Confidential Submission No. 1 Submitted January 10, 2022
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
LUMOS ANALYTICS INC. (Exact name of registrant as specified in its charter)
450 Folsom Street, Suite 1200 San Francisco, California 94105 (415) 555-2400
Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices
Naomi Feinberg General Counsel and Corporate Secretary Lumos Analytics Inc. 450 Folsom Street, Suite 1200 San Francisco, California 94105 (415) 555-2400
Name, address, including zip code, and telephone number, including area code, of agent for service
Copies to:
Calderwood & Harkness LLP 1 Market Street, Spear Tower, Suite 3600 San Francisco, California 94105
Hargrove & Liddell LLP 601 Lexington Avenue New York, New York 10022
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]
Indicate by check mark whether the registrant is an emerging growth company. Emerging growth company: [X]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [ ]
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
DRAFT REGISTRATION STATEMENT — CONFIDENTIAL SUBMISSION PURSUANT TO SECTION 6(e) OF THE SECURITIES ACT OF 1933
Calculation of Registration Fee
The proposed maximum aggregate offering price shown above includes shares of Class A common stock that may be sold upon exercise of the underwriters’ option to purchase additional shares.
Explanatory Note
This Draft Registration Statement on Form S-1 is being confidentially submitted to the Securities and Exchange Commission, or the SEC, by Lumos Analytics Inc. pursuant to Section 6(e) of the Securities Act of 1933, as amended, for nonpublic review prior to the public filing of the registration statement relating to the proposed initial public offering of the Company’s Class A common stock.
Lumos Analytics Inc. qualifies as an “emerging growth company,” as that term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and is therefore eligible to take advantage of certain accommodations in connection with this registration statement and the contemplated offering. Among other things, the Company has elected to use the extended transition period for complying with new or revised accounting standards as permitted by Section 7(a)(2)(B) of the Securities Act.
This draft registration statement and the information contained herein are submitted on a confidential basis solely for the confidential review of the staff of the SEC. This draft registration statement is not deemed filed under the Securities Act and shall not be deemed filed for purposes of Section 11 of the Securities Act unless and until it is publicly filed.
Prospectus Summary
This summary highlights selected information appearing elsewhere in this prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, references in this prospectus to “Lumos,” “Lumos AI,” the “Company,” “we,” “us,” and “our” refer to Lumos Analytics Inc. and its consolidated subsidiaries.
Overview
Lumos Analytics Inc. is a cloud-based, AI-driven analytics platform serving financial institutions. We were founded in 2016 and incorporated in the State of Delaware on March 14, 2016. Our principal executive offices are located at 450 Folsom Street, Suite 1200, San Francisco, California 94105.
We provide software solutions designed to help financial institutions monitor transactions in real time, detect and investigate fraud, automate regulatory reporting workflows, and perform predictive risk modeling at scale. Our products are designed to operate in high-volume, data-intensive environments where speed, explainability, reliability, and auditability are critical. We process over 2 billion transactions per month for approximately 340 enterprise customers globally.
Our products are sold primarily on a subscription software-as-a-service, or SaaS, basis. Our core product offerings include:
• LumosIQ Platform, our core analytics platform that supports real-time data ingestion, AI and machine learning model deployment, workflow orchestration, and customer-configurable dashboards;
• FraudLens, our machine learning-based fraud detection module, which provides real-time transaction scoring and case management capabilities;
• RegConnect, our regulatory reporting module, which helps customers automate and manage reporting across multiple regulatory frameworks; and
• DataBridge API Suite, our set of integration tools and APIs that enable customers to connect our platform to internal systems, third-party data sources, and external applications.
We own and maintain a portfolio of intellectual property supporting our platform and product development. Our registered trademarks include “Lumos,” “Lumos AI,” “LumosIQ,” and “FraudLens,” each of which is registered with the United States Patent and Trademark Office. We also hold 14 issued U.S. utility patents and have 7 pending patent applications relating to machine learning-based fraud detection, real-time transaction scoring algorithms, and related analytics infrastructure.
