What changed in this filing

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Item 1A. Risk Factors

2021-11-15 compared with 2021-08-05 · 155 added, 8 removed, 6 unchanged (96% of the section changed)

1 unchanged sentence

There have been no material changes to the risks described in such Annual Report on Form 10-K, except as follows.

Our pending acquisition of PandoLogic may expose us to certain risks.

On July 22, 2021, we entered into a definitive merger agreement to acquire PandoLogic Ltd.

The acquisition is subject to satisfaction of customary United States and Israeli closing conditions and is expected to close in the late third quarter of 2021.

While we expect the closing conditions to be timely satisfied, if the closing conditions are not satisfied or waived, it is possible we may not consummate the acquisition in which case we are still responsible for the payment of our transaction expenses but will not get the anticipated benefits of the acquisition.

If the PandoLogic acquisition is completed, we may face challenges in integrating the acquired business.

These challenges include managing the international operations of the PandoLogic business, retaining key employees, managing corporate cultures, achieving anticipated cross-selling opportunities and eliminating any redundant operations.

Additionally, the acquisition and integration processes may disrupt our business and divert management attention and our resources.

If we fail to successfully integrate the PandoLogic business, products, technologies and personnel, it could distract management attention from our core businesses or disrupt our ongoing business, either of which could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to the Early Stage of Development of Our Business and Our Financial Condition

Our quarterly results may fluctuate significantly and period-to-period comparisons of our results may not be meaningful.

Our quarterly results, including the levels of our revenue, our operating expenses and other costs, and our operating margins, may fluctuate significantly in the future, and period-to-period comparisons of our results may not be meaningful.

Accordingly, the results of any one period should not be relied upon as an indication of our future performance.

In addition, our quarterly results may not fully reflect the underlying performance of our business.

Factors that may cause fluctuations in our quarterly results include, but are not limited to:

variations in the timing of revenues from our Software Products and Services, including newly acquired PandoLogic Ltd., which experiences seasonal fluctuations in revenue consistent with the hiring cycles of its customers, and as a result of factors such as the timing of large projects, the length and complexity of our sales cycles and trends impacting our target vertical markets, and our revenue recognition policies and any changes thereto;

variations in the timing of revenues from our content licensing services and our live event services as a result of factors such as timing of major sporting events throughout the year, or the postponement or cancellation of such events, and our revenue recognition policies and any changes thereto;

the timing of advertising campaigns with our advertising clients;

seasonal factors affecting demand for our products or potential customers’ purchasing decisions , especially with regard to employer customers utilizing our talent acquisition software and services;

continued strong demand for talent acquisition software and services in the U.S.

and globally;

the extent to which new customers are attracted to our talent acquisition software and services to satisfy their hiring needs;

our ability to retain our existing customers, to expand our business with our existing customers, and to attract new customers providing significant revenue opportunities;

the timing and level of market acceptance of products introduced by us and our competitors;

changes in our pricing policies or those of our competitors;

the amount and timing of operating expenses and other costs related to the maintenance and expansion of our business, infrastructure and operations;

the amount and timing of operating expenses and other costs associated with marketing and sales efforts to acquire new customers and assessing or entering new vertical markets;

the amount and timing of operating expenses and other costs related to the development or acquisition of businesses, services, technologies or intellectual property rights;

the timing and impact of security breaches, service outages or other performance problems with our technology infrastructure and software solutions;

the timing and costs associated with legal or regulatory actions;

changes in the competitive dynamics of our industry, including consolidation among competitors, strategic partners or customers;

loss of our executive officers or other key employees;

industry conditions and trends that are specific to the vertical markets in which we sell or intend to sell our solutions;

general economic and market conditions.

Fluctuations in quarterly results may negatively impact the value of our common stock, regardless of whether they impact or reflect the overall performance of our business.

If our quarterly results fall below the expectations of investors or any securities analysts who follow our stock, or below any guidance we may provide, the price of our common stock could decline substantially.

Certain of our operating results and financial metrics are difficult to predict as a result of seasonality.

Our talent acquisition software and services have historically experienced seasonality in terms of when we enter into customer agreements for our products and services.

Consistent with the hiring patterns of our customers, a higher percentage of related revenue is earned in the fourth quarter of each year.

Within a given quarter, often a significant portion of our agreements are signed towards the end of the quarter.

This seasonality is reflected to a lesser extent in our revenue due to the fact that we generally recognize subscription revenue over the term of the customer agreement.

We expect this seasonality to continue, which may cause fluctuations in certain of our operating results and financial metrics, and thus difficulties in predictability.

We intend to continue to pursue the acquisition of other companies, businesses or technologies, which could be expensive, divert our management’s attention, fail to achieve the expected benefits and/or expose us to other risks or difficulties.

