As filed with the Securities and Exchange Commission on April 14, 2022

As filed with the Securities and Exchange Commission on April 14, 2022
Registration No. 333-264518
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM S-1/A (Amendment No. 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) 555-0147 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)
Naomi Feinberg General Counsel & Corporate Secretary Lumos Analytics Inc. 450 Folsom Street, Suite 1200 San Francisco, California 94105 (415) 555-0147 (Name, address, including zip code, and telephone number, including area code, of agent for service of process)
Copies of all communications, including communications sent to agent for service of process, to:
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, please 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 a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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.
CALCULATION OF REGISTRATION FEE
(1) Includes (a) 12,941,176 shares of Class A Common Stock to be sold by the Registrant, (b) 3,500,000 shares of Class A Common Stock to be sold by the selling stockholders, and (c) 2,466,176 additional shares of Class A Common Stock that may be purchased by the underwriters pursuant to their option to purchase additional shares.
(2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Based on 18,907,352 shares at the midpoint of the estimated offering price range of $16.00 to $18.00 per share (midpoint: $17.00). Includes shares that the underwriters have the option to purchase.
(3) Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, at a rate of $92.70 per $1,000,000 of the proposed maximum aggregate offering price. Previously paid with initial filing.
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, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-264518; CIK 0001923847) of Lumos Analytics Inc. (the "Company," "Lumos," "we," "us," or "our") is being filed to reflect the Company's responses to comments received from the Staff of the Division of Corporation Finance of the Securities and Exchange Commission (the "SEC"), to update certain financial and other information contained therein, and to file certain exhibits not previously filed.
The Company initially submitted a draft registration statement to the SEC on a confidential basis on January 10, 2022, pursuant to Title I, Section 106 of the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). Amended confidential submissions were subsequently filed on March 4, 2022 and March 28, 2022, respectively. This Amendment No. 1 constitutes the first public filing of this Registration Statement. Accordingly, this Amendment No. 1 contains the complete text of the Registration Statement, including the preliminary prospectus, together with all exhibits required at this stage of the registration process.
No securities may be sold pursuant to this Registration Statement until it is declared effective by the SEC.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS — SUBJECT TO COMPLETION, DATED APRIL 14, 2022
LUMOS ANALYTICS INC.
16,441,176 Shares
Class A Common Stock
This is the initial public offering of shares of Class A Common Stock of Lumos Analytics Inc. We are offering 12,941,176 shares of our Class A Common Stock, and the selling stockholders identified in this prospectus are offering an additional 3,500,000 shares of our Class A Common Stock. We will not receive any of the proceeds from the sale of shares by the selling stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for our Class A Common Stock. We currently estimate that the initial public offering price will be between $16.00 and $18.00 per share. We have applied to list our Class A Common Stock on the Nasdaq Global Select Market under the symbol "LMSA."
Following this offering, we will have two classes of authorized common stock: Class A Common Stock and Class B Common Stock. The rights of holders of Class A Common Stock and Class B Common Stock are identical, except with respect to voting and conversion. Each share of Class A Common Stock is entitled to one vote per share. Each share of Class B Common Stock is entitled to ten votes per share and is convertible at any time into one share of Class A Common Stock. Following this offering, our co-founders, Priya Subramanian, our Chief Executive Officer, and Marcus Henley, our Chief Technology Officer, will hold all of the outstanding shares of our Class B Common Stock, representing approximately 73.5% of the total voting power of our outstanding capital stock. As a result, we will be a "controlled company" within the meaning of the corporate governance standards of the Nasdaq Stock Market. See "Prospectus Summary — Dual-Class Stock Structure" and "Description of Capital Stock."
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. For additional information regarding the selling stockholders, see "Principal and Selling Stockholders."
We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 2,466,176 additional shares of Class A Common Stock from us at the initial public offering price, less the underwriting discount, solely to cover overallotments, if any.
Investing in our Class A Common Stock involves a high degree of risk. See "Risk Factors" beginning on page 22 of this prospectus to read about the factors you should consider before buying our Class A Common Stock.
(1) Represents gross proceeds from the sale of 12,941,176 shares by Lumos Analytics Inc. at the public offering price, less the underwriting discount, and before deducting estimated offering expenses of approximately $4.8 million payable by us.
(2) Represents gross proceeds from the sale of 3,500,000 shares by the selling stockholders at the public offering price, less the underwriting discount of 6.5%.
The amounts set forth above assume an initial public offering price of $17.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus. See "Underwriting" for additional information regarding underwriting compensation.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares of Class A Common Stock will be ready for delivery on or about ___, 2022.