Key Financial and Operating Metrics
We have experienced rapid growth in recent periods as adoption of our platform has expanded among financial institutions.
• Total revenue was $187.4 million for the year ended December 31, 2021, compared to $118.6 million for the year ended December 31, 2020, representing year-over-year growth of 58%.
• Annual recurring revenue, or ARR, as of December 31, 2021 was $206.8 million.
• Gross margin was 72.3% for the year ended December 31, 2021.
• Net loss was $(41.2) million for the year ended December 31, 2021.
• Adjusted EBITDA was $(18.7) million for the year ended December 31, 2021.
• Cash and cash equivalents were $94.3 million as of December 31, 2021.
• We had approximately 1,120 employees as of December 31, 2021.
Our historical growth has been driven by new enterprise customer additions, expansion within existing customer accounts, cross-sell adoption of additional modules, and increased transaction volumes on our platform. We have also continued to invest meaningfully in research and development, sales and marketing, cloud infrastructure, and personnel to support future growth.
The Offering
The selling stockholders in this offering are Velthryn Venture Partners Fund IV, L.P., which is offering 2,000,000 shares, and Arclight Equity Group Fund VII, L.P., which is offering 1,500,000 shares. We will not receive any proceeds from the sale of shares by the selling stockholders.
We have a dual-class common stock structure. Our Class A common stock, which is the class being offered in this offering, will be entitled to one vote per share. Our Class B common stock will be entitled to ten votes per share and will be held by our co-founders, Priya Subramanian and Marcus Henley. Following this offering, our co-founders are expected to hold approximately 73.5% of the total voting power of our outstanding common stock.
All of our directors, executive officers, and stockholders holding more than 1% of our outstanding shares have agreed, subject to certain exceptions, not to offer, sell, contract to sell, pledge, or otherwise dispose of shares of our capital stock for a period of 180 days after the date of the final prospectus without the prior written consent of Pinnacle Securities LLC. Pinnacle Securities LLC may, in its sole discretion, release any of these securities from these lock-up restrictions at any time.
Summary Corporate Information
Lumos Analytics Inc. is a Delaware corporation and is qualified to do business in California, New York, Texas, and Illinois. Our registered agent in Delaware is Capitol Registered Agents LLC, located at 850 New Burton Road, Suite 201, Dover, Delaware 19904. Our Delaware file number is 6281934.
Our principal executive officers are:
• Priya Subramanian, Chief Executive Officer and Co-Founder;
• Marcus Henley, Chief Technology Officer and Co-Founder;
• David Lau, Chief Financial Officer; and
• Naomi Feinberg, General Counsel and Corporate Secretary.
Emerging Growth Company Status
We qualify as an emerging growth company under the JOBS Act. As an emerging growth company, we may take advantage of specified reduced reporting and other requirements that are otherwise generally applicable to public companies. These provisions include:
• an exemption from the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act;
• reduced disclosure obligations regarding executive compensation in this prospectus and in our periodic reports and proxy statements;
• exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved; and
• an extended transition period for complying with new or revised accounting standards.
We have elected to take advantage of the extended transition period for new or revised accounting standards. As a result, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates for such standards.
Risk Factors
An investment in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, before deciding whether to invest in our Class A common stock. The occurrence of any of the following risks could materially and adversely affect our business, financial condition, results of operations, cash flows, prospects, and the trading price of our Class A common stock. In that case, you could lose all or part of your investment.
Risks Related to Our Business and Industry
We have a history of net losses, and we may not achieve or maintain profitability in the future.
We have incurred net losses in each period since our inception, including a net loss of $(41.2) million for the year ended December 31, 2021. As of December 31, 2021, we had an accumulated deficit, reflecting our ongoing investments in product development, personnel, cloud infrastructure, sales and marketing, and general corporate capabilities. Although our revenue has grown significantly, there can be no assurance that we will be able to achieve profitability in the near term or at all.
Our ability to achieve profitability depends on numerous factors, many of which are beyond our control, including market adoption of our products, customer retention and expansion, the cost of acquiring new customers, the level and timing of investment in research and development, the costs associated with operating as a public company, and broader economic conditions. Even if we achieve profitability in a particular period, we may not be able to sustain or increase profitability on a quarterly or annual basis.
