in various U.S.

and foreign jurisdictions, including laws and regulations regarding wage and hour requirements, fair labor standards, employee data privacy, unemployment tax rates, workers’

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Expansion in international markets has required, and will continue to require, significant management attention and resources.

We may be unable to scale our infrastructure effectively or as quickly as our competitors in these markets and our revenues may not increase to offset any increased costs and operating expenses, which would cause our results to suffer.

We may be unable to scal e our infrastructure effectively or as quickly as our competitors in these markets and our revenues may not increase to offset any increased costs and operating expenses, which would cause our results to suffer.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

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dollar and we generate a majority of our revenues in U.S.

However, for the year ended December 31, 2021, we incurred approximately 28% of ou r expenses in foreign currencies, primarily Euros, British Pounds, and Indian Rupee, principally with respect to salaries and related personnel expenses associated with our European and Indian operations.

Additionally, for the year ended December 31, 2021, approximately 23% of our revenues were generated in foreign currencies.

However, for the year ended December 31, 2022,  we incurred approximately 29% of our expenses in foreign currencies, primarily Euros, British Pounds, and Indian Rupee, principally with respect to salaries and related personnel expenses associated with our European and Indian operations.

Additionally, for the year ended December 31, 2022,  approximately 24% of our revenue s were generated in foreign currencies.

Accordingly, changes in exchange rates may have a material adverse effect on our business, operating results and financial condition.

The exchange rate between the U.S.

dollar and foreign currencies has fluctuate d substantially in recent years and may continue to fluctuate substantially in the future.

dollar and foreign currencies has fluctuated substantially in recent years and may continue to fluctuate substantially in the future.

We expect that a majority of our revenues will continue to be generated in U.S.

dollars for the foreseeable future and that a significant portion of our expenses, including personnel costs, as well as capital and operating expenditures, will continue to be denominated in the Euro, British Pound and Indian Rupee.

The results of our operations may be adversely affected by foreign exchange fluctuations.

The result of our operations may be adversely affected by foreign exchange fluctuations.

We use derivative financial instruments to reduce our foreign currency exchange risks.

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Additionally, our hedging activities may contribute to increased losses as a result of volatility in foreign currency markets.

Our business and operations have experienced significant growth, and if we do not appropriately manage any future growth, or are unable to improve our systems and processes, our operating results may be negatively affected.

We have experienced significant growth over the last several years.

Our revenues grew from $321.6 million in 2019 to $411.2 million in 2021, and our headcount increased from 

1,194 employee s at the beginning of 2019 to 1,823 employees as of December 31, 2021 .

We rely on information technology systems to help manage critical functions such as order processing, revenue recognition and financial forecasts.

To manage any future growth effectively we must continue to improve and ex pand our IT systems, financial infrastructure, and operating and administrative systems and controls, and continue to manage headcount, capital and processes in an efficient manner.

If the market for cloud solutions for IT, security and compliance does not evolve as we anticipate, our revenues may not grow and our operating results would be harmed.

Our success depends to a significant extent on the willingness of organizations to increase their use of cloud solutions for their IT, security and compliance.

Some organizations may be reluctant to use cloud solutions because they have concerns regarding the risks associated with the reliability or security of the technology delivery model associated with these solutions.

Moreover, organizations that have invested substantial personnel and financial resources to integrate on-premise software into their businesses may be reluctant or unwilling to migrate to a cloud solution.

Therefore, they may continue spending their IT security budgets on these products and may not adopt our IT, security and compliance solutions in addition to or as a replacement for such products.

Our business and operations have continued to grow since inception, and if we do not appropriately manage any future growth, or are unable to improve our systems and processes, our operating results may be negatively affected.

We have continued to grow over the last several years, with revenues increasing from $363.0 million in 2020 to $489.7 million in 2022, and headcount increasing from 1,498 employees at the beginning of 2020 to 2,143 employees as of December 31, 2022. We rely on information technology systems to help manage critical functions such as order processing, revenue recognition and financial forecasts.

To manage any future growth effectively we must continue to improve and expand our IT systems, financial infrastructure, and operating and administrative systems and controls, and continue to manage headcount, capital and processes in an efficient manner.

We may not be able to successfully implement improvements to these systems and processes in a timely or efficient manner.

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We depend on the continued services and performance of our senior management and other key employees, the loss of any of whom could adversely affect our business, operating results and financial condition.

Our future performance depends on the continued services and continuing contributions of our senior management and other key employees, to execute on our business plan and to identify and pursue new opportunities and product innovations.