Pinnacle Securities LLC Lead Book-Running Manager
Whitfield & Company LLC Joint Book-Running Manager
Graystone Capital Markets Inc. Co-Manager
Prospectus dated ___, 2022
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus and 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" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus, before making an investment decision. Some of the statements in this prospectus constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements."
Overview
Lumos Analytics Inc. is a cloud-based, artificial intelligence-driven analytics platform company purpose-built for financial institutions. Our platform enables banks, insurance companies, asset managers, payment processors, and other financial services organizations to harness the power of real-time data analytics, machine learning, and advanced computational techniques to solve their most critical operational challenges. Our core capabilities include real-time transaction monitoring, fraud detection, regulatory reporting, and predictive risk modeling.
We founded Lumos in 2016 with a singular vision: to transform the way financial institutions understand, manage, and act upon their data. Today, our platform processes over 2 billion transactions per month across approximately 340 enterprise customers globally. Our subscription-based software-as-a-service ("SaaS") business model provides customers with continuous access to our cloud-native platform, enabling them to deploy sophisticated analytics capabilities without the complexity and cost of traditional on-premises infrastructure.
Our product suite includes:
•  LumosIQ Platform: Our core analytics engine, powered by proprietary machine learning algorithms that ingest, normalize, and analyze massive volumes of transactional and behavioral data in real time. LumosIQ serves as the foundation upon which all of our product modules operate.
•  FraudLens: Our real-time fraud detection module, which leverages advanced pattern recognition and anomaly detection to identify potentially fraudulent transactions and suspicious activity with industry-leading speed and accuracy. FraudLens adapts continuously, learning from new data patterns to stay ahead of evolving fraud techniques.
•  RegConnect: Our regulatory reporting and compliance module, which automates the preparation, validation, and submission of complex regulatory filings across multiple jurisdictions. RegConnect helps our customers reduce the time, cost, and risk associated with regulatory compliance, including requirements under the Bank Secrecy Act, anti-money laundering ("AML") regulations, Know Your Customer ("KYC") rules, and other regulatory frameworks.
•  DataBridge API Suite: Our integration platform, consisting of a comprehensive set of application programming interfaces ("APIs") that enable seamless connectivity between LumosIQ and our customers' existing enterprise systems, including core banking platforms, payment processing infrastructure, data warehouses, and third-party applications.
We were incorporated in the State of Delaware on March 14, 2016. Our headquarters are located at 450 Folsom Street, Suite 1200, San Francisco, California 94105. As of December 31, 2021, we had approximately 1,120 employees.
Key Financial Highlights
We have achieved significant growth since our founding, driven by strong customer demand for our platform. The following table sets forth selected financial and operating metrics for the periods indicated:
(1) We define ARR as the annualized value of active subscription contracts as of the end of the applicable period. ARR does not include revenue from professional services engagements. ARR is a key operating metric and is not a measure defined under U.S. generally accepted accounting principles ("GAAP"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Business Metrics" for additional information.
(2) Adjusted EBITDA is a non-GAAP financial measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Business Metrics" for a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net loss.
Our Competitive Strengths
We believe the following competitive strengths differentiate us in the market and position us for continued growth:
Purpose-Built AI/ML Analytics for Financial Services. Unlike horizontal analytics platforms that serve a broad range of industries, our platform has been designed from the ground up to address the unique and complex requirements of financial institutions. Our machine learning models are trained on financial services-specific datasets and optimized for the specialized use cases that our customers face, including real-time fraud detection, regulatory compliance, and risk modeling. This deep domain expertise enables us to deliver analytics solutions that are more relevant, more accurate, and more actionable than those offered by general-purpose analytics providers.
Proprietary Technology Protected by a Robust intellectual Property Portfolio. We have invested heavily in research and development to build a differentiated technology platform. Our intellectual property portfolio includes 14 issued U.S. utility patents and 7 pending patent applications related to, among other things, ML-based fraud detection, real-time transaction scoring algorithms, and adaptive data normalization techniques. We also rely on trade secrets, copyrights, and contractual protections to safeguard our proprietary technology. We believe our intellectual property portfolio creates meaningful barriers to entry and competitive differentiation.
Deep Integrations with Enterprise Financial Infrastructure. Our DataBridge API suite enables deep, bidirectional integrations with our customers' core banking platforms, payment processing systems, data warehouses, and other enterprise infrastructure. These integrations make our platform a critical component of our customers' technology ecosystems, creating high switching costs and driving long-term customer retention. Once deployed, our platform becomes embedded in our customers' daily workflows, making it difficult and costly for them to replace.
High Gross Margins and Strong Net Revenue Retention. Our subscription-based SaaS business model generates high gross margins. In fiscal year 2021, our gross margin was 72.3%, reflecting the scalability of our cloud-native architecture and the operating leverage inherent in our business. Additionally, we benefit from strong net revenue retention, driven by our land-and-expand go-to-market strategy, which enables us to grow revenue from existing customers over time through upselling and cross-selling additional product modules and expanding usage within their organizations.