A significant portion of our ARR is concentrated among a limited number of customers.
As of December 31, 2021, our top 10 customers represented approximately 34% of our ARR. The loss of one or more of these customers, a reduction in their use of our platform, pricing pressure in renewal negotiations, customer financial distress, or delayed purchasing decisions could materially and adversely affect our revenue and future growth prospects.
Large enterprise customers often negotiate bespoke contractual terms, extended implementation schedules, volume-based pricing adjustments, and broader service commitments. These customers may also have greater leverage in renegotiations and may be more likely to conduct competitive bidding processes at renewal. Any adverse change in our relationship with one or more major customers could have an outsized effect on our operating results.
Our future growth depends on continued demand for AI-driven analytics solutions among financial institutions.
Our growth depends in substantial part on the willingness of banks, insurance companies, asset managers, fintech companies, and other financial institutions to continue adopting AI-driven analytics platforms for transaction monitoring, fraud detection, regulatory reporting, and predictive risk modeling. This market is still evolving, and customer acceptance may be slower or more uneven than we expect.
Potential customers may be hesitant to adopt our solutions because of concerns about integration complexity, implementation cost, model explainability, data governance, compliance implications, vendor concentration, or internal resistance to operational change. If the market for our solutions does not develop as we expect, or develops more slowly than anticipated, our business and results of operations could be adversely affected.
We face intense competition, including from larger and better-capitalized companies.
The markets in which we operate are highly competitive and subject to rapid technological change. We compete with large enterprise software providers, legacy financial services technology vendors, internal customer-built tools, and emerging fintech analytics companies. Many of our current and potential competitors have significantly greater financial, technical, marketing, sales, and other resources than we do.
These competitors may be able to devote greater resources to product development, offer broader product suites, bundle competing products with other offerings, reduce pricing, provide more extensive implementation support, or acquire complementary businesses and technologies. If we are unable to compete effectively, our ability to attract new customers and retain existing customers may suffer.
Our products depend on AI and machine learning technologies that may not perform as expected and may expose us to operational, legal, and reputational risk.
Our platform incorporates artificial intelligence and machine learning technologies, including models used for transaction scoring, anomaly detection, and predictive risk assessments. These technologies are inherently complex and may produce false positives, false negatives, biased outcomes, or results that customers or regulators view as inaccurate, unreliable, or insufficiently explainable.
Model performance may degrade over time as fraud patterns evolve, customer data inputs change, or transaction behaviors shift. In addition, our models may require retraining, recalibration, and increased computational resources to maintain efficacy. If our AI-driven products fail to perform as expected, or if customers perceive them as unreliable or noncompliant, our reputation could be harmed, customer relationships could be impaired, and we could face claims, investigations, or liability.
We depend on our key personnel, particularly our co-founders.
Our success depends in significant part on the continued services of Priya Subramanian, our Chief Executive Officer and Co-Founder, and Marcus Henley, our Chief Technology Officer and Co-Founder. These individuals have deep institutional knowledge, customer relationships, product vision, and leadership roles that are difficult to replace. We also depend on the efforts of our broader executive team and other key employees across engineering, product, sales, and operations.
The loss of any of these individuals, or our inability to attract, integrate, and retain qualified successors, could disrupt our business, delay product development, impair customer relationships, and adversely affect our future growth.
We rely on third-party cloud infrastructure providers, and any disruption in those services could impair our business.
We depend on third-party cloud infrastructure to host and operate our platform. In particular, we are party to a Master Cloud Services Agreement with Brindoval Data Centers LLC, dated January 15, 2021, under which we have an annual minimum commitment of $8.2 million and a five-year term. Any service disruption, outage, security incident, performance degradation, contract dispute, or inability of Brindoval Data Centers LLC or other providers to scale with our growth could impair our ability to deliver services to customers.