As part of our growth strategy, we have acquired, and we intend to continue to acquire, businesses, services, technologies or intellectual property rights that we believe could complement, expand or enhance the features and functionality of our aiWARE platform and our technical capabilities, broaden our service offerings or offer growth opportunities.

Most recently, in September 2021, we closed our acquisition of PandoLogic Ltd., a leading provider of intelligent hiring solutions that utilizes AI to accelerate the time and improve the efficiency in the process for employers hiring at scale for both mass market and difficult-to-source candidates.

The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not such acquisitions are consummated.

Acquisitions also could result in dilutive issuances of equity securities, the incurrence of debt, contingent liabilities, amortization expenses, impairment of goodwill and/or purchased long-lived assets, and restructuring charges, any of which could adversely affect our operating results and financial condition.

In addition, we may face risks or experience difficulties in:

effectively managing the combined business following the acquisition;

managing the international operations of the acquired business;

implementing operations, technologies, controls, procedures, and/or policies at the acquired company;

integrating the acquired company’s accounting, human resource, and other administrative systems, and coordination of product, engineering, and sales and marketing functions;

transitioning operations, users, and customers onto our existing platforms;

harm to our existing relationships with partners, distributors, and customers, including as a result of competing in the markets in which such parties operate;

the potential loss of key employees and customers ;

obtaining any required approvals on a timely basis, if at all, from governmental authorities, or conditions placed upon approval that could, among other things, delay or prevent us from completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of an acquisition or other strategic transaction;

cultural challenges associated with integrating employees from the acquired company into our organization, and retention of employees from the businesses we acquire;

e xperience volatility in earnings due to changes in contingent consideration related to acquisition earn-out liability estimates;

achieving anticipated cross-selling opportunities and eliminating any redundant operations with respect to the acquired business;

liability for activities of the acquired company before the acquisition, including intellectual property infringement claims, privacy issues, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities;

litigation or other claims in connection with the acquisition of the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties.

We also may not achieve the anticipated benefits from the acquired business and may incur unanticipated costs and liabilities in connection with any such acquisitions.

Additionally, if we are unable to complete an acquisition, we could lose market share to competitors who are able to make such an acquisition.

Once an acquisition is closed, we may still discover hidden costs, resource demands and potential liabilities that were not evident throughout the due diligence process, particularly when such process is on an accelerated timeline.

Although we have begun utilizing representation and warranty insurance and regularly use standard indemnity provisions, if we are unable to successfully assert a claim, if a claim is not covered or if these inherited costs prove greater than expected, our operations as a whole may be adversely affected.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually.

If any of these results occurs, our business and financial results could be adversely affected.

Our recent acquisition of PandoLogic contains contingent consideration, the value of which may impact future operating results.

Our recent acquisition of PandoLogic includes contingent earn-out consideration, the fair value of a portion of which is estimated based on a Monte Carlo simulation model.

These fair value estimates contain unobservable inputs and estimates that could materially differ from the actual future results.

The fair value of the contingent earn-out consideration could increase or decrease, up to the contracted limit, as applicable.

Changes in the fair value of contingent earn-outs will be reflected in our results of operations in the period in which they are recognized, the amount of which may be material and cause volatility in our operating results.

We plan to expand our international operations, which exposes us to significant risks.

As part of our growth strategy, we plan to expand our operations internationally.

We have an office in the United Kingdom and Israel, and we expect, in the future, to open offices and hire employees in additional locations outside of the United States in order to reach new customers and gain access to additional technical talent.

Operating in international markets requires significant resources and management attention and will subject us to additional regulatory, economic and political risks.

Because of our limited experience with international operations as well as developing and managing sales in international markets, our international expansion efforts may not be successful.

In addition, we will face risks in doing business internationally that could adversely affect our business, including, but not limited to:

the difficulty of managing and staffing international operations and the increased operating, travel, infrastructure and legal compliance costs associated with numerous international locations;

the need to establish and manage additional instances of our aiWARE platform in other countries;

our ability to effectively price our products in competitive international markets;

the need to adapt and localize our products for specific countries and to offer customer support in various languages;

difficulties in understanding and complying with U.S.

laws, regulations and customs relating to U.S.

companies operating in foreign jurisdictions;

ensuring compliance with export controls, economic sanctions and anti-corruption laws, including the Foreign Corrupt Practices Act and UK Bribery Act;

currency exchange rate fluctuations and related effects on our revenues and expenses and customer demand for our services;

the cost and potential outcomes of any international claims or litigation;

adverse tax consequences and tax rulings;

economic and political instability in some countries;

difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions, particularly in the areas of data privacy and personal privacy, employment and tax;

more limited protection for intellectual property rights in some countries.