Our Growth Strategy
We intend to pursue the following strategies to grow our business:
Expand Customer Base Across Financial Services Verticals. We see significant opportunity to acquire new customers across the full spectrum of financial services, including commercial and retail banking, insurance, asset and wealth management, broker-dealers, payment processors, and emerging fintech companies. We plan to invest in our enterprise direct sales force and channel partnerships to accelerate new customer acquisition.
Deepen Product Adoption Among Existing Customers. Our land-and-expand strategy is designed to drive incremental revenue from our existing customer base. We typically begin our engagement with a customer through a single product module, such as FraudLens, and then expand the relationship over time by introducing additional modules, such as RegConnect and DataBridge. We also seek to expand usage within our customers' organizations by onboarding additional business units and geographies.
International Expansion. While the majority of our revenue is currently generated from customers based in the United States, we believe there is a substantial and growing opportunity for our platform in international markets, particularly in Europe, the Asia-Pacific region, and Latin America. Financial institutions globally face similar challenges related to fraud, compliance, and data analytics, and we believe our platform is well-positioned to address these needs. We intend to invest in building out our international sales and customer success capabilities over time.
Strategic Acquisitions and Partnerships. We may pursue strategic acquisitions and partnerships that complement our existing platform capabilities, expand our customer base, or accelerate our entry into new markets. For example, in March 2021, we entered into a strategic partnership with Nordwell Financial Technologies Inc. to co-develop and distribute embedded analytics capabilities within Nordwell's banking platform, which serves over 500 community and regional banks in the United States. We intend to continue exploring similar strategic opportunities.
Continued R&D Investment. We plan to continue investing significantly in research and development to advance the capabilities of our AI/ML models, develop new product modules, and enhance the scalability and performance of our platform. We believe that our continued investment in innovation is critical to maintaining and extending our competitive differentiation.
The Offering
The number of shares of Class A Common Stock to be outstanding after this offering is based on 89,700,000 shares of Class A Common Stock outstanding as of March 31, 2022 (including 62,400,000 shares of preferred stock converted to Class A Common Stock on a one-for-one basis upon the closing of this offering), plus 12,941,176 shares sold in this offering, and excludes:
•  11,300,000 shares of Class A Common Stock issuable upon exercise of stock options outstanding under our 2016 Stock Incentive Plan as of March 31, 2022, at a weighted-average exercise price of $4.82 per share;
•  3,500,000 shares of Class A Common Stock reserved for future issuance under our 2016 Stock Incentive Plan as of March 31, 2022;
•  shares of Class A Common Stock reserved for issuance under our 2022 Equity Incentive Plan, which will become effective in connection with this offering; and
•  shares of Class A Common Stock reserved for issuance under our 2022 Employee Stock Purchase Plan, which will become effective in connection with this offering.
Unless otherwise indicated, all information in this prospectus assumes (i) the conversion of all outstanding shares of our preferred stock (Series A, Series B, Series C, and Series D) into shares of Class A Common Stock on a one-for-one basis upon the closing of this offering, (ii) the filing and effectiveness of our Amended and Restated Certificate of Incorporation upon the closing of this offering, and (iii) no exercise of the underwriters' overallotment option.
Dual-Class Stock Structure
Following the closing of this offering, our outstanding capital stock will consist of Class A Common Stock and Class B Common Stock. The rights of the holders of Class A Common Stock and Class B Common Stock are identical, except with respect to voting and conversion, as follows:
•  Class A Common Stock is entitled to one vote per share on all matters submitted to a vote of stockholders.
•  Class B Common Stock is entitled to ten votes per share on all matters submitted to a vote of stockholders. The Class B Common Stock is held exclusively by our co-founders:
•  Priya Subramanian, our Chief Executive Officer, holds 16,500,000 shares of Class B Common Stock; and
•  Marcus Henley, our Chief Technology Officer, holds 12,000,000 shares of Class B Common Stock.
Following the closing of this offering, the aggregate voting power of the Class B Common Stock will be 285,000,000 votes (28,500,000 shares × 10 votes per share), and the aggregate voting power of the Class A Common Stock will be 102,641,176 votes (102,641,176 shares × 1 vote per share), for total voting power of 387,641,176 votes. Accordingly, immediately following the closing of this offering, our co-founders will collectively control approximately 73.5% of the total voting power of our outstanding capital stock (285,000,000 ÷ 387,641,176).