Our reliance on a limited number of infrastructure providers exposes us to concentration risk, pricing risk, and operational dependency. In addition, if we need to migrate all or part of our infrastructure to another provider, such migration could be costly, time-consuming, and disruptive to customers.
Our strategic partnership with Nordwell Financial Technologies Inc. may not generate the benefits we expect.
We entered into a co-development and distribution agreement with Nordwell Financial Technologies Inc. on March 30, 2021 for an initial three-year term. We believe this strategic partnership may support customer acquisition, product distribution, and collaborative development opportunities. However, there can be no assurance that the partnership will achieve these objectives.
The success of the relationship depends on effective collaboration, aligned strategic priorities, product interoperability, commercialization execution, and customer demand. If the partnership underperforms, is terminated, or creates conflicts regarding technology, customers, branding, or go-to-market strategy, our business, operating results, and growth prospects may be negatively affected.
Cybersecurity and data privacy incidents could harm our business.
Our platform processes and stores significant volumes of sensitive information on behalf of financial institutions, including transaction data, risk indicators, and other confidential business information. As a result, we are a potential target for cyberattacks, ransomware, phishing campaigns, insider threats, software vulnerabilities, and other security incidents.
Any actual or perceived failure to prevent or mitigate security breaches, unauthorized access, service disruptions, or data loss could result in contractual liability, regulatory investigations, litigation, indemnification obligations, remediation costs, harm to our reputation, and loss of customers or business opportunities. Because threat actors continue to evolve their tactics, our security measures may not always detect or prevent attacks in a timely manner or at all.
We may be unable to attract and retain highly qualified personnel.
Our future success depends on our ability to attract, motivate, and retain highly qualified engineers, data scientists, product managers, sales professionals, and other specialized personnel. Competition for such talent, particularly in the San Francisco Bay Area and other technology hubs, is intense. Compensation expectations in these markets have increased, and remote and hybrid work arrangements have expanded the competitive landscape.
If we fail to hire or retain key personnel, or if labor costs increase more rapidly than anticipated, our ability to develop products, serve customers, and execute our strategy could be adversely affected.
Risks Related to Our Financial Condition and Capital Requirements
We have incurred substantial operating losses and may require additional capital.
We have experienced substantial operating losses and negative Adjusted EBITDA, including Adjusted EBITDA of $(18.7) million for the year ended December 31, 2021. We expect to continue to incur significant expenses as we invest in product development, infrastructure, customer support, compliance, public company readiness, and growth initiatives. These investments may not result in revenue growth sufficient to offset increased costs.
If our cash resources, cash generated from operations, and available borrowings are insufficient to meet our needs, we may need to raise additional equity or debt financing. Additional financing may not be available on favorable terms or at all, and any additional equity financing could be dilutive to existing stockholders.
Our revolving credit facility imposes operating and financial restrictions.
We maintain a revolving credit facility with Ashford National Bank providing for commitments of up to $50 million, bearing interest at SOFR plus 275 basis points, and maturing on June 1, 2024. Approximately $15 million was drawn under this facility as of December 31, 2021.
The credit facility contains customary affirmative and negative covenants, including restrictions on incurring additional indebtedness, creating liens, engaging in certain acquisitions or dispositions, and making certain restricted payments. The facility also requires compliance with specified financial and operational covenants. If we fail to satisfy these covenants or otherwise default under the facility, Ashford National Bank may declare amounts outstanding immediately due and payable, terminate commitments, or exercise other remedies. Such events could materially and adversely affect our liquidity and financial flexibility.
Our stock-based compensation expense is significant and may continue to increase, and exercises of equity awards may dilute stockholders.
As of December 31, 2021, we had 11,300,000 stock options outstanding with a weighted-average exercise price of $4.82. Stock-based compensation has been, and we expect will continue to be, a significant component of our compensation strategy. As we hire additional employees, grant new equity awards, and transition to public-company compensation practices, our stock-based compensation expense may increase.
The exercise or settlement of outstanding options and future equity awards will dilute existing stockholders and could adversely affect the market price of our Class A common stock. In addition, the perception that substantial future dilution may occur could negatively impact investor demand.