Our failure to manage any of these risks successfully could harm our international operations, and adversely affect our business, results of operations and financial condition.

Our business has been affected by the COVID-19 pandemic, and the continuing impacts of COVID-19 are highly unpredictable and could have a significant adverse effect on our business, results of operations, financial condition and cash flows in the future.

The COVID-19 outbreak emerged in late 2019 and was declared a global pandemic by the World Health Organization in March 2020.

Governments around the world have instituted measures in an effort to control the spread of COVID-19, including quarantines, stay at home orders, restrictions on public gatherings and travel, and restrictions and/or closures of schools and non-essential businesses.

The extent of these measures has fluctuated over the past year, as certain regions have experienced declines followed by surges in the severity of the outbreak.

The COVID-19 pandemic has had, and will likely continue to have, a severe negative impact on the global economy.

Although countries have begun to roll out vaccinations, many countries are facing challenges in doing so and new variants of COVID-19 have been identified, and it is uncertain how quickly and effectively such vaccinations will help to control the spread of COVID-19.

The effects of the COVID-19 pandemic on our business remain uncertain and difficult to predict, but may include, without limitation, the following, each of which could adversely affect our business, results of operations, financial condition and cash flows:

We have experienced, and may continue to experience, reduced demand for certain of our products and services from customers whose businesses have been impacted by the COVID-19 pandemic.

For example, b eginning in March 2020, we began to experience fluctuations in demand for our aiWARE content licensing and media services due to the cancellation or postponement of major live sporting events in the United States due to COVID-19.

While many major sporting events have resumed, future cancellations of live sporting events could have a material adverse impact on our revenue generated from our aiWARE content licensing and media services in future quarters .

In addition, we have experienced, and may continue to experience, delays by certain customers in making purchase decisions for our products and services due to the impact of the COVID-19 pandemic on their businesses, including changes in priorities and/or budget allocations, resulting in longer sales cycles and loss of sales.

The COVID-19 pandemic has also resulted in

record levels of unemployment in the United States which may affect the overall demand for our talent acquisition software and services.

Additionally, certain industry sectors that comprise part of our client base and spend heavily on talent recruitment may see prolonged financial difficulty that may result in further delays or reductions in talent acquisition software and services spending.

We could experience disruptions in our operations as a result of continued office closures and risks associated with our employees working remotely.

In compliance with government mandates, we have temporarily closed our offices and initiated a work from home policy, which may limit the effectiveness and productivity of our employees.

We may be unable to collect amounts due on billed and unbilled revenue if our customers delay payment or fail to pay us under the terms of our agreements as a result of the impact of the COVID-19 pandemic on their businesses.

As a result, our cash flows could be adversely impacted, which could affect our ability to fund our operations.

Our forecasted revenue, operating results and cash flows could vary materially from those we provide as guidance or from those anticipated by investors and analysts if the assumptions on which we base our financial projections are inaccurate as a result of the unpredictability of the impact that the COVID-19 pandemic will have on our business, our customers’ businesses and the global markets and economy.

An increase in cyber incidents during the COVID-19 pandemic and our increased reliance on a remote workforce could increase our exposure to potential cybersecurity breaches and attacks.

The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on future developments, including the severity and duration of the pandemic, actions that have been and may be taken by governmental authorities, the impact on the businesses of our customers, and the duration of the resulting macroeconomic conditions, all of which are uncertain and are difficult to predict at this time.

Unfavorable conditions in our industry or the global markets, or reductions in consumer spending, could limit our ability to grow our business and negatively affect our operating results.

Our operating results may vary based on the impact of changes in our industry or the global economy on us or our customers.

and other major international economies have historically undergone cyclical downturns that have resulted in a material weakening of the economy, tightened credit supply, a reduction in business confidence and activity, and other difficulties that may affect one or more of the industries to which we sell our products and services.

In addition, developments such as the U.K.

exit from the European Union, referred to as “Brexit,” evolving trade policies between the U.S.

and other international trade partners, conflicts in the Middle East and elsewhere, and the ongoing COVID-19 pandemic have created many economic and political uncertainties that have impacted worldwide markets.

These global economic and political conditions may impact our business in a number of ways.

For example, our talent acquisition software and services are sold to businesses that fluctuate based on general economic and business conditions, particularly the overall demand for labor and the economic health of current and prospective employers.

In addition, a portion of our talent acquisition software and services revenue is attributable to the number of users of our products at each of our customers, which in turn is influenced by the employment and hiring patterns of our customers and potential customers.

To the extent that economic uncertainty or attenuated economic conditions cause our customers and potential customers to freeze or reduce their headcount, demand for our products and services may be negatively affected.