Our future performance depends to a significant extent on the continued services and continuing contributions of our senior management and other key employees, to execute on our business plan and to identify and pursue new opportunities and product innovations.

We do not maintain key-man insurance for any member of our senior management team.

Our senior management and key employees are generally employed on an at-will basis, which means that they could terminate their employment with us at any time. From time to time, there may be changes in our senior management team resulting from the termination or departure of executives.

For example, our former chief executive officer resigned for health reasons in March 2021, and our current chief executive officer was appointed to the role in April 2021. The loss of the services of our senior management or other key employees for any reason could significantly delay or prevent the achievement of our development and strategic objectives and harm our business, financial condition and results of operations.

For example, we recently announced that we and our Chief Revenue Officer mutually agreed to end his employment on March 31, 2023.

The loss of the services of our senior management or other key employees for any reason could significantly delay or prevent the achievement of our development and strategic objectives and harm our business, financial condition and results of operations.

If we are unable to hire, retain and motivate qualified personnel, our business may suffer.

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In order to remain competitive, we have in the past and may in the future seek to acquire additional businesses, products, services or technologies.

For example, we acquired Adya on January 10, 2019, certain intellectual property of Spell Security on July 24, 2020, and certain intellectual property of TotalCloud on August 19, 2021.

The environment for acquisitions in our industry is very competitive and acquisition candidate purchase prices may exceed what we would prefer to pay.

Moreover, achieving the anticipated benefits of future acquisitions will depend in part upon whether we can integrate acquired operations, products and technology in a timely and cost-effective manner, and even if we achieve benefits from acquisitions, such acquisitions may still be viewed negatively by customers, financial markets or investors.

For example, we acquired certain intellectual property of Spell Security on July 24, 2020, certain intellectual property of TotalCloud on August 19, 2021 and certain assets of Blue Hexagon on October 4, 2022. The environment for acquisitions in our industry is very competitive and acquisition candidate purchase prices may exceed what we would prefer to pay.

Moreover, achieving the anticipated benefits of past and future acquisitions will depend in part upon whether we can integrate acquired operations, products and technology in a timely and cost-effective manner, and even if we achieve benefits from acquisitions, such acquisitions may still be viewed negatively by customers, financial markets or investors.

The acquisition and integration process is complex, expensive and time-consuming, and may cause an interruption of, or loss of momentum in, product development and sales activities and operations of both companies, as well as divert the attention of management, and we may incur substantial cost and expense.

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If these services become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices, our expenses could increase, our ability to manage our finances could be interrupted and our processes for managing sales of our solutions and supporting our customers could be impaired until equivalent services, if available, are identified, obtained and integrated, all of which could harm our business.

Delays or interruptions in the manufacturing and delivery of our physical scanner appliances by our sole source manufacturer may harm our business.

Upon customer request, we provide physical or virtual scanner appliances on a subscription basis as an additional capability to the customer’s subscription for use during their subscription term.

Our physical scanner appliances are built by a single manufacturer.

Our reliance on a sole manufacturer involves several risks, including a potential inability to obtain an adequate supply of physical scanner appliances and limited control over pricing, quality and timely deployment of such scanner appliances.

In addition, replacing this manufacturer may be difficult and could result in an inability or delay in deploying our solutions to customers that request physical scanner appliances as part of their subscriptions.

Furthermore, our manufacturer’s ability to timely manufacture and ship our physical scanner appliances depends on a variety of factors, such as the availability of hardware compon ents, supply shortages or contractual restrictions.

In the event of an interruption from this manufacturer, we may not be able to develop alternate or secondary sources in a timely manner.

If we are unable to purchase physical scanner appliances in quantities sufficient to meet our requirements on a timely basis, we may not be able to effectively deploy our solutions to new customers that request physical scanner appliances, which could harm our business.

Incorrect or improper implementation or use of our solutions could result in customer dissatisfaction and harm our business and reputation.

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Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenues, customers in that region may delay or forego subscriptions of our solutions, which may materially and adversely impact our results of operations for a particular period.

In addition, acts of terrorism could cause disruptions in our business or the business of our business partners, customers or the economy as a whole.

In addition, war, acts of terrorism, pandemics or other health emergencies, or responses to these events could cause disruptions in our business or the business of our business partners, customers or the economy as a whole.

All of the aforementioned risks may be exacerbated if the disaster recovery plans for us and our suppliers prove to be inadequate.

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The CCPA also creates a private right of action for statutory damages for certain breaches of information. Certain aspects of the CCPA and its interpretation remain uncertain and are likely to remain uncertain for an extended period. Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by voters in the November 3, 2020 election.