Risks Related to Our intellectual Property
Our patents and patent applications may not provide meaningful protection.
We rely in part on patents and patent applications to protect our proprietary technology. We hold 14 issued U.S. utility patents and have 7 pending patent applications. However, patents are inherently uncertain and involve complex legal and factual questions. Our patents may be challenged, narrowed, invalidated, or circumvented, and pending applications may not issue as patents or may issue with claims of limited scope.
Even if granted and enforceable, patents may not adequately protect our technology or provide a significant competitive advantage. We may be required to expend substantial resources to defend our intellectual property rights or respond to challenges.
We rely on trade secrets and other proprietary information, which may be difficult to protect.
In addition to patents, we rely on trade secrets, confidential know-how, algorithms, processes, and other proprietary information. We seek to protect these assets through confidentiality agreements, invention assignment agreements, access controls, and other security measures. Despite these efforts, unauthorized use or disclosure may occur, including through cyber incidents, employee misconduct, contractor breaches, or other means.
If our trade secrets are disclosed or independently developed by competitors, our competitive position may be harmed. Enforcing our rights may be costly and may not be successful.
Our use of open-source software could create risks.
We incorporate open-source software into certain aspects of our platform and internal development processes. Use of open-source software may subject us to licensing conditions, including source code disclosure obligations, restrictions on proprietary licensing models, and compliance requirements. We may also face claims alleging noncompliance with open-source licenses.
If we are required to disclose proprietary source code, reengineer products, or incur additional costs to remedy open-source licensing issues, our business could be adversely affected.
Risks Related to Government Regulation
The regulatory environment applicable to our products and our customers is evolving.
Our platform serves financial institutions in regulated markets and supports use cases that are increasingly subject to scrutiny by regulators and policymakers. Regulatory requirements relating to financial crime monitoring, fraud detection, model governance, algorithmic accountability, and automated decision-making continue to evolve. New requirements could require changes to our products, customer implementations, contractual commitments, or compliance processes.
If we or our customers are unable to address changing regulatory expectations in a timely and cost-effective manner, customer adoption may slow, implementation cycles may lengthen, and our business may be harmed.
We are subject to data privacy and data security laws and regulations.
We are subject to various data privacy and security requirements, including the California Consumer Privacy Act and other evolving state laws, as well as potential future federal data privacy legislation. We may also become subject to industry-specific standards, contractual security obligations, and international privacy regimes based on our customer base and operations.
Compliance with these laws and regulations may require significant operational changes and expenditures. Actual or alleged noncompliance may result in investigations, fines, penalties, litigation, contractual disputes, or reputational damage.
Financial services regulatory requirements may affect our customers’ ability to adopt our platform.
Our customers operate in highly regulated industries and often must satisfy internal control, audit, legal, procurement, and regulatory review processes before adopting new technology. Regulatory uncertainty, examination feedback, or supervisory concerns regarding cloud adoption, third-party risk management, model risk management, or automated analytics may slow procurement cycles, delay deployments, or limit the scope of customer usage.
Our international operations and customer relationships expose us to regulatory complexity.
Because we serve customers globally, we may be required to address multiple and potentially inconsistent laws, regulations, and standards across jurisdictions, including data localization rules, cross-border transfer requirements, sanctions regimes, and sector-specific compliance obligations. Complying with these requirements may be costly and complex and could constrain our ability to expand internationally.
Risks Related to Our Dual-Class Structure and This Offering
Our dual-class structure will concentrate voting control with our co-founders.
Following the completion of this offering, Priya Subramanian and Marcus Henley will collectively hold all 28,500,000 shares of our Class B common stock, representing 285,000,000 votes. Based on approximately 102,641,176 shares of Class A common stock expected to be outstanding after this offering and the conversion of all outstanding preferred stock, our co-founders will control approximately 73.5% of the combined voting power of our outstanding common stock.
As a result, our co-founders will be able to control or significantly influence matters submitted to stockholders for approval, including the election of directors, amendments to our organizational documents, and approval of significant corporate transactions. This concentration of control may delay, deter, or prevent a change in control and may limit other stockholders’ ability to influence corporate matters.