As a result of this concentrated voting control, we will be a "controlled company" within the meaning of the Nasdaq listing standards. See "Risk Factors — Risks Related to Our Dual-Class Structure and Corporate Governance" and "Description of Capital Stock — Class B Common Stock."
Sunset Provision. Each share of Class B Common Stock will automatically convert into one share of Class A Common Stock upon the earliest to occur of:
(i) the seventh anniversary of the closing of this initial public offering;
(ii) the transfer of such share to any person or entity that is not a "permitted transferee," as defined in our Amended and Restated Certificate of Incorporation (which includes family members, trusts for the benefit of the holder or the holder's family members, and entities controlled by the holder); or
(iii) the date on which the holders of Class B Common Stock collectively hold less than 10% of the total number of shares of common stock then outstanding.
In addition, each holder of Class B Common Stock may, at any time, convert any or all of such holder's shares of Class B Common Stock into shares of Class A Common Stock on a one-for-one basis.
Risk Factors Summary
An investment in our Class A Common Stock involves a high degree of risk. You should carefully consider the risks described in "Risk Factors" before making an investment decision. Some of the more significant risks include the following:
•  We have a history of net losses, and we may not achieve or maintain profitability in the future.
•  Our revenue growth rate may decline in future periods, and we may not be able to sustain the level of revenue growth we have experienced historically.
•  We depend on a limited number of large customers, and the loss of or reduction in business from one or more of our significant customers could materially and adversely affect our business and results of operations. Our top 10 customers represented approximately 34% of our ARR as of December 31, 2021.
•  Our dual-class common stock structure concentrates voting control with our co-founders, who will control approximately 73.5% of total voting power of our outstanding capital stock following the closing of this offering, which will limit the ability of other stockholders to influence corporate matters.
•  We operate in a highly regulated industry, and changes in laws, regulations, or regulatory interpretations applicable to our business or our customers' businesses could materially and adversely affect our business.
•  We face intense competition from larger enterprise software providers with substantially greater financial, technical, and other resources.
•  General macroeconomic conditions, including rising interest rates, inflation, and geopolitical uncertainty, could adversely affect our business and operating results.
Corporate Information
We were incorporated in the State of Delaware on March 14, 2016 under Delaware File Number 6281934. Our principal executive offices are located at 450 Folsom Street, Suite 1200, San Francisco, California 94105, and our telephone number is (415) 555-0147. Our IRS Employer Identification Number is 82-3194567.
Our website address is www.lumosanalytics.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus or in deciding whether to purchase our Class A Common Stock.
Lumos, Lumos AI, LumosIQ, FraudLens, RegConnect, DataBridge, and our logos are trademarks or registered trademarks of Lumos Analytics Inc. in the United States and other jurisdictions. This prospectus also contains trademarks and trade names of other companies, which are the property of their respective owners. We do not intend our use or display of other companies' trademarks or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other company.
RISK FACTORS
Investing in our Class A Common Stock involves a high degree of risk. You should carefully consider the following risk factors, together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto, before deciding whether to invest in our Class A Common Stock. If any of the following risks actually occur, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event, the market price of our Class A Common Stock could decline, and you could lose all or part of your investment. The risks described below are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Risks Related to Our Business and Industry
We have a history of net losses and may not achieve or maintain profitability.
We have incurred net losses in each fiscal year since our inception. We incurred net losses of $41.2 million and $52.8 million for the fiscal years ended December 31, 2021 and 2020, respectively, and a net loss of $13.8 million for the three months ended March 31, 2022. As of December 31, 2021, we had an accumulated deficit of $158.6 million. We expect to continue to incur significant expenses for the foreseeable future as we invest in research and development, expand our sales and marketing efforts, build out our general and administrative infrastructure, and pursue our growth strategies. These investments may not result in increased revenue or growth in our business. We may encounter unforeseen operating expenses, difficulties, complications, delays, and other factors that may result in losses in future periods. If our revenue does not grow at a rate sufficient to offset increases in our operating expenses, we will not be able to achieve or maintain profitability in future periods, and the market price of our Class A Common Stock may decline. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Our revenue growth rate may decline in future periods.
Our revenue has grown rapidly in recent periods, increasing from $118.6 million for the fiscal year ended December 31, 2020 to $187.4 million for the fiscal year ended December 31, 2021, representing year-over-year growth of 58%. For the three months ended March 31, 2022, our revenue was $54.9 million, compared to $39.2 million for the three months ended March 31, 2021, representing year-over-year growth of 40%. We believe our revenue growth rate will decline over time as our business matures, the market for our products becomes more saturated, and as we are unable to sustain the same rate of new customer acquisition and expansion within our existing customer base. In addition, our revenue growth rate may be adversely affected by a number of factors, including increased competition, changes in our pricing, a potential reduction in demand for our products, and general macroeconomic conditions. You should not rely on the revenue growth rate of any prior period as an indication of our future performance.
We depend on a limited number of large customers, and the loss of or reduction in business from one or more of these customers could adversely affect our business and results of operations.
We derive a significant portion of our revenue from a limited number of large enterprise customers. As of December 31, 2021, our top 10 customers represented approximately 34% of our ARR. Although no single customer accounted for more than 10% of our total revenue for the fiscal year ended December 31, 2021, the loss of, or a significant reduction in the scope of services provided to, one or more of our largest customers could materially and adversely affect our revenue and results of operations. Our customers typically enter into subscription contracts with terms ranging from one to three years, and there is no guarantee that our customers will renew their contracts at the same or higher levels, or at all. Additionally, consolidation among financial institutions could reduce the number of potential and existing customers for our platform.
Our platform processes sensitive financial data and we are subject to cybersecurity risks.
Our platform processes, stores, and transmits large volumes of sensitive financial data on behalf of our customers, including transaction data, customer account information, and other confidential information. We face significant cybersecurity risks, including the risk of unauthorized access to, disclosure of, or misuse of this data. Cyberattacks and security incidents are increasing in frequency, complexity, and severity across all industries, and the financial services sector is a particularly high-value target for cyber criminals and state-sponsored actors. Despite our investments in security measures and controls, including our SOC 2 Type II certification, there can be no assurance that our security measures will be sufficient to prevent a security breach or that our systems will not be compromised. Any security incident involving the actual or perceived unauthorized access to or use of our customers' data could result in significant liability, regulatory investigations and penalties, loss of customer trust, reputational harm, and a material and adverse effect on our business and results of operations.
Failure of our AI/ML models could result in inaccurate analytics or fraud detection failures.
Our platform relies on complex artificial intelligence and machine learning models to perform real-time transaction monitoring, fraud detection, regulatory reporting, and predictive risk modeling. These models are trained on historical data and are designed to identify patterns and anomalies. However, our models may not perform as intended due to, among other things, errors or biases in training data, unanticipated changes in transaction patterns, novel forms of fraud that differ from historical patterns, or technical failures. If our models fail to detect fraudulent transactions or produce inaccurate analytics, our customers could suffer significant financial losses and regulatory penalties, and we could face claims for damages, loss of customer confidence, and reputational harm. Additionally, the increasing regulatory scrutiny of AI and machine learning applications, particularly in the financial services sector, could impose new requirements or restrictions on our use of these technologies, which could increase our costs and limit our ability to develop and deploy new capabilities.
We depend on third-party cloud infrastructure providers for the operation of our platform.
Our cloud-native platform is hosted on infrastructure provided by Brindoval Data Centers LLC ("Brindoval") pursuant to a Master Cloud Services Agreement dated January 15, 2021. Under this agreement, we have an annual minimum commitment of approximately $8.2 million, and the agreement has an initial term expiring in January 2026. Any disruption in the services provided by Brindoval, including due to natural disasters, security incidents, technical failures, or financial difficulties experienced by Brindoval, could result in downtime for our platform, which could adversely affect our customer relationships and our business. While we maintain disaster recovery and business continuity plans, these plans may not be adequate to mitigate the impact of a prolonged disruption. Additionally, we may not be able to renew our agreement with Brindoval on commercially reasonable terms, and transitioning our infrastructure to an alternative provider could be costly, time-consuming, and disruptive to our operations.
Our strategic partnership with Nordwell Financial Technologies Inc. may not deliver expected benefits.
In March 2021, we entered into a strategic partnership agreement with Nordwell Financial Technologies Inc. ("Nordwell") for the co-development and distribution of embedded analytics capabilities within Nordwell's banking platform. The initial term of this agreement is three years from March 30, 2021. While we believe this partnership has the potential to significantly expand our reach among community and regional banks, there can be no assurance that the partnership will achieve the anticipated benefits. The development and integration of embedded analytics capabilities with Nordwell's platform may prove more complex, costly, or time-consuming than expected. Additionally, Nordwell may not be able to effectively market and distribute the co-developed solutions to its customer base, or Nordwell may choose to terminate or not renew the partnership agreement. If this partnership does not deliver the expected benefits, our growth strategy could be adversely affected.
We face intense competition from larger enterprise software providers with greater resources.
The market for analytics, fraud detection, and compliance solutions for financial institutions is highly competitive and rapidly evolving. We compete with range companies, including large, diversified enterprise software companies that offer analytics and compliance solutions as part of their broader product portfolios, specialized fintech analytics vendors, and in-house solutions developed by large financial institutions. Many of our competitors have substantially greater financial, technical, marketing, and other resources than we do. They may be able to devote more resources to research and development, offer more competitive pricing, or bundle their analytics and compliance solutions with other products and services in ways that may make our standalone offering less attractive. Additionally, our larger competitors may have established relationships with many of our existing and potential customers, which could make it more difficult for us to win or retain business.
Our business is subject to extensive and evolving regulation in the financial services sector.
Although we are not ourselves a bank, insurance company, or other regulated financial institution, our platform is used by financial institutions to support their compliance with a wide range of laws and regulations, including those relating to anti-money laundering, Bank Secrecy Act requirements, know-your-customer requirements, data privacy and security (including the General Data Protection Regulation, the California Consumer Privacy Act, and other state and federal privacy laws), and financial reporting requirements. The regulatory landscape for financial technology companies is complex and evolving, and new laws, regulations, or regulatory interpretations could impose additional requirements or restrictions on our business or the manner in which our platform may be used by our customers. Compliance with existing and new regulations could be costly and time-consuming, and any failure to comply with applicable regulations could result in enforcement actions, fines, and reputational harm.
We depend on key personnel, including our CEO and CTO.
Our success depends in significant part on the continued service and performance of our key personnel, including Priya Subramanian, our Chief Executive Officer and co-founder, and Marcus Henley, our Chief Technology Officer and co-founder. Ms. Subramanian and Mr. Henley have been instrumental in the development of our technology, the establishment of our corporate culture, and the execution of our business strategy. The loss of either of them could adversely affect our business and our ability to execute our growth strategy. Additionally, we face intense competition for talented employees, particularly in the areas of data science, machine learning engineering, and enterprise software development. If we are unable to attract, retain, and motivate highly qualified employees, our business could be adversely affected.
Our intellectual property protections may be insufficient.
We rely on a combination of patents, trademarks, copyrights, trade secrets, and contractual protections to protect our proprietary technology and intellectual property. However, these protections may not be sufficient to prevent the unauthorized use, misappropriation, or disclosure of our technology and intellectual property. Our patents may not provide meaningful competitive advantages, and the patent applications we have filed may not result in issued patents. Other parties may independently develop similar or superior technologies, design around our patents, or otherwise not infringe our intellectual property rights. Additionally, the laws of some foreign jurisdictions may not protect our intellectual property rights to the same extent as the laws of the United States. Any failure to adequately protect our intellectual property could harm our competitive position and adversely affect our business.
Risks Related to Our Financial Condition
We have significant indebtedness that could adversely affect our financial flexibility and results of operations.
We maintain a $50 million revolving credit facility with Ashford National Bank (the "Ashford Revolver"), of which approximately $15 million was drawn as of March 31, 2022. The Ashford Revolver bears interest at a variable rate equal to the Secured Overnight Financing Rate ("SOFR") plus 275 basis points and matures on June 1, 2024. The credit agreement governing the Ashford Revolver contains customary affirmative and negative covenants, including financial covenants related to minimum liquidity and maximum leverage ratios, as well as restrictions on our ability to incur additional indebtedness, make certain investments, pay dividends, and engage in certain transactions. Our ability to comply with these covenants may be affected by events beyond our control. If we fail to comply with the covenants in the credit agreement, the lender could declare all amounts outstanding under the facility to be immediately due and payable, which could materially and adversely affect our liquidity and financial condition.
We may need additional capital, and financing may not be available on favorable terms or at all.
We have historically funded our operations through equity financings, revenue from customers, and borrowings under our revolving credit facility. We may need to raise additional capital in the future to fund our operations, invest in research and development, make acquisitions, or repay outstanding indebtedness. Additional financing may not be available on terms favorable to us or at all. If we raise additional funds by issuing equity securities, our existing stockholders would experience dilution. If we raise additional funds through debt financing, we may be subject to additional covenants and restrictions that limit our operational flexibility.
Our use of non-GAAP financial measures may not be comparable to similarly titled measures used by other companies.
We use Adjusted EBITDA and other non-GAAP financial measures to supplement our GAAP financial results. We define Adjusted EBITDA as net loss adjusted to exclude stock-based compensation expense, depreciation and amortization, interest expense, and income tax provision. We believe these non-GAAP measures provide useful information to investors in understanding and evaluating our operating results. However, these non-GAAP measures have significant limitations as analytical tools and should not be considered in isolation or as substitutes for our GAAP financial results. Other companies in our industry may define and calculate these non-GAAP measures differently, which reduces their usefulness as comparative measures.
Risks Related to Our Dual-Class Structure and Corporate Governance
Our dual-class common stock structure concentrates voting control with our co-founders.