The CPRA modifies the CCPA significantly, creating obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023.

The CPRA modifies the CCPA significantly, creating obligations relating to consumer data beginning on January 1, 2022, and enforcement is expected to commence on July 1, 2023.

Passage of the CPRA has resulted in further uncertainty and may require us to incur additional costs and expenses in an effort to comply.

In addition, other states have enacted or proposed legislation that regulates the collection, use, and sale of personal information, and such regimes might not be compatible with the GDPR, the CCPA or the CPRA or may require us to undertake additional practices.

Accordingly, we cannot yet predict the impact of the CCPA, CRPA or other evolving privacy and data protection obligations on our business or operations, but it may require us to modify our data processing practices an d policies and incur substantial costs and expenses in an effort to comply.

Accordingly, we cannot yet predict the impact of the CCPA, CRPA or other evolving privacy and data protection obligations on our business or operations, but it may require us to modify our data processing practices and policies and incur substantial costs and expenses in an effort to comply.

The privacy, data protection, and information security laws and regulations we must comply with also are subject to change.

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Privacy Shield Framework and a related program, the Swiss-U.S.

Privacy Shield Framework and make use of certain standard contractual clauses (the “SCCs”) approved by the European Commission, with regard to certain transfers of personal data from the European Economic Area (“EEA”) to the U.S.

Both the EU-U.S.

Privacy Shield Framework and SCCs have been subject to legal challenge.

We continue to analyze the July 2020 “Schrems II”

Privacy Shield Framework, and adopted certain standard contractual clauses approved by the European Commission (“SCCs”) as part of our data processing agreements with regard to certain transfers of personal data from the European Economic Area (“EEA”) to the U.S.

to ensure that we work with vendors that have adopted the same, where appropriate.

While both the EU-U.S.

Privacy Shield Framework and SCCs have been subject to legal challenge, we continue to analyze the July 2020 “Schrems II”

decision by the Court of Justice of the European Union (“CJEU”) and its impact on our data transfer mechanisms as well as subsequent guidance from data privacy regulators and new SCCs published by the European Commission in June 2021, and we may find it necessary or appropriate to take different or additional steps with respect to transfers of personal data, which may result in increased costs of compliance and limitations on our customers and us. We may be unsuccessful in maintaining legitimate means for our transfer and receipt of personal data from the EEA or Switzerland.

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We are subject to income taxes in the United States and various foreign jurisdictions, and our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions.

Our tax rate is affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses and excess tax benefits arising from stock-based compensation, other tax benefits and credits, and the valuation of deferred tax assets and liabilities.

Increases in our effective tax rate could harm our operating results.

Additionally, significant judgment is required in evaluating our tax positions and our worldwide tax provisions.

Additionally, significant judgment is required in evaluating our tax positions and our worldwide tax provisions.

During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain.

In addition, our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations, including those relating to income tax nexus, by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities.

The United States introduced a new 1% excise tax on share repurchases occurring on or after January 1, 2023 as part of the Inflation Reduction Act. The amount of share repurchases subject to the excise tax will be reduced by the fair market value of any shares issued during the taxable year. We do not expect this provision to have a material impact to our results of operations.

We may be audited in various jurisdictions, and such jurisdictions may assess additional taxes, sales taxes and value-added taxes against us.

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variations in our operating results, or the operating results of our competitors;

changes in our financial guidance or securities analysts’

estimates of our financial performance;

changes in our financial guidance or securities analysts’ estimates of our financial performance;

changes in accounting principles;

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Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors”

section in this Annual Report on Form 10-K could result in our actual operating results being different from our guidance, and the differences may be adverse and material.

section in this Annual Report on Form 10-K could result in our actual operating results being different from our guidance, and the differences may be adverse and material.

Future sales of shares by existing stockholders could cause our stock price to decline.

The market price of shares of our common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors, executive officers, employees and significant stockholders, a large number of shares of our common stock becoming available for sale, or the perception in the market that holders of a large number of shares intend to sell their shares.

As of December 31, 2021, we had 39.1 million shares of our common stock outstanding.

In addition, as of December 31, 2021 , there were 0.9 million restricted stock units and stock options to purchase 1.8 million shares of our common stock outstanding.

If such stock options are exercised and restricted stock units are released, these additional shares will become available for sale.

As of December 31, 2021 , we had 8.1 million shares of our common stock reserved for future grants under our 2012 Equity Incentive Plan and 0.6 million shares reserved for future purchases under our 2021 Employee Stock Purchase Plan, which can be freely sold in the public market upon issuance.