Our Class B common stock will automatically convert into Class A common stock upon the earliest of: (i) seven years after the completion of this offering; (ii) any transfer to a non-permitted transferee; or (iii) the date on which the founders collectively hold less than 10% of the total outstanding common stock. Until then, the dual-class structure may adversely affect the market price of our Class A common stock.
We will qualify as a “controlled company” under Nasdaq rules and may rely on exemptions from certain corporate governance requirements.
Because our co-founders will control more than 50% of the voting power of our outstanding common stock after this offering, we will qualify as a “controlled company” under Nasdaq listing rules. As a controlled company, we may elect not to comply with certain Nasdaq corporate governance requirements, including requirements that a majority of our board of directors be independent and that our compensation and nominating and corporate governance committees be composed entirely of independent directors.
Although we currently intend to maintain independent board committees as described in this prospectus, we may in the future rely on one or more of these exemptions. If we do, holders of our Class A common stock may not have the same protections afforded to stockholders of companies that are subject to all Nasdaq corporate governance requirements.
Sales of substantial amounts of our common stock could depress our stock price.
Sales of substantial amounts of our common stock in the public market after this offering, including after the expiration of the 180-day lock-up period, or the perception that such sales may occur, could adversely affect the market price of our Class A common stock and impair our ability to raise capital through future equity offerings. This risk is heightened by the substantial number of shares held by our pre-IPO investors and optionholders.
Our lock-up agreements may be waived, and early release could increase volatility.
The holders of substantially all of our outstanding shares, including our directors, officers, and stockholders holding more than 1% of our outstanding shares, will be subject to 180-day lock-up agreements in favor of Pinnacle Securities LLC. These lock-up agreements may be released at any time by Pinnacle Securities LLC in its sole discretion. If restrictions are waived for certain holders or categories of holders before the expiration of the lock-up period, the market price of our Class A common stock could decline.
Risks Related to Market Conditions and Macroeconomic Uncertainty
Adverse general economic and market conditions could harm our business.
Our business may be adversely affected by general macroeconomic conditions, including inflationary pressures, rising interest rates, recessionary concerns, reduced technology spending, budget constraints at financial institutions, and financial market volatility. Adverse conditions may lengthen sales cycles, reduce customer purchasing capacity, increase customer scrutiny of return on investment, or result in delayed implementations and renewals.
The technology sector is volatile.
The market price of securities issued by technology companies has been and may continue to be highly volatile. Investor sentiment toward growth-oriented software and technology companies can change rapidly based on earnings performance, valuation levels, regulatory developments, or macroeconomic factors, many of which may be unrelated to our actual operating performance.
Global disruptions and geopolitical instability may affect our business and our customers.
Global supply chain disruptions, geopolitical instability, armed conflicts, sanctions regimes, and other international events can affect the broader financial services and technology markets in which we operate. These factors may increase uncertainty, disrupt customer operations, affect vendor performance, and create additional compliance burdens.
Special Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements within the meaning of the federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this prospectus are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or similar terms or expressions.
Forward-looking statements in this prospectus include, but are not limited to, statements regarding:
• our market opportunity and expected growth;
• our ability to attract new customers and expand within existing customers;
• our expectations regarding ARR, revenue growth, gross margin, and profitability;
• our product development plans and investments in AI and machine learning capabilities;
• our anticipated use of proceeds from this offering;
• our expectations regarding cloud infrastructure, including our relationship with Brindoval Data Centers LLC;
• the expected benefits of our strategic partnership with Nordwell Financial Technologies Inc.;
• our ability to attract and retain employees;
• our expectations regarding compliance, regulation, and public company readiness; and
• the expected timing and completion of this offering.
These forward-looking statements are based on our current expectations, estimates, forecasts, and projections and involve known and unknown risks, uncertainties, assumptions, and other factors that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include those described under the heading “Risk Factors” and elsewhere in this prospectus.
You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any forward-looking statements.
We undertake no obligation to update any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required by law.
Use of Proceeds
We estimate that the net proceeds to us from the sale of 12,941,176 shares of our Class A common stock in this offering, at an assumed initial public offering price of $17.00 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, will be approximately $205.7 million after deducting underwriting discounts and commissions of approximately $14.3 million but before deducting estimated offering expenses payable by us of approximately $4.8 million.
After giving effect to estimated offering expenses, we estimate that our net proceeds from this offering will be approximately $200.9 million. If the underwriters exercise in full their option to purchase additional shares, we will receive additional net proceeds from the sale of any such shares that are offered by us.
We will not receive any proceeds from the sale of shares by the selling stockholders.
We intend to use the net proceeds that we receive from this offering for general corporate purposes, including working capital, continued investment in research and development, expansion of our go-to-market organization, and potential strategic acquisitions or investments that complement our business. Although we may from time to time evaluate acquisition opportunities, we are not currently a party to any binding agreement or commitment with respect to any material acquisition.
Pending the application of the net proceeds from this offering, we intend to invest such proceeds in short-term, investment-grade, interest-bearing instruments.
The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including our revenue growth, customer demand, operating results, market conditions, and the availability of strategic opportunities. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to finance the operation and expansion of our business. Accordingly, we do not anticipate paying any cash dividends on our Class A common stock in the foreseeable future.
Any future determination to declare cash dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant. Our ability to pay dividends is also subject to restrictions under our revolving credit facility with Ashford National Bank and to applicable provisions of Delaware law.
Capitalization
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2021:
• on an actual basis;
• on a pro forma basis to give effect to the automatic conversion of all outstanding shares of preferred stock into shares of Class A common stock upon the closing of this offering; and
• on a pro forma as adjusted basis to give effect to the pro forma adjustments described above and our issuance and sale of 12,941,176 shares of Class A common stock in this offering at an assumed initial public offering price of $17.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses.
You should read this table together with “Use of Proceeds,” “Dilution,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes included elsewhere in this prospectus.
Capital Structure
As of December 31, 2021, our capital structure included the following:
• 500,000,000 shares of common stock authorized, par value $0.0001 per share;
• 28,500,000 shares of Class B common stock outstanding, all held by our co-founders, consisting of:
• 16,500,000 shares held by Priya Subramanian; and
• 12,000,000 shares held by Marcus Henley;
• 62,400,000 shares of preferred stock outstanding, consisting of Series A through Series D preferred stock, all of which will convert into Class A common stock upon the closing of this offering on a one-for-one basis, including:
• 9,200,000 shares of Series A preferred stock held by Ridgeline Capital Partners Fund II, L.P.;
• 18,600,000 shares of Series B and Series C preferred stock held by Arclight Equity Group Fund VII, L.P.;
• 24,800,000 shares of Series C and Series D preferred stock held by Velthryn Venture Partners Fund IV, L.P.; and
• the balance held by other investors;
• 14,800,000 shares reserved under our employee stock option pool, of which 11,300,000 options were outstanding at a weighted-average exercise price of $4.82; and
• approximately 118,200,000 fully diluted shares outstanding.
Capitalization Table
The pro forma as adjusted information above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.
On a pro forma as adjusted basis, after giving effect to the conversion of all preferred stock and the completion of this offering, we would have approximately 102,641,176 shares of Class A common stock outstanding and 28,500,000 shares of Class B common stock outstanding. Our cash and cash equivalents would increase from $94.3 million to approximately $295.2 million, reflecting the estimated net proceeds from this offering. Our long-term debt would remain approximately $15.0 million, representing borrowings outstanding under our revolving credit facility with Ashford National Bank as of December 31, 2021.
Dilution
If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the assumed initial public offering price per share and the pro forma as adjusted net tangible book value per share after this offering.
Our historical net tangible book value as of December 31, 2021 was approximately $(8.7) million, or $(0.10) per share, based on outstanding common-equivalent shares on an as-converted basis before the IPO. After giving effect to the automatic conversion of all outstanding preferred stock into Class A common stock upon the closing of this offering, our pro forma net tangible book value as of December 31, 2021 would have been approximately $50.5 million, or $0.55 per share.