These adverse conditions could result in reductions in sales of our applications, longer sales cycles, reductions in subscription duration and value, slower adoption of new technologies and increased price competition.

In addition, economic recessions have historically resulted in overall reductions in spending on software and technology solutions as well as pressure from customers and potential customers for extended billing terms.

If economic, political, or market conditions deteriorate, or if there is uncertainty around these conditions, our customers and potential customers may elect to decrease their software and technology solutions budgets by deferring or reconsidering product purchases, which would limit our ability to grow our business and negatively affect our operating results.

Any of these events would likely have an adverse effect on our business, operating results and financial position.

Risks Related to Target Markets, Competition and Customers

If we are not able to compete effectively, our business and operating results will be harmed.

While the market for AI-based systems for search and analysis of audio, video and other unstructured data is still in the early stages of development, we face competition from various sources, including large, well-capitalized technology companies such as Google, Microsoft, Amazon and IBM.

In the case of PandoLogic, the market for talent acquisition software and services is highly competitive, rapidly evolving and fragmented, and we face competition from programmatic job advertising software companies, traditional human capital management (HCM) companies, companies primarily focused on offering applicant tracking systems, and providers of point solutions for specific use cases such as for recruitment marketing, and these companies include, without limitation, Oracle and SAP.

Our large competitors may have better brand name recognition, greater financial and engineering resources and larger sales and marketing teams than we have.

As a result, these competitors may be able to develop and introduce, or acquire companies that may be able to develop and introduce, competing solutions and technologies that may have greater capabilities than ours or that are able to achieve greater customer acceptance, and they may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements.

Some customers may also be hesitant to use a new platform and prefer to upgrade products offered by their incumbent platforms for reasons including price, quality, sophistication, familiarity and global presence.

In addition, we may also compete with smaller competitors, including developers of AI models, who may develop their own solutions that perform similar services as our platform for specific use cases, as well as with systems integrators that aggregate and integrate cognitive solutions from multiple providers for their clients.

The competitive factors in our market

include product features, reliability, performance and effectiveness;

integration with a wide variety of third-party applications and systems;

modern and intuitive technology and user experience;

ability to innovate and rapidly respond to customer needs;

breadth and depth of application functionality;

adherence to industry standards and certifications;

strength of sales and marketing efforts;

quality of customer support;

brand awareness and reputation;

size and composition of customer base and level of user adoption;

and price and cost of ownership.

We expect that competition will increase and intensify as we continue to expand our serviceable markets and the capabilities of our aiWARE platform and services.

Increased competition may result in pricing pressures and require us to incur additional sales and marketing expenses, which could negatively impact our sales, profitability and market share.

PandoLogic generates substantial revenue from a significant customer and the loss of such customer may harm our business, results of operations and financial results.

On September 14, 2021, we closed our acquisition of PandoLogic, our talent acquisition software and services business.

PandoLogic generates substantial revenue from a significant customer.

In the event this customer decides to terminate or not to renew its contract with us, renews on less favorable terms, suffers downturns in its business leading to a reduction in its budget for our talent acquisition software and services, or decides to develop a competing solution or otherwise take its recruitment and hiring needs in-house, and we are unable to gain additional customers or increase our revenue from existing customers to offset the reduction of these revenues, we could experience a material adverse effect on our business, financial condition and reported revenue and results of operation.

Technological advances may significantly disrupt the labor market and weaken demand for human capital at a rapid rate.

The success of our talent acquisition software and services business is dependent on our employer customers’ demands for talent.

As technology continues to evolve, more tasks currently performed by people may be replaced by automation, robotics, machine learning, artificial intelligence and other technological advances outside of our control.

This trend poses a risk to the talent acquisition industry as a whole, particularly in lower-skill job categories that may be more susceptible to such replacement.

Significant segments of the market for talent acquisition software and services may have hiring needs and service preferences that are subject to greater volatility than the overall economy.

The target customer segment for our talent acquisition software and services business spans a wide range of company characteristics, including company size, geography, and industry, among other factors.

Hiring activity may vary significantly among businesses with different characteristics and accordingly, any concentration we may have among businesses with certain characteristics may subject us to high volatility in our financial results.

Smaller businesses, for example, typically have less persistent hiring needs and may experience greater volatility in their need for talent acquisition software and services and preferences among providers of such services.

Along with a relatively shorter sales cycle, smaller businesses may be more likely to change platforms based on short-term differences in perceived price, value, service level, or other factors.

Difficulty in acquiring and/or retaining these employers may adversely affect our operating results.

Unregistered Sales of Equity Securities and Use of Proceeds

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What changed 10-Q

Item 1A. Risk Factors