Following the completion of this offering, our co-founders, Priya Subramanian and Marcus Henley, will beneficially own all of the outstanding shares of our Class B Common Stock, which entitles them to ten votes per share, representing approximately 73.5% of the total voting power of our outstanding capital stock. As a result, our co-founders will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election and removal of directors, amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, or sale of all or substantially all of our assets. This concentrated control means that other stockholders will have limited influence over corporate governance decisions, which could limit the ability of other stockholders to influence corporate matters and could depress the market price of our Class A Common Stock.
We are a "controlled company" under Nasdaq listing standards and may rely on certain exemptions from corporate governance requirements.
Because our co-founders will control more than 50% of our total voting power upon the closing of this offering, we will be a "controlled company" under the Nasdaq listing standards. As a controlled company, we are permitted to elect not to comply with certain corporate governance requirements, including the requirements that a majority of our board of directors consist of independent directors, that we have a compensation committee composed entirely of independent directors, and that we have a nominating and corporate governance committee composed entirely of independent directors. Although we currently do not plan to rely on all of these exemptions, we may choose to do so in the future. If we rely on these exemptions, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq listing standards.
The sunset provision converting Class B Common Stock to Class A Common Stock will not occur earlier than seven years after the closing of this offering.
The automatic conversion of our Class B Common Stock into Class A Common Stock will not occur until the earliest of (i) the seventh anniversary of the closing of this initial public offering, (ii) the transfer of shares of Class B Common Stock to a non-permitted transferee, or (iii) the founders collectively holding less than 10% of the total number of shares of common stock then outstanding. As a result, our co-founders may continue to exercise concentrated voting control over our Company for an extended period, which could limit the ability of other stockholders to influence corporate matters and could adversely affect the market price of our Class A Common Stock.
Anti-takeover provisions in our organizational documents and Delaware law could discourage a change of control.
Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, each of which will become effective upon the closing of this offering, contain provisions that may discourage, delay, or prevent a merger, acquisition, or other change of control of our Company that stockholders may consider favorable. These provisions include a classified board of directors with staggered three-year terms, advance notice requirements for stockholder proposals and director nominations, the elimination of cumulative voting for the election of directors, a requirement that directors may be removed only for cause and only by the affirmative vote of holders of at least 66 2/3% of the total voting power of our outstanding capital stock, an exclusive forum provision designating the Delaware Court of Chancery (or, for claims arising under the Securities Act, the federal district courts of the United States) as the sole and exclusive forum for certain actions, and the authorization of our board of directors to issue preferred stock without stockholder approval ("blank check preferred stock"). In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder, subject to certain exceptions. These provisions could discourage potential takeover attempts and limit the price that investors might be willing to pay for shares of our Class A Common Stock.
Risks Related to This Offering and Ownership of Our Class A Common Stock
There has been no prior public market for our Class A Common Stock, and the market price of our Class A Common Stock may be volatile.
Prior to this offering, there has been no public market for our Class A Common Stock. The initial public offering price of our Class A Common Stock will be determined through negotiations between us and the representative of the underwriters and may not reflect the actual market value of our Class A Common Stock after the offering. The market price of our Class A Common Stock following this offering may fluctuate significantly in response to a number of factors, many of which are beyond our control, including variations in our quarterly or annual operating results, changes in financial estimates or recommendations by securities analysts, announcements by us or our competitors of significant developments, acquisitions, or other events, and general market and economic conditions. In particular, the market prices of technology companies have been highly volatile, and the stock market has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of individual companies.
The offering price may not reflect the actual market value of our Class A Common Stock.
The initial public offering price of our Class A Common Stock has been determined by negotiations between us and the representative of the underwriters. This price does not necessarily reflect the price at which investors or the market will be willing to purchase shares of our Class A Common Stock following this offering. Among the factors considered in determining the initial public offering price were our historical performance and capital structure, estimates of our business potential, an assessment of our management, general conditions of the securities markets, and any other relevant factors. The market price of our Class A Common Stock may decline below the initial public offering price, and you may not be able to sell your shares at or above the price you paid.
Future sales of shares by existing stockholders could depress the market price of our Class A Common Stock.
Sales of a substantial number of shares of our Class A Common Stock in the public market following this offering, or the perception that such sales could occur, could cause the market price of our Class A Common Stock to decline. Upon the closing of this offering, we will have 102,641,176 shares of Class A Common Stock and 28,500,000 shares of Class B Common Stock outstanding. Of these shares, the 16,441,176 shares sold in this offering (plus any shares sold pursuant to the underwriters' overallotment option) will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our affiliates, as defined in Rule 144 under the Securities Act. The remaining shares of our common stock will be restricted securities, as defined in Rule 144, and may not be sold in the public market unless such sales are registered under the Securities Act or made pursuant to an exemption from registration. However, substantially all of these shares are subject to 180-day lock-up agreements with Pinnacle Securities LLC, as representative of the underwriters. Following the expiration of the lock-up period, a significant number of these shares will become eligible for sale, subject to the volume, manner of sale, and other limitations of Rule 144. In addition, certain stockholders hold registration rights that would require us to register their shares for sale. See "Shares Eligible for Future Sale."
Purchasers in this offering will experience immediate and substantial dilution.
The initial public offering price of our Class A Common Stock is substantially higher than the pro forma net tangible book value per share of our Class A Common Stock immediately prior to this offering. Accordingly, if you purchase shares of our Class A Common Stock in this offering, you will experience immediate dilution. See "Dilution."
We do not intend to pay dividends in the foreseeable future.
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, our revolving credit facility with Ashford National Bank contains covenants that may restrict our ability to pay dividends. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors our board of directors may consider relevant. Investors who need to receive dividends as a return on their investment should not purchase our Class A Common Stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements about, among other things:
•  our future financial performance, including our expectations regarding our revenue, cost of revenue, gross margin, operating expenses, and our ability to achieve or maintain profitability;
•  anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
•  our ability to attract new customers and expand our relationships with existing customers;
•  our expectations regarding the development, introduction, and adoption of new products and features;
•  our plans for and anticipated benefits from strategic partnerships, including our partnership with Nordwell Financial Technologies Inc.;
•  our plans for and the anticipated timing of geographic expansion;
•  our ability to successfully identify, complete, and integrate acquisitions;
•  our ability to attract, train, and retain key personnel;
•  anticipated technology trends and developments, including the further adoption of cloud-based platforms by financial institutions and the increasing use of artificial intelligence and machine learning in financial services;
•  our beliefs regarding competition in our industry;
•  our expectations concerning the impact of existing and future laws and regulations on our business; and
•  the estimated addressable market for our products.
In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "intend," "will," "continue," "project," "predict," "potential," or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect our actual results, levels of activity, performance, or achievements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus.
If any of these risks or uncertainties materialize, or if any of our assumptions prove incorrect, our actual results could differ materially from the results expressed or implied by these forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.
You should read this prospectus and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.
MARKET AND INDUSTRY DATA
This prospectus contains estimates, projections, and other information concerning our industry and the markets in which we operate, as well as data regarding market research, estimates, and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information.
Unless otherwise expressly stated, we obtained certain industry, business, market, and other data from reports, publications, surveys, and studies conducted by third-party sources, including Brightwater Consulting Group, Tarrant Advisory Group, Fenmore Consulting Group, and Drayton Consulting Group, as well as publicly available information, our own internal estimates, and industry and general publications. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise stated or the context otherwise requires.
Industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process, and other limitations and uncertainties inherent in any survey or compilation of industry and market data. In addition, we do not know all of the assumptions and methodology used in preparing the data that is derived from third-party sources. No independent source has verified our internal company estimates, and they are based on our experience in the industry, our own investigation of market conditions, and our review of industry surveys and publications.
While we believe the market data included in this prospectus is generally reliable, such information is inherently imprecise. Statements as to our market position and market estimates are not guarantees of future performance and are subject to inherent risks and uncertainties. The failure of the market to grow at the projected rate may affect our ability to grow at similar rates, which could have a material adverse effect on our business, financial condition, and results of operations.
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 will be approximately $200.9 million, based on an assumed initial public offering price of $17.00 per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the underwriting discount of approximately $14.3 million and estimated offering expenses of approximately $4.8 million payable by us.
If the underwriters exercise their overallotment option in full, we estimate that the net proceeds to us would be approximately $232.1 million, after deducting the underwriting discount and estimated offering expenses payable by us.
We will not receive any of the proceeds from the sale of 3,500,000 shares of our Class A Common Stock by the selling stockholders.
A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share would increase (decrease) the net proceeds to us from this offering by approximately $12.1 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.
We intend to use the net proceeds from this offering for general corporate purposes, including:
•  working capital;
•  continued investment in research and development;
•  expansion of our sales and marketing organization;
•  potential strategic acquisitions of, or investments in, complementary businesses, products, services, or technologies, although we do not currently have agreements or commitments with respect to any specific material acquisitions or investments; and
•  general and administrative expenses.
We may also use a portion of the net proceeds to repay outstanding borrowings under our revolving credit facility with Ashford National Bank. As of March 31, 2022, approximately $15 million was drawn under the facility, which bears interest at a variable rate equal to SOFR plus 275 basis points and matures on June 1, 2024.
We have not determined the amounts we plan to spend on any of the areas listed above or the timing of these expenditures. As a result, our management will have broad discretion over the use of the net proceeds from this offering. Pending the use of the net proceeds from this offering as described above, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare dividends