As of December 31, 2022,  we had approximately 37 .4  million shares of our common stock outstanding.

In addition, as of December 31, 2022, 

there were approximately 1.8 

million options and 1.1 million restricted stock units 

If such options are exercised and restricted stock units are released, these additional shares will become available for sale.

As of December 31, 2022, 

we had an aggregate of 2.4 million shares of our common stock reserved for future issuance under our Restated 2012 Equity Incentive Plan and 0.6 million shares reserved for future purchase under our 2021 Employee Stock Purchase Plan, which can be freely sold in the public market upon issuance.

If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock.

We cannot guarantee that our stock repurchase program will be fully consummated or that it will enhance stockholder value, and any stock repurchases we make could affect the price of our common stock.

On February 12, 2018, we announced a $100.0 million stock repurchase program.

On each of October 30, 2018, October 30, 2019, May 7, 2020, February 10, 2021, we announced that our board of directors had authorized an increase of $100.0 million, and on November 3, 2021, we announced that our board of directors had authorized an increase of $200.0 million to the share repurchase program, resulting in an aggregate authorization of $700.0 million to date. Although our board of directors authorized this stock repurchase program, we are not obligated to repurchase any specific dollar amount or to acquire any specific number of shares.

The stock repurchase program could affect the price of our common stock, increase volatility and diminish our cash reserves.

We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance stockholder value, and any share repurchases we make could affect the price of our common stock.

On February 12, 2018, we announced that our board of directors had authorized a $100.0 million repurchase program.

On each of October 30, 2018, October 30, 2019, May 7, 2020, February 10, 2021 and February 9, 2023, we announced that our board of directors had authorized an increase of $100.0 million, and on each of November 3, 2021 and May 4, 2022, we announced that our board of directors had authorized an increase of $200.0 million to the share repurchase program, resulting in an aggregate authorization of $1.0 billion to date ($900.0 million as of December 31, 2022). Although our board of directors authorized the share repurchase program, we are not obligated to repurchase any specific dollar amount or to acquire any specific number of shares.

The share repurchase program could affect the price of our common stock, increase volatility and diminish our cash reserves.

In addition, it may be suspended or terminated at any time, which may result in a decrease in the price of our common stock.

During the year ended December 31, 2021, we repurchased 1.1 million shares of our common stock for approximately $130.0 million in total.

As of December 31, 2021, approximately $271.8 million remained available for share repurchases pursuant to our share repurchase program.

Finally, our share repurchases in 2023 will be subject to a new 1% excise tax introduced in the Inflation Reduction Act.

The amount of share repurchases subject to the excise tax will be reduced by the fair market value of any shares issues during the taxable year.

We do not expect this provision to have a material impact to our results of operations.

During the year ended December 31 , 2022, w e repurchased  2.5 mil lion shares of our common stock for approximately $317.3 million.

As of December 31, 2022, approximately $154.5 million remained available for share repurchases pursuant to our share repurchase program.

We do not intend to pay dividends on our common stock and therefore any returns will be limited to the value of our stock.

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These provisions include:

authorizing “blank check”

preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock, which would increase the number of outstanding shares and could thwart a takeover attempt;

authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock, which would increase the number of outstanding shares and could thwart a takeover attempt;

a classified board of directors whose members can only be dismissed for cause;

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We plan to continue to invest in our infrastructure, new solutions, research and development and sales and marketing, and as a result, we cannot assure you that we will maintain profitability.

We may incur losses in the future for a number of reasons, including without limitation, the other risks and uncertainties described in this Annual Report on Form 10-K.

We may incur losses in the future for a number of reasons, including without limitation, the other risks and uncertainties described in this Annual Report on Form 10-K.

Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods.

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GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenues and expenses that are not readily apparent from other sources.

Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.

Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, accounting for income taxes and stock-based compensation.

Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, accounting for income taxes and stock-based compensation.

Changes in financial accounting standards may cause adverse and unexpected revenue fluctuations and impact our reported results of operations.

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Any failure to maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports we file with the SEC under Section 404 of the Sarbanes-Oxley Act.

While we were able to assert in this Annual Report on Form 10-K that our internal control over financial reporting was effective as of December 31, 2021, we cannot predict the outcome of our testing in future periods.

While we were able to assert in our Annual Report on Form 10-K that our internal control over financial reporting was effective as of December 31, 2022, we cannot predict the outcome of our testing in future periods.

If we are unable to assert in any future reporting period that our internal control over financial reporting is effective (or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls), investors may lose confidence in our operating results and our stock price could decline.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors