Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - YODLEE INCFinancial_Report.xls
EX-23.1 - EXHIBIT 23.1 - YODLEE INCexh_231.htm
EX-32.1 - EXHIBIT 32.1 - YODLEE INCexh_321.htm
EX-31.2 - EXHIBIT 31.2 - YODLEE INCexh_312.htm
EX-31.1 - EXHIBIT 31.1 - YODLEE INCexh_311.htm
EX-21.2 - EXHIBIT 21.2 - YODLEE INCexh_212.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
 
FORM 10-K
____________________________
 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2014
 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 001-36639
 
Yodlee, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
33-0843318
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
3600 Bridge Parkway, Suite 200
Redwood City, California 94065
(Address of principal executive offices and Zip Code)
 
(650) 980-3600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
 
 
Name of Each Exchange on Which Registered
 
Common Stock, par value $.001 per share
 
Nasdaq Global Select Market
 

Securities registered pursuant to Section 12(q) of the Act:

None.
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes                      No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes                      No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes                      No
 
 
1

 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes                      No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer     Non-accelerated filer     Accelerated filer      Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes                      No

As of June 30, 2014, the last day of the registrant’s most recently completed second quarter, the registrant’s common stock was not publicly traded. The registrant's common stock, $0.001 par value per share, began trading on the Nasdaq Global Select Market on October 3, 2014. As of February 27, 2015, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $268.2 million (based upon the closing sale price of the common stock on that date on the Nasdaq Global Select Market). As of February 27, 2015, the number of shares of the registrant's common stock outstanding was 29,402,327 shares.

Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the registrant's definitive proxy statement relating to its 2015 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the registrant's fiscal year ended December 31, 2014.
 
 
 
 
2

 
Yodlee, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2014

TABLE OF CONTENTS

   
Page
   
PART I.
   
     
PART II.
   
     
PART III.
   
     
PART IV.
   
     


 
3

 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks  and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:

 
·
our ability to expand our relationships with existing customers, grow the number of customers and derive revenue from new offerings such as our data solutions and market research services and premium FinApps;

 
·
our financial performance;

 
·
the results of our investments in research and development, our data center and other infrastructure;

 
·
our ability to realize operating efficiencies;

 
·
the advantages of our solutions as compared to those of others;

 
·
our ability to establish and maintain intellectual property rights; and

 
·
our ability to retain and hire necessary employees and appropriately staff our operations, in particular our India operations.
 
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 
4

 
PART I.

Item 1.   Business

Overview
 
 
Yodlee is a leading technology and applications platform powering dynamic innovation for digital financial services in the cloud. We refer to our platform as the Yodlee Financial Cloud. Our vision is to empower lives with innovative digital financial services. Our customers include financial institutions, Internet services companies providing innovative financial solutions and third-party developers of financial applications. As of December 31, 2014, more than 800 organizations in over 15 countries use the Yodlee platform to power their consumer-facing digital offerings, and we receive subscription fees for 18.4 million of these consumers, whom we refer to as our paid users.

We serve two main customer groups, financial institutions, or FI, customers and Internet services companies providing innovative financial solutions, which we refer to as our Yodlee Interactive, or YI, customers. Yodlee provides FI customers with access to the Yodlee Financial Cloud (our platform and secure, open application programming interfaces, or APIs) and FinApps (end-user facing applications powered by our platform and APIs).  Our platform and APIs enable FI customers to receive end user-permissioned data that we aggregate, cleanse, and distribute, as well as our money movement solutions.  The FinApps powered by our platform and APIs can be subscribed to individually or in combinations that include personal financial management, wealth management, card, payments and small-medium business, or SMB, solutions.  Our YI customers are Internet services companies and third-party developers, who use our platform to develop new applications and enhance existing solutions. Our YI customers operate in a number of sub-vertical markets, including wealth management, personal financial management, small business accounting, small business lending and authentication. These customers use the Yodlee platform to build solutions that leverage our open APIs and access to a large end user base. In addition to aggregated transaction-level account data, we provide YI customers with secure access to account verification, money movement and risk assessment tools via our APIs. We play a critical role in bringing innovation from Internet services companies to financial institutions through the Yodlee Financial Cloud. For example, our YI customers use our solutions in such diverse applications as providing working capital to small businesses online; personalized financial management, planning and advisory services; ecommerce payment solutions; and online accounting systems for small businesses. We provide access to our solutions across multiple channels, including web, tablet and mobile.

Our financial institution customers encompass many of the leading financial institutions, including 9 of the 15 largest banks in the United States, which hold 84% of the total assets of the top 15 U.S. banks (based on total assets as of June 30, 2014). These institutions subscribe to the Yodlee platform to power offerings that we believe improve consumer satisfaction and enhance engagement, while capturing cross-sell and up-sell opportunities. We estimate that our current network of financial institution customers alone reaches more than 100 million end users, representing a significant opportunity to potentially grow our paid user base within existing customers. Our customers that are Internet services companies have an increasingly large and diverse base of users that also provides additional potential growth opportunities.

Financial institutions today operate in a highly fragmented, complex and regulated environment. At the same time, consumers and small businesses struggle to manage their increasingly complex finances, often across multiple online financial accounts at a variety of financial institutions, each with a different interface and login procedure. In addition, a new wave of Internet services companies is changing the way that consumers and small businesses manage their finances and transact online. As competition in the financial services industry has increased and financial institutions have concentrated resources on the sale of financial products, these institutions are seeking innovative technology solutions to improve their end users’ experience and enhance engagement, while capturing data-driven cross-sell and up-sell opportunities.

The financial services industry is undergoing a technological shift. Outdated enterprise hardware and software is being replaced by cloud-driven solutions that are easier and less expensive to implement, update and manage. Banks continue to spend heavily on IT in order to compete effectively in an increasingly competitive environment. According to a January 2015 report (“IT Spending in Banking: A North American Perspective”) published by Celent, an international financial research and consulting firm, total bank information technology spending across North America, Europe, and Asia-Pacific will grow to $196.7 billion in 2015, an increase of approximately 4.6% over 2014. Celent estimates that in 2014 U.S. and Canadian banks alone spent a total of $12.1 billion on external software, which includes purchasing costs and licensing fees associated with third-party packaged software solutions. In addition, according to a February 2015 report (“IT Spending in Banking: A Global Perspective”) also published by Celent, European banks spent $14.7 billion on external software in 2014, bringing total spend on external software by U.S., Canadian and European banks to $26.8 billion. Celent projects that this combined spending will increase to $32.9 billion in 2016. We believe as financial institutions continue to spend on technology, a growing proportion of that spending will shift from outdated internally-developed or custom-built enterprise software to cloud-based solutions. In addition to the large opportunity that we have with traditional financial institutions, we believe that we also have a significant opportunity with Internet services companies providing innovative financial solutions.

 
5

 
The Yodlee Financial Cloud delivers a wide variety of FinApps, and also enables our customers to develop their own applications through our open APIs, that deliver trusted and secure data, money movement solutions, and other feature functionality.  Our FinApps are targeted at the retail financial, wealth management, small business, card and other financial solutions sectors. These FinApps help consumers and small businesses simplify and manage their finances, review their financial accounts, track their spending, calculate their net worth, and perform a variety of other activities. Examples of FinApps include our Expense FinApp, which helps consumers track their spending, and a Payroll FinApp from a third party, which helps small businesses process their payroll.

We provide subscription services on a business-to-business-to-consumer, or B2B2C, basis to financial services clients, whereby our customers offer Yodlee-based solutions to their customers, whom we refer to as end users. On a business-to-business, or B2B, basis we deliver the same platform to third-party developers.

We also offer data solutions and market research services that enhance the value of our solutions to our customers and provide anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. Our platform collects a wide variety of end user data from approximately 14,000 sources and puts it in a common repository. Beyond collecting the data, our platform performs a data refining process and augments the data with additional information from a variety of other sources. We enrich the data with a proprietary twelve-step process, adding such elements as categorization and merchant identification for bank or credit card account data and investment holding identification for investment account data. With this enhanced data, we enable our customers to offer better applications and more personalized solutions to end users.

We are a big data practitioner providing our customers with data solutions and market research services that enhance the value of our solutions and anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. We believe that our brand leadership, innovative technology and intellectual property, large customer base, and unique data gathering and enrichment provide us with competitive advantages that have enabled us to generate strong growth.
 
Our solutions benefit our customers and their end users in a wide variety of ways. For both our FI and YI customers, providing Yodlee-powered solutions improves their end user satisfaction and retention, accelerates speed to market, creates technology savings and enhances their data solutions and market research capabilities. For our customers’ end users, our solutions provide better access to their financial information and more control over their finances, leading to more informed and personalized decision making. For our customers who are members of the developer community, our solutions provide access to critical data and payments solutions, faster speed to market and enhanced distribution.

Our technology infrastructure is designed to provide a highly available and secure multi-tenant cloud-based platform across hundreds of customers and millions of end users. Our solutions use a single code base for all customers and are globally accessible across multiple digital channels. Our multi-tenancy model uses a common data model for all customers but isolates data with logical controls and separate encryption keys for each customer. Our architecture utilizes state-of-the-art technologies to achieve enhanced availability, scalability and security.

We believe a large addressable market and the need for innovative digital financial services give us the opportunity to grow considerably in the near term. Our growth strategy addresses two key drivers of our business: number of paid users and revenue per paid user. As we look to grow the number of paid users on our platform, we intend to focus on increasing penetration within our existing customer base, signing new customers, and expanding internationally. We also intend to drive additional revenue per paid user by introducing new solutions like data solutions and market research services and by pursuing revenue-sharing opportunities from premium FinApps.

For the years ended December 31, 2014, 2013 and 2012, our revenues were $89.1 million, $70.2 million, and $57.8 million, respectively. In 2014, our revenue increased by 27% to $89.1 million, driven largely by an increase in subscription revenue, which grew 34% from the year ended December 31, 2013, offset by a 2% decrease in professional services and other revenue. A substantial portion of our revenues has been derived from contractually-recurring subscription revenues, and our solutions are integrated into our customers’ business processes driving strong customer retention. Our subscription revenue net retention rate, which we use as a measure of our ability to retain our customers through renewals of subscription agreements and to expand the number of our paid users, was 124%, 123% and 114% for the years ended December 31, 2014, 2013, and 2012, respectively. We generate revenues primarily from subscription fees and professional service fees. Subscription revenue has been a growing majority of our revenues and accounted for 85%, 81% and 77% of our revenue during the years ended December 31, 2014, 2013 and 2012, respectively.

 
6

 
Our customer agreements typically provide for an initial three-year term, and many have a majority of subscription and support revenue derived from committed minimum fees pursuant to which our customers generally commit to a minimum level of paid users. As paid users grow across our platform in excess of the guaranteed minimum level, customers are required to pay additional usage fees. As usage increases and customers are required to pay additional usage fees, over time a more significant proportion of our revenue may be derived from usage by paid users. We also generate revenue from professional services, primarily relating to the implementation and configuration of our solutions for our customers. The contractual nature of a significant proportion of our revenue, together with favorable revenue retention rates, have historically assisted us in predicting our near-term revenues and reduced the variability of our projected revenue and cash flows.

Except in 2010, we have not been profitable on an annual basis since our formation. We experienced a net loss of $7.0 million, $1.2 million and $6.5 million for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, our accumulated deficit was $357.2 million.

Industry Background

Consumers and Small Businesses are Struggling to Effectively Manage Their Finances

The complex and fragmented nature of the financial industry makes managing finances a stressful and frustrating activity for consumers and small businesses. Having multiple accounts requires the navigation of a variety of user interfaces and management of multiple sets of logins. Maintaining this number of disparate accounts can be complex, frustrating and time consuming as consumers struggle to gain an accurate and holistic view of their personal finances and to manage financial tasks like monitoring cash balances, budgeting and paying bills. Small businesses also struggle with effectively managing basic financial tasks, such as cash flow and expense management, invoicing and payroll. These event-driven processes are fragmented, giving rise to the need for a centralized platform that can consolidate consumers’ and small businesses’ finances and make these necessary everyday tasks seamless, integrated and able to be performed across multiple channels.

Widespread improvements in consumer-facing technologies in other sectors, such as media (Apple in music, Netflix/Hulu/Vudu in video), employee benefits (Benefitfocus), local service access (OpenTable, Yelp, Uber, Angie’s List), and navigation (Google, Inrix, NavTeq), are driving user expectations for simpler and easier experiences in managing their finances. A similar opportunity to innovate exists within the digital financial services industry, enabling consumers and small businesses to simplify and more easily manage their finances.

Financial Institutions Have Challenges and Opportunities to Engage and Retain Their Customers

Historically, the banker-customer relationship was rooted in human interaction and underpinned by the importance of customer satisfaction. As competition in the industry increased, FIs began to concentrate more resources on the sale of financial products. Customers have become more likely to fulfill their financial needs with multiple FIs, shopping around for the best mortgage deal, lowest credit card interest rate, or highest savings account rate. FIs are increasingly challenged in retaining their role as a trusted advisor. As a result, FIs are seeking innovative technology solutions to enhance customer engagement while capturing cross-sell and up-sell opportunities.

As FIs compete for more of their customers’ business, customer experience and satisfaction has become increasingly important. Today, customer satisfaction is driven by the ease and functionality of digital financial services, rather than the branch banking experience. Innovators in financial services have begun to build solutions designed for the digital world that provide a superior customer experience—the use of technology to drive both a highly automated and highly personalized experience—to deepen and strengthen the relationship and engagement with their customers. Enabling deeper and better engagement in financial services demands new technology solutions that offer speed to market, security, efficiency and sophisticated data capabilities.

Emerging Internet-Based Financial Services Companies are Paving the Path of Innovation

While FIs invest heavily in new initiatives to enhance their digital capabilities, a new wave of hundreds of Internet services companies is also changing the way consumers and small businesses execute transactions and manage their finances. Offerings like eWallets, virtual currencies and Amazon Payments, and companies like LifeLock, PayPal and Xero, are driving accelerated new user adoption with a range of solutions across multiple markets geared towards simplifying financial interactions, processes, transactions and management. These entities require scalable and secure technology platforms, data and payment capabilities to continue to accelerate their rate of adoption.

 
7

 
Cloud-Based Platforms are Simplifying Software Delivery

Celent estimates that IT spending by banks in the United States and Canada will increase to $62.2 billion in 2015. Outdated enterprise software systems are expensive and time-consuming to deploy and to update, and traditionally have had high levels of maintenance. According to Celent, approximately 72.6% of the IT budget at U.S. and Canadian banks, or $45.2 billion in 2015 will be dedicated to maintaining legacy systems and operations (“IT Spending in Banking: A North American Perspective”, January 2015). Furthermore, outdated enterprise software deployment makes new solutions difficult to implement, dampening the pace of innovation.

The rise of cloud-based platforms is the result of rapid and significant technological improvements. Because cloud computing enables the delivery of Software-as-a-Service (SaaS), it is helping to reduce costs, increase speed to market, and enable greater levels of innovation relative to outdated enterprise software. Mission critical applications can now be delivered reliably without the purchase of costly on-premise software or hardware. Cloud-based platforms permit the development of applications without affecting the common capabilities maintained at the platform layer. Therefore, cloud-based platforms can be leveraged by multiple participants in the ecosystem, including customers and third-party developers, to create better solutions. The shared utility of cloud-based platforms permits a deeper level of vertical and functional specialization and creates an environment conducive to rapid and disruptive innovation.

Open Platforms and Application-Level Developer Ecosystems are Driving Innovation Forward

Open platform companies are changing the way innovation occurs across the economy. Enterprise cloud vendors such as salesforce.com, ServiceNow, and Concur, and companies like Amazon.com and Google provide open platforms with highly configurable application layers that are easily extendable into new application functionality by the vendors themselves, their enterprise customers, and third-party developers. Developers use these platforms as a base for rapid and more efficient delivery of innovative digital solutions and services.

As exemplified in other industries, this open platform system can result in an improved experience for the end user, developer, institutional customer and platform provider alike. Products can come to market faster, with better functionality, and these improved solutions can benefit customers, leading to heightened levels of end user demand. For the institutions utilizing these open platforms, developer community-led innovation helps to keep pace with rapidly evolving consumer expectations.

New Technology Platforms are Leveraging Big Data

In the financial services industry, data is highly fragmented and complex and often siloed at not only individual institutions but also within the various business units at a specific institution. We believe there is an opportunity to leverage this data to transform and improve existing processes and procedures around financial management, customer engagement and credit and risk management. As new technologies emerge to organize, process and access this siloed data, new business models that aggregate and syndicate intelligence are turning vast amounts of otherwise unusable information into actionable data used for superior process management and business insight.

Large Addressable Market

In an increasingly mobile and digital world, consumer expectations of financial service providers continue to rise. Consumers are evaluating these providers based in part on the functionality and user experience of their digital services. In this environment, a financial service provider’s ability to create a differentiated user experience for its customers is increasingly important in sustaining a competitive advantage, which requires innovation to help address unsolved consumer problems and an ability to bring these innovations to market quickly. Cloud-based platforms facilitate rapid discovery and implementation of new solutions and enable financial service providers to integrate new solutions more efficiently.

Against this industry backdrop, we believe we have a significant market opportunity. Celent estimates that in 2014 U.S. and Canadian banks alone spent a total of $12.1 billion on external software, which includes purchasing costs and licensing fees associated with third-party packaged software solutions (“IT Spending in Banking: A North American Perspective”, January 2015). In addition, Celent estimates that European banks spent $14.7 billion on external software in 2014, bringing the total spend on external software by U.S., Canadian and European banks to $26.8 billion. Celent projects that this combined spending will increase to $32.9 billion in 2016 (“IT Spending in Banking: A Global Perspective”, February 2015).

 
8

 
We also have a significant market opportunity with our YI customer base. Our Internet services customers such as Kabbage, LearnVest, PayPal and Xero have an increasingly large and diverse number of users and the need for a variety of financial solutions to support their development and delivery of innovative financial services. We believe our services have the potential to address a wide variety of additional financial and data marketing needs of our YI customers.

We believe a portion of our future growth and addressable market will also come from expansion into large and rapidly growing markets, such as data solutions examples of which are cross-selling within financial institutions and market research services, and online credit information services.

As we continue to expand our presence in the markets outlined above, the number of potential end users who use our solutions increases dramatically. Our potential end user base includes any consumer of financial services on the Internet—and this end user could be a paid user of Yodlee many times over across multiple customers and products. This multiplier effect greatly increases our addressable end user base.

Our Solution

Yodlee is a leading technology and applications platform powering dynamic innovation for digital financial services in the cloud. We refer to our platform as the Yodlee Financial Cloud. We provide subscription services on a B2B2C basis to financial services clients, whereby our customers offer solutions based on our platform to their end users. On a B2B basis we deliver an open platform to customers and third-party developers through our API’s. We also provide transaction-level data for data solutions and market research services. We serve two main customer groups or channels, FI and YI customers.

Our FI customers encompass many of the leading FIs, including 9 of the 15 largest banks in the United States, which hold 84% of the total assets of the top 15 U.S. banks (based on total assets as of June 30, 2014). We estimate that our current network of FI customers alone reaches more than 100 million end users, representing a significant opportunity to grow our paid user base within existing customers.

Our YI customers are Internet services companies providing innovative financial solutions, with an increasingly large and diverse base of users, and third-party developers. Third-party developers benefit from access to critical data and payment capabilities, our faster speed to market and enhanced distribution.

Our platform powers hundreds of FinApps created and made available by us, our customers and third-party developers. FinApps can be sold individually or in combinations and include personal financial management, wealth management, card, payments and SMB solutions. Examples of FinApps are an Expense FinApp that helps a consumer track their spending, or a Payroll FinApp from a third party that can help a small business with processing its payroll. Our open APIs enable us, our FI and YI customers and third-party developers to create new FinApps that can be made available across our broad end user base.

We also provide our customers with trusted and secure access to our platform via APIs that enable them to receive end user-permissioned transaction-level data that we aggregate and cleanse. Access to this data enables our customers to create a much more complete view of their end users’ finances, allowing them to make better informed, targeted decisions. We also offer data for data solutions and market research services that enhance the value of our solutions to our customers and provide anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. We collect this data from approximately 14,000 sources and receive over 75% of it through structured data feeds that are provided under the terms of our contracts with most of our FI customers. These structured feeds, which consist of either batch files pushed to us or real-time access, provide this critical data efficiently and at scale. Where we do not have a data feed in place, we are able to gather consumer data leveraging our proprietary information-gathering techniques.

In addition to aggregated transaction-level account data, we provide our customers with secure access to account verification, money movement and risk assessment tools via our APIs. By using our account verification solutions, customers can verify an end user’s account information, ownership and balance in real time, reducing risk for our customers when interacting with an end user’s checking account. By using our money movement solutions, end users can debit and credit consumer and small business accounts in real time or in batches, route payments between accounts or to other people and pay bills.

We have developed best-in-class security procedures and technologies that are embedded into our platform and applications and meet industry standards as well as the stringent security requirements of our largest FI customers. Our security procedures and technologies are regularly audited by independent security auditors engaged by us, and many of our prospective and current customers conduct their own audits or review the results of such independent security audits as part of their evaluation of our solutions. We are also periodically audited by regulatory agencies to which our operations or our customers are subject. Our platform is available across multiple channels, including web, tablet and mobile.

 
9

 
Key Benefits

Our solutions drive tangible results for our customers:

 
·
Enabling Innovation—The Yodlee platform enables our FI and YI customers to satisfy their mission-critical need to innovate by providing an open platform for the rapid development and deployment of their own financial applications, as well as direct access to applications developed by Yodlee and by a broad third-party developer community. Our platform provides solutions, including secure access to aggregated financial data, account verification, money movement and risk assessment tools that form the core technology allowing many of our YI customers to provide innovative financial solutions.

 
·
Customer Satisfaction / Retention—By deploying the Yodlee platform, our customers are able to provide features and functionality that significantly increase their end users’ engagement with their personal finances, which increases their satisfaction and reduces churn.

 
·
Speed to Market—Our open platform makes it easier for FIs, Internet services companies and third-party developers to create new applications on our platform that can be deployed across our customer base. Our broad network of developers enables solutions to be more rapidly distributed to our customers via our established channels. Our cloud-based platform can make new solutions easier and faster to deploy than outdated enterprise software solutions. When a customer decides to use, or add functionality from, the Yodlee platform, time to deployment can be less than three months. Implementation of internally-developed or custom-built outdated enterprise software solutions can often take multiple years.

 
·
Technology Savings—Our solutions often provide our customers with extensive cost savings as compared to outdated internally-developed or custom-built enterprise software solutions, without the need to purchase additional hardware or software. In addition, these solutions can be inefficient to maintain and update.  Because the Yodlee platform is cloud-based, updates can be made readily available in a cost-effective manner. For our YI customers, our solutions provide a capital-efficient means of developing their service offerings and reaching end users.

 
·
Enhanced Data Solutions and Market Research Capabilities—Our data aggregation platform provides an opportunity for our customers to leverage transaction-level data for data solutions and market research uses. Through the data we make available, our customers can create a much more complete view of their end users’ finances, allowing them to make better informed targeting decisions. For example, our customers may be able to engage with their end users on new investment and credit solutions. These targeting decisions create cross-sell and up-sell opportunities. In addition, our comprehensive sets of anonymized data enable various market research and trend analyses for multiple use cases.
 
Our solutions also provide tangible benefits for end users:

 
·
Better Access and Functionality—Our solutions enable customers to aggregate information into a single view of multiple accounts across several financial institutions. We provide end users with access to highly engaging personalized financial applications across multiple channels, such as web, mobile and tablet.

 
·
More Control—Our solutions provide end users with more control over their finances, by providing access to applications designed to make financial tasks like budgeting, saving for a goal and investing for the future easier. These applications are designed to intelligently present financial information in a way that gives end users more control in a seamless, integrated and accessible fashion.

 
·
Informed Personalized Decision Making—Our FinApps ecosystem, built on top of the Yodlee platform, provides end users with relevant content and applications when they need to take action or make decisions.
 
 
10

 
Our solutions also offer benefits to our customers that are members of the developer community:

 
·
Enhanced Distribution—We estimate that our current network of FI customers alone reaches more than 100 million end users. This provides developers with large-scale distribution opportunities for their solutions.

 
·
Speed to Market—Access to our unique data platform and our open, secure and trusted APIs enhances speed to market for our developers.

 
·
Access to Critical Data and Payments Capabilities—Our solutions provide developers with critical data and payments capabilities which allows them to focus their innovation on their unique offerings.
 
Competitive Strengths

Since our founding in 1999, we have built a premier and trusted brand in digital financial services. Our competitive strengths include:

Market Leadership with Customers and End Users

We have developed a leading market presence with over 800 organizations, including 9 of the 15 largest banks in the United States, which hold 84% of the total assets of the top 15 U.S. banks, (based on total assets as of June 30, 2014). These organizations include some of the largest and best known retail banks, brokerages, insurance companies, wealth management firms, private banking institutions and card companies. Our platform also enables the emergence or functionality of many innovative Internet services companies. These customer relationships and deployments have taken many years to accomplish, with complex sales cycles and integration efforts. We have 18.4 million paid users and estimate that our current network of FI customers alone reaches more than 100 million end users. We have significant opportunity to grow the number of paid users with existing customers, as well as leverage our market leadership with new customers across our platform. We believe that our ability to retain our customers through renewals of subscription agreements and expand the number of paid users of our applications and services is an indicator of the long-term value of our customer relationships.
 
 
Brand Leadership as a Secure and Trusted Partner

Over our 15-year history, we have developed and maintained a commitment to excellence in our product offerings and client engagements. Our brand is reinforced by our stable and growing customer base. A large part of the reputation we have established comes from our commitment to scalability, security, privacy and compliance throughout all of our solutions. We have developed robust security procedures and technologies that are embedded into our platform and applications and meet industry standards as well as the stringent security requirements of our largest FI customers. We employ a comprehensive program of risk-driven policies and procedures that are frequently audited by independent security auditors engaged by us to maximize effectiveness of our information security program.

Unique Big Data Gathering and Enrichment
 
We are a big data practitioner providing our customers with data solutions and market research services that enhance the value of our solutions and anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. Our big data activities include two key processes:

Data Gathering—Our platform collects a wide variety of end user-permissioned transaction-level data from approximately 14,000 sources and puts it into a common repository. Currently, over 75% of this data is collected through structured feeds from our FI customers and other FIs. These structured feeds, which consist of either batch files pushed to us or real-time access, provide this critical data efficiently and at scale. This direct data connectivity to large FIs is a significant competitive advantage for us. Where we do not have direct connections, we capture data using our proprietary information-gathering techniques. Our flexible data model allows new and incremental data sources and data elements to be added quickly and efficiently.

Data Enrichment—Beyond collecting data, our platform performs a data refining process and augments the data with additional information from a variety of other sources. With this enhanced data, we enable our customers to offer better applications and more personalized solutions to their end users which provide end users insights that allow them to take better control of, and better manage, their finances.

Innovative Technology and Intellectual Property

We have a history of innovation leadership. In 1999, we introduced the first financial account aggregation product to the digital financial services industry. We were the first platform to go to market with online personal financial management tools in 2006 and first to introduce an open platform for digital financial services in 2010. Recently, our innovation was recognized by the Best of Show award for our new collaborative finance mobile product, Tandem, which won at the Finovate Conference in September 2013 and at the Finovate Asia Conference in November 2013. Additionally, we were named Best of Show at FinDEVr in October 2014 for our secure APIs that connect financial apps and services with significantly accurate categorical financial data. Furthermore, we were selected as a winner from more than 50 finalists for our multi-national voice and digital financial management application at the Citi Mobile Challenge Latam in November 2014.

 
11

 
As of December 31, 2014, we had been granted 66 U.S. patents and had 21 U.S. patent applications pending. We also had 8 issued patents and 13 patent applications pending in foreign jurisdictions such as the European Patent Office, Canada, Australia and India. We believe our innovation leadership is a core strength that positions us for future growth.

Flexible, Scalable, Open Platform

Our solutions are built on a scalable open cloud-based technology platform that allows us to address the challenges facing FI and YI customers. Our platform was created to support the existing challenges of our customers and to evolve with them to address their future needs. We have a highly configurable platform that enables our customers to create differentiated solutions. We have open and secure APIs that leverage our data aggregation and money movement capabilities. As our business continues to grow, we expect our open APIs to continue to attract an active community of third-party developers, whose innovations will further extend our existing set of products and applications. With these tools delivered through our highly efficient Software-as-a-Service-based, or SaaS-based, model, we are able to provide our customers with valuable data and innovative services quickly and efficiently.

Access to our platform and data is predominantly through our hosted web pages and applications, and client-created applications utilizing our APIs and FinApps. This variety of access methods and usage has contributed to an increase in user logins on the Yodlee platform to over 5 million per day. We process over 27 million API calls per day, while maintaining an average API response time under 500 milliseconds.

Powerful Network Effects

The Yodlee Financial Cloud brings together FIs, Internet services companies, end users and third-party developers by providing a unified, flexible, cloud-based platform that can deliver applications and new solutions at scale with powerful network effects:

·
We estimate that our current network of FI customers alone reaches more than 100 million end users. As our platform usage grows and is exposed to more users and use cases, the system benefits from machine learning algorithms to better normalize, categorize and process high volumes of transaction-level data captured on our platform, allowing our network to become more effective, efficient and valuable to our customers.

·
As our platform has become more effective and efficient, we have attracted a broad network of third-party developers. As more developers build on our platform, the number of solutions we can offer to our FI and YI customers increases, expanding the number of end users on the platform, and further enhancing our network, accelerating the pace of innovation.

·
As our end user community grows, users are able to leverage our platform by establishing connections to other end users to form financially relevant social groups, contributing further network effects.
 
Growth Strategy

Our growth strategy is currently divided into two primary areas of focus: user growth and revenue per paid user growth. Key elements of our growth strategy include:

User Growth

·
Expand End User Usage with Existing Customers—We believe there are significant opportunities for growth within our existing customer base. As of December 31, 2014, our customer base has grown to more than 800 organizations using the Yodlee platform and we receive subscription fees for 18.4 million paid users. Our FI customers encompass many of the leading FIs, including 9 of the 15 largest banks in the United States, which hold 84% of the total assets of the top 15 U.S. banks (based on total assets as of June 30, 2014). We estimate that our current network of FI customers alone reaches more than 100 million end users, representing a significant potential opportunity to grow our paid user base within existing customers. We believe we can increase penetration among our existing customer base, both by increasing the adoption of our solutions in business units that we currently serve and by expanding into new business units. We intend to grow our business in the retail, financial, wealth management, small business, card and other financial solutions sectors in part by distributing FinApp solutions tailored to the needs of those sectors. We also believe distributing FinApp solutions tailored to specific sectors will enable FIs to deepen engagement across their user base and will contribute to growth.

 
12

 
·
Grow the Number of Customers—While our platform was used by more than 450 FIs, including many of the top FIs, and 350 Internet services companies globally as of December 31, 2014, many opportunities exist for us to target new customers. According to Bankscope by Bureau van Dijk, as of March 14, 2014, there were approximately 9,941 active banks in the U.S. and 22,409 globally. We continue to drive efforts to deploy solutions with leading global FIs while also driving penetration in smaller FIs through channel partners. We intend to employ a land and expand strategy to target these institutions with simple initial product offerings and continually grow use cases over time. In addition, we believe demand for our YI solutions will continue to grow outside our current areas of focus. Our product capabilities across our YI customers currently cover over 30 sub-verticals and these capabilities will continue to increase as our platform usage grows and is exposed to more use cases. In many of these use cases, there is considerable room for expansion of our offerings. Lastly, our emerging data solutions and market research efforts are developing new product and customer base opportunities as we expand.

·
Increase our Global Market Presence—We intend to deepen our presence in Canada, the United Kingdom, South Africa, India and Australia, and to establish a presence in select markets in Asia, Latin America, and Europe. We will continue to focus on selling to the largest banking organizations and YI customers in each region using a scalable approach to enter new markets in a cost-effective manner.

Revenue per Paid User Growth

In addition to generating revenue directly from our platform and FinApps with our FI and YI customers, we also intend to grow our revenue by providing additional data solutions and market research services and are pursuing revenue-sharing opportunities from premium FinApps developed by our developer partners.

·
Data Solutions and Market Research—We believe there is significant value inherent in our data solutions and market research services which we can realize through several different channels:

·
Data-driven cross-sell and digital marketing opportunities—The scale and breadth of our platform allow us to gather transaction-level data from user accounts in outside institutions that provides a more holistic understanding of our customers’ end users than our customers are able to compile themselves. Our data solutions and market research services can be used by our customers to enhance the efficacy of their marketing strategies, enabling them to capture cross-sell and up-sell opportunities. There is also significant value in integrating our data services into FI customer relationship management systems.

·
Market research—We have developed data products by aggregating anonymized financial transactions that occur on our platform, which will then power research and reporting products for multiple research use cases.

·
Credit and risk analytics—The end user-permissioned transaction-level data can also be used to improve real-time authentication and risk management and to enhance predictive analysis.

·
FinApps—We are pursuing opportunities to grow revenue from premium FinApps through revenue sharing with developer partners and our customers. We are engaging with a number of partners on our platform and are focusing our efforts on connecting these partners with our customers for distribution to their end users.

Products

Yodlee designs, builds, and delivers flexible solutions within the Yodlee Financial Cloud. These solutions broadly address the financial management needs of end users. Our customers deploy these products to enhance end user engagement across all digital channels.

Our platform enables FinApps that are sold individually and in the combinations described below:
 
 
13

 
·
Yodlee Industry Solutions
·
Yodlee Retail Banking—Designed for mass market consumers, including enabling them to evaluate where they spend their money, receive alerts for activities requiring their attention, budget and create savings goals.

·
Yodlee Wealth Management—Designed for affluent consumers, including providing a complete view of the consumer’s portfolio, focusing on net worth, holdings, and investments.

·
Yodlee Small Business—Designed for small business owners who have 10 or fewer employees, including enabling them to easily manage cash flows, track their business finances and transactions, and analyze expenses in one place.

·
Yodlee Product Solutions
·
Yodlee Personal Financial Management—Provides a personal financial management solution that delivers FinApps that include account aggregation, expense management, budgeting, savings goals, investment, and net worth.

·
Yodlee Money Movement
·
Yodlee BillPay—Delivers a consumer bill payment solution including FinApps allowing consumers to schedule payments to billers, view electronic bills, and make expedited or real-time bill payments.

·
Yodlee FundsTransfer—Delivers consumer account-to-account money movement allowing one-time and scheduled transfers.

·
Yodlee Risk Management—Yodlee Instant Account Verification provides our customers with important information about user accounts, such as account holder name, balance, and account number, reducing risk for our customers when interacting with an end user’s checking account and allowing consumers to verify their financial accounts in real time.

·
Yodlee Mobile Solutions—FinApps designed specifically for mobile and tablet devices and provides access to the main functionality of the Yodlee platform. We have announced our latest mobile offering, Yodlee Tandem, which is designed to help consumers manage their money across financial relationships. Combining the elements of personal finance, account aggregation, social circles, and chat/messaging, Yodlee Tandem will allow users to safely work with others on shared finances in a user-permissioned manner.

Yodlee APIs

Yodlee APIs allow Yodlee, FI and YI customers, including third-party developers, to build applications on the Yodlee platform. Our customers can use these APIs to develop proprietary applications. In addition, our customers and third-party developers can also leverage these APIs to create FinApps that are available across all digital channels including Web, tablet, and mobile. Access to Yodlee APIs is licensed to FI and YI customers based on the solutions they seek to supplement. All of the Yodlee APIs are available via traditional Simple Object Access protocols or the more modern Representational State Transfer or Java Script Object Notation formats.

Key APIs include:

·
Yodlee PersonalFinance Management and Yodlee Risk Management APIs. These APIs provide customers with access to user-permissioned financial data.

·
Yodlee MoneyMovement APIs. These APIs provide customers with access to traditional payment mechanisms through the money movement capabilities of the Yodlee platform.

Yodlee Data Solutions

We use the transaction-level data gathered and refined by the Yodlee platform to provide data solutions and market research services that enhance the value of our solutions to our customers, as well as leverage the breadth and depth of our anonymized data with new customers. Transaction data enrichment delivers robust transaction-level merchant identification capabilities coupled with simplified transaction descriptions and geolocation. This transaction data enrichment service is developed to enable FIs and Internet service companies to more effectively engage digital users with relevant information on their transactions and increase success rates on offers.

 
14

 
Technology, Security and Operations

Our technology infrastructure is designed to provide a highly available and secure multi-tenant cloud-based platform across hundreds of customers and millions of end users. Our solutions use a single code base for all customers and are globally accessible across multiple digital channels. Our multi-tenancy model uses a common data model for all customers but isolates data with logical controls and separate encryption keys for each customer.

Our SaaS platform is highly scalable. Our architecture utilizes state-of-the-art technologies, hardware and software to achieve enhanced availability, scalability and security. We have architected the system to scale horizontally allowing us to add more servers as volumes increase. The data base processing uses large servers and high performance storage arrays. This scalability is made possible by extensive use of parallel, distributed, and auto-scaling message based architectures. Our support tools, commercial and internally-developed, provide consistent and cost efficient processes across products and support functions.
 
Our infrastructure and applications have been designed and built to optimize this SaaS environment. Our applications, APIs, and FinApps all access the same core application layer and backend processing. We enable highly customized deployments and still maintain the efficiencies of a SaaS model. This is accomplished through a configuration architecture in our application framework. This Yodlee-developed framework allows for extensive customer-specific configuration in the user experience and the functions exposed to end users, while still maintaining a true multi-tenant SaaS operational model.

Technology

The backbone of our technology includes our data aggregation and money movement capabilities in a highly secure environment.

Yodlee Data Aggregation

Our data aggregation platform collects a wide variety of end user-permissioned transaction-level data from approximately 14,000 sources and puts it in a common repository. Over the last 15 years we have developed robust proprietary technology and processes and established relationships that allow us to curate these data sources and expand our access to new data sources. Over 75% of this data is collected through structured feeds from our FI customers and other FIs. These structured feeds, which consist of either batch files pushed to us or real-time access, provide this critical data efficiently and at scale. Where we do not have direct connections, we capture data using our proprietary information-gathering techniques.

Beyond collecting data, our data aggregation platform performs a data refining process and augments the data with additional information from a variety of other sources. We enrich the data with a proprietary twelve-step process, adding such elements as categorization and merchant identification for bank or credit card account data and investment holding identification for investment account data. As our platform usage grows and is exposed to more users and use cases, the system benefits from machine learning algorithms to better normalize, categorize and process large amounts of data, allowing our network to become more effective, efficient and valuable to our customers. With this enhanced data, including consolidated data from within our FI customers and account data regarding accounts at other FIs, we enable our customers to offer more personalized solutions to their end users, which provide end users insights that allow them to take better control of, and better manage, their finances.

Yodlee Money Movement

Our money movement solutions facilitate payment flows. Our customers can debit and credit consumer and small business accounts in real time or in batches and route payments between accounts (funds transfer), to billers (bill pay), or to other individuals (peer to peer). Designed to be run as a service, our money movement solutions allow us to operate these functionalities in the cloud and quickly adapt to new payment systems.

Our payment engine, which is a principal component of our money movement solutions, is a task-based payment processing platform that controls all payment activity across cobrands, originators, processors, and billers. Our payment engine handles multiple tasks, including payment initiation, payment routing, payment processing, Office of Foreign Assets Control checking of payee and payor, and risk and fraud detection.
 
 
15

 
Security

Yodlee Security
 
As a provider of financial data and digital financial management services, our security and data integrity are critical components of our platform and applications. We have developed robust security procedures and technologies that are embedded into our platform and applications and meet industry standards as well as the stringent security requirements of our largest FI customers. We employ a comprehensive program of risk-driven policies and procedures to maximize effectiveness of our information security program, including frequent external audits. In 2014, we successfully passed numerous security and operational audits conducted by our customers and independent security auditors engaged by us. Many of our current and prospective customers reviewed the results of such audits as part of their evaluation of our solutions. We are audited by U.S. regulatory agencies to whom our operations or our customers’ operations are subject. We follow industry security standards in the design and implementation of our applications, systems and network. For example, we use extensive network segmentation to separate our production, staging, development, corporate, and other platforms from each other with access controls between each zone. Other key security processes include: keystroke logging of administrative actions; file integrity monitoring; systems and network vulnerability scanning; security monitoring with event correlation; and security incident response procedures.

Operations

We physically host the Yodlee platform in five third-party data centers in the United States, Canada and India that provide secure facilities, space, power, and Internet connectivity and service all customers, both domestic and international. We also plan to host the Yodlee platform in third-party data centers in additional international locations in the future. We own or lease the hardware and own or license the software used to host our solutions. Currently the primary production data center and disaster recovery center, in the United States and the largest data centers for Yodlee, has two different third-party providers. This reduces the risk and dependencies on any single hosting provider. Similarly, we have already established relationships and services with different international data centers providers.

Our contracts with data center providers only require standard services such as floor and secure cage space, standard power density for systems, and redundant internet connectivity. We do not require managed services or any customized hosting services. Our staff can remotely manage systems and platform in all data centers and when needed our employees perform work on-site. Our platform is also certified to run on virtual machines and thus start-up and implementation of new data center capacity in the same or different hosting providers can be completed in a relatively short timeframe.

We have Service Level Agreements, or SLAs, with customers that define our operational and performance commitments, and we deploy commercial and internally-developed tools to monitor and report on SLA commitments. We run a command center 24 hours a day, 7 days a week that is responsible for monitoring our operations.

We also have formal disaster recovery programs for our internal services and our customers’ applications. We regularly test our internal disaster recovery programs and engage in annual testing with customers. In addition, our infrastructure consists of highly redundant environments. This includes redundant equipment at every layer with various configurations such as active/active and active/failover.

Research and Development

Our research and development efforts are generally focused on improving our existing and developing new data aggregation and money movement components, security infrastructure, APIs, new FinApps, data solutions and market research services and tools for third-party developers. As of December 31, 2014, we had approximately 430 employees in the research and development department in our India and U.S. offices who are dedicated to improving our existing solutions, developing new solutions that meet our customers’ needs and maintaining quality control over our solutions. Our significant presence in India provides us with direct access to a large pool of talented engineers from which we have been able to successfully recruit, hire and retain qualified personnel who help to drive our business growth.

Our research and development expenses were $23.6 million, $17.9 million and $16.2 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Sales and Marketing

Our sales and business development teams are responsible for acquiring and growing our relationships with customers, channel and development partners.

 
16

 
Sales

We have a direct sales and pre-sales team servicing the leading global FIs. The FI sales team is divided geographically into two regional groups: North America, Europe, Middle East/Africa and Asia-Pacific. Each regional sales and pre-sales team is responsible for acquiring new FI customers. Within the North America region we further divide our direct sales and pre-sales representatives into teams that focus on specific accounts, on a named-account basis, depending on size, location, product specialization and/or brand. Our direct sales and pre-sales teams are supported by customer advocacy teams who specialize in customer account management and expansion. Together, sales, pre-sales and customer advocacy representatives are responsible for growing our customer relationships in terms of account penetration (cross-selling additional products and services into the same or additional groups within a FI) and expanding use of existing products and services (increasing usage). We also have a global channel partner sales team responsible for acquiring and supporting channel partners who target sales to FIs with fewer than $20 billion in deposits or assets under management. Additionally, we have resources that pursue our opportunities for sales of data solutions and market research services.

We have a direct sales and technical pre-sales team servicing Internet services companies and partners in each region in which we currently operate or intend to operate. This sales team is divided geographically into two regional groups: North America; and Europe, Middle East/Africa and Asia-Pacific. Each regional sales and technical pre-sales team is responsible for acquiring new customers and channel partners. From time to time, we assign specific accounts based upon sales or domain expertise. Our direct sales and technical pre-sales teams are supported by a customer success and developer relations team who specialize in customer API integration, and account management and expansion, including services to our channel partners. Together, sales, technical pre-sales, customer success and developer relations representatives are responsible for growing our direct customer and channel partner relationships in terms of account penetration and API usage.

Marketing

Our marketing efforts are focused on initiatives to drive global company, brand and solutions awareness and significant lead generation and sales acceleration across our whole business. These initiatives include educating the market about Yodlee, achieving recognition as the industry leader through awards, speaking engagements, thought leadership articles, data trends and metrics, and high profile interviews.

We are constantly refining our grassroots lead-generation approach to ensure we generate high quality sales leads that meet or exceed our pipeline goals. We employ a variety of integrated sales and marketing initiatives, including hosted demand generation webinars, sponsorship and partnership of key industry conferences, customer and developer-focused events and programs, meet-ups and hack-a-thons, and other high-profile activities designed to demonstrate thought leadership and engage new audiences in actionable and measurable ways. We employ many tools, including web and social properties, integrated creative campaigns consisting of online advertising, digital and video content marketing, direct mail, blogs, analyst relations and media relations. In addition, our marketing efforts develop consumer best practices tools, case studies, and education to drive deeper consumer activity and engagement with top customers.

Our sales and marketing expenses were $22.4 million, $15.4 million, and $13.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Services

Professional Services

We provide a variety of implementation services to our customers, focused on configuring the Yodlee platform to meet customer needs. Our platform is designed to be robust, yet easy to configure and personalize, to ensure an efficient implementation process. We engage with key customers on projects ranging from turnkey implementations to ongoing consulting engagements. As a part of every implementation, we provide training to our customers.

We have developed expertise and experience in integrating our solutions with our customers’ platforms throughout our history. Our professional services team, working closely with our support and operations teams, uses this expertise and experience in our efforts to ensure the end user has a positive experience with our solutions.

Support

 
17

 
Our customer support is provided via our software-based Yodlee CustomerCare console, phone or e-mail and is available to our FI and YI customers 24 hours a day, 7 days a week as a second level of support for issues our customers cannot resolve internally.

Yodlee customer support is provided both on an on-demand basis through our support command center, and on an ongoing basis through our Technical Account Managers. Our support command center is responsible for all urgent issues with our customers. Once an issue is identified, customer support triages the issue and assigns it to several internal teams depending upon the type of issue that is encountered. Our ongoing customer support is administered by our Technical Account Managers. Each manager is assigned to key accounts and is responsible for meeting with customers on a weekly basis to discuss the overall status of the account.

Intellectual Property

We rely on a combination of patent, trade secret, copyright and trademark laws, license agreements, confidentiality procedures and confidentiality and nondisclosure agreements to establish and protect our proprietary rights in our solutions. We generally enter into confidentiality and nondisclosure agreements with our employees, contractors, vendors and customers. We also seek to control access to and distribution of our software, documentation and other proprietary information.

As of December 31, 2014, we had been granted 66 U.S. patents and had 21 U.S. patent applications pending. Our patents expire between 2018 and 2032. We also had 8 issued patents and 13 patent applications pending in foreign jurisdictions such as the European Patent Office, Canada, Australia and India. As a pioneer in data aggregation, we have patents relating to our core aggregation engine. In addition, our patent portfolio includes patents relating to the supporting infrastructure of error reporting, error correction and auto configuration functionalities. We also have patents relating to applications of aggregation, including reporting, financial analysis, bill presentment and identity verification. We also seek patents on new and emerging technologies, such as FinApps.

We use various trademarks for our products and solutions and “Yodlee”, “Yodlee Moneycenter”, “Yodlee Personalpay”, “Paytoday”, “Payitall”, “Innovation Applied”, “Finapp” and our logo are our registered trademarks in the United States. We also have registered trademarks and pending trademark applications in foreign jurisdictions such as Australia, Canada, the EU, India, New Zealand, Hong Kong, Japan, Mexico and South Africa.

Despite our efforts to protect our intellectual property and proprietary rights, unauthorized parties may attempt to copy or obtain and use our technology to develop solutions that provide features and functionality that are similar to our solutions. Policing unauthorized use of our intellectual property and proprietary rights is difficult and expensive, and our monitoring and policing activities may not be sufficient to identify any misappropriation and protect our proprietary technology. If unauthorized use of our intellectual property and proprietary rights were to occur, it could harm our reputation and adversely affect our competitive position or operations. In addition, laws of other jurisdictions may not protect our intellectual property and proprietary rights from unauthorized use or disclosure in the same manner as the United States. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenue, reputation and competitive position could be harmed.

Customers

Our customers include financial institutions, Internet service companies providing innovative financial solutions and third-party developers of financial applications. Our platform was used by more than 450 FIs, including many of the top FIs, and 350 Internet services companies globally as of December 31, 2014. Because a portion of our business is targeted at the highly concentrated financial industry and our largest customers include 9 of the 15 largest banks in the United States (based on total assets as of June 30, 2014), a significant portion of our revenue is concentrated among a small number of these large financial institution customers. As a percentage of total revenue, revenue derived from Bank of America, N.A., a wholly-owned subsidiary of Bank of America Corporation, which beneficially owned in the aggregate 9.6% of our outstanding common stock as of December 31, 2014, individually, and from Bank of America, N.A., and our two other largest customers, as a group, was approximately 13.8% and 25.4%, respectively, during the year ended December 31, 2014 and 14.9% and 32.2%, respectively, during the year ended December 31, 2013. See Item 1A, “Risk Factors” for further discussion of risks related to customer concentration.

Backlog

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Backlog" for information regarding our backlog.
 
 
18

 
Competition

While we do not believe any single company in the digital financial services market offers a comprehensive platform with features such as ours, the following companies offer products that compete with one or more of our solutions:

·
for data aggregation: Intuit, Inc. and Fiserv, Inc. (CashEdge);

·
for personal financial management: Intuit (direct to consumer service) and internal IT departments of FIs, as well as early-stage companies;

·
for online bill pay: Fiserv and FIS Global Corporation;

·
for data products and services: global payment networks, credit bureaus and other institutions that have access to large pools of data; and

·
for account verification: MicroBilt Corporation and Early Warning Systems, LLC.

We believe the principal competitive factors in digital financial services include the following: reputation, cloud-based delivery model, data aggregation capability, access to data through direct connectivity to FIs, scale (size of customer base and level of user adoption), security, time to market, breadth and depth of application functionality user experience, access to third-party applications, ease of use, ease of integration, flexibility and configurability, and competitive pricing. We believe that we compete favorably with respect to all of these factors.

Government Regulation

We are subject to numerous domestic and foreign laws and regulations covering a wide variety of subject matter. New laws and regulations (or new interpretations of existing laws and regulations) may also impact our business. The costs of compliance with these laws and regulations are high and are likely to increase in the future and any failure on our part to comply with these laws may subject us to significant liabilities and other penalties. See Item 1A, “Risk Factors—We operate in a highly regulated environment, and failure by us or financial institutions and other customers through which our solutions are made available to comply with applicable laws and regulations could have an adverse effect on our business, financial position and operating results” for additional information regarding the regulations that impact our business.

Culture and Employees

Culture

Our culture and employees are fundamental to our success. Dedication to innovation is a core element of our culture. We achieve and sustain innovation by always striving to be the best in whatever we do, enabled by a focus on teamwork and an open and authentic environment. We seek to hire enthusiastic employees who will help us perpetuate our positive workplace environment. We also offer a work exchange program for many of our employees in technical roles. This program provides our employees the opportunity to work overseas with their peers and to collaborate face to face with one another on a variety of projects. We believe this program enhances opportunities for innovation, provides valuable work experience and strengthens our corporate culture. In addition, we have a leadership program to align both our company’s leaders and the organization. We believe that the company culture we have established through these programs and initiatives contributes to strong employee retention in both our U.S. and India offices.

Employees

As of December 31, 2014, we had 969 full time employees. Of that total approximately 190 were located at our corporate headquarters in Redwood City, California, and approximately 780 were located in Bangalore, India. None of our employees is represented by a labor union or covered by collective bargaining agreements. We consider our current relations with our employees to be good.

 
19

 
Corporate Information

We were incorporated in Delaware in February 1999 under the name Yodlee.com, Inc. and changed our name to Yodlee, Inc. in June 2001. Our principal executive offices are located at 3600 Bridge Parkway, Suite 200, Redwood City, California 94065. The phone number of our principal executive offices is (650) 980-3600, and our main corporate website is www.yodlee.com. We completed our initial public offering in October 2014 and our common stock is currently listed on the Nasdaq Global Select Market under the symbol “YDLE.”

The names “Yodlee”, “Yodlee Moneycenter”, “Yodlee Personalpay”, “Paytoday”, “Payitall”, “Innovation Applied”, “Finapp” and our logo are our trademarks. This Annual Report on Form 10-K also contains trademarks and trade names of other businesses that are the property of their respective holders. We have omitted the ® and ™ designations, as applicable, for the trademarks we name in this Annual Report on Form 10-K.
 
 
 

 
 
20

 
Item 1A.  Risk Factors
 
Investing in our 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 in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the following risks are realized, our business, operating results and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business

We have a history of losses and we may not maintain profitability in the future.

Except in 2010, we have not been profitable on an annual basis since our formation. We experienced a net loss of $7.0 million, $1.2 million and $6.5 million for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, our accumulated deficit was $357.2 million. While our revenue has grown in recent periods, we were not profitable in the year ended December 31, 2014. Our revenue growth may not be sustainable and we may not achieve sufficient revenue to achieve and maintain profitability. We expect to make significant future expenditures related to the development and expansion of our business. In addition, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. As a result of these expenditures, we will have to generate and sustain increased revenue to achieve and maintain future profitability. We may incur significant losses in the future for a number of reasons, including due to the other risks described in this Annual Report on Form 10-K, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown factors. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries. If we do not address these risks successfully or if our assumptions regarding these risks and difficulties are incorrect or change in reaction to changes in the market, our business could be harmed. Accordingly, we may not be able to maintain profitability and we may incur significant losses for the foreseeable future.

We derive our revenue from subscriptions to a single software platform, and any factor adversely affecting the Yodlee platform would harm our business and operating results.

We derive our revenue from subscriptions to a single software platform, and related support and professional services. As such, any factor adversely affecting subscriptions to the Yodlee platform, including those described elsewhere under “Risk Factors” or in other portions of this Annual Report on Form 10-K, would harm our business and operating results. In addition, while we intend to pursue new business initiatives, such as data solutions and market research services and revenue-sharing arrangements with third-party developers of FinApps, we cannot be sure that we will recognize significant revenue from those sources. The viability of these business opportunities depends on the continued success of the Yodlee platform, and our strategy to derive revenue from those activities would suffer if subscriptions to the Yodlee platform were adversely affected.

Revenue derived from sales to Bank of America, N.A., individually, and from Bank of America, N.A. and our two other largest customers, as a group, represented approximately 13.8% and 25.4%, respectively, of our total revenue during the year ended December 31, 2014, and we expect to continue to derive a significant portion of our revenue from a small number of customers.

The financial services industry in the United States is highly concentrated, with a small number of large financial institutions holding a majority of total assets held by all U.S. financial institutions. Because a portion of our business is targeted at this industry and our largest customers include 9 of the 15 largest banks in the United States (based on total assets as of June 30, 2014), a significant portion of our revenue is concentrated among a small number of these large financial institution customers. As a percentage of total revenue, revenue derived from Bank of America, N.A., a wholly-owned subsidiary of Bank of America Corporation, which beneficially owned in the aggregate 9.6% of our outstanding common stock as of December 31, 2014, individually, and from Bank of America, N.A., and our two other largest customers, as a group, was approximately 13.8% and 25.4%, respectively, during the year ended December 31, 2014 and 14.9% and 32.2%, respectively, during the year ended December 31, 2013. We anticipate that revenue from a small group of customers will continue to account for a significant portion of our revenue in future periods. It would be difficult to replace any of our largest customers or the revenue derived from such customers. In addition, any publicity associated with the loss of any of our largest customers could harm our reputation, making it more difficult to attract and retain other large customers, and could weaken our negotiating position with respect to our remaining and prospective customers.
 
 
21

 
There can be no assurance that we will be able to continue our relationships with any of our largest customers on the same or more favorable terms in future periods or that our relationships will continue beyond the terms of our existing contracts with them. Our revenue and operating results could suffer if, among other things, any of our largest customers were to renegotiate, terminate, renew on less favorable terms or fail to renew their agreement with us.

Because some of our sales efforts are targeted at large financial institutions and large Internet services companies, we face prolonged sales cycles, substantial upfront sales costs and less predictability in completing some of our sales. If our sales cycle lengthens, or if our upfront sales investments do not result in sufficient revenue, our operating results may be harmed.
 
We target a portion of our sales efforts at large financial institutions and large Internet services companies, which presents challenges that are different from those we encounter with smaller customers. Because our large customers are often making an enterprise-wide decision to deploy our solutions, we face longer sales cycles, complex customer requirements, substantial upfront sales costs, significant contract negotiations and less predictability in completing sales with these customers. Our sales cycle can often last one year or more with our largest customers, who often undertake an extended evaluation process, but is variable and difficult to predict and can be longer or shorter. If we continue to expand globally, we anticipate that we may experience even longer sales cycles, more complex customer needs, higher upfront sales costs and less predictability in completing sales with our larger customers and customers located outside of the United States. If our sales cycle lengthens or our upfront sales investments do not generate sufficient revenue to justify our investments in our sales efforts, our operating results may be harmed.
 
Failure of our customers to deploy our solutions in a timely and successful manner could negatively affect our revenue and operating results.
 
The timing of revenue from our customers depends on a number of factors outside of our control and may vary from period to period. Our customers may request customization of our solutions for their systems or engage in a prolonged, internal decision making process regarding the deployment of our solutions. Among our larger customers, deployment of our solutions can be a complex and prolonged process and requires integration into the existing platform on our customers’ systems. Any delay during the deployment process related to technical difficulties experienced by our customers or us in integrating our solutions into our customers’ systems could further lengthen the deployment period and create additional costs or customer dissatisfaction. During the deployment period, we expend substantial time, effort, and financial resources in an effort to assist our customers with the deployment. Some of our customers may ultimately decide that it is not in the best interest of their business to deploy our solutions at all. We generally are not able to recognize the full potential value of our customer contracts until our customers actually deploy our solutions, though our contracts typically provide that minimum payments are due beginning on a specified date whether or not deployments are completed by that date. Cancellation of any deployment after it has begun could result in lost time, effort, and expenses invested in the cancelled deployment process, and would adversely affect our ability to recognize revenue that we anticipated at the time of the execution of the related customer contract. If our customers do not timely and successfully deploy our solutions, our future revenue and operating results could be negatively impacted.

Our future success depends upon our customers’ active and effective promotion of our solutions.
 
Our success depends on our customers, their willingness to effectively promote our solutions to their end users, and their end users’ adoption and use of our solutions. In general, our contracts with our customers allow them to exercise significant discretion over the promotion of our solutions, and they could give higher priority to other products or services they offer. Accordingly, losing the support of our customers would likely limit or reduce the use of our solutions and the related revenue. Our revenue may also be negatively affected by our customers’ operational decisions. For example, if a customer implements changes in its systems that disrupt the integration between its systems and ours, we could experience a decline in the use of our solutions. Even if our customers actively and effectively promote our solutions, there can be no assurance that their efforts will result in increased usage of our solutions by their end users or the growth of our revenue. Failure of our customers to effectively promote our solutions, and of their end users to increasingly adopt and use our solutions, could have a material adverse effect upon our future revenue and operating results.
 
Our reputation is critical to our business, and if our reputation is harmed our business and operating results could be adversely affected.
 
Our reputation, which depends on earning and maintaining the trust and confidence of our current and potential customers and end users, is critical to our business. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, data security breaches, lawsuits, employee misconduct, perceptions of conflicts of interest and rumors, among other developments, could substantially damage our reputation, even if they are baseless or satisfactorily addressed. In addition, any perception that the quality of our solutions may not be the same or better than that of other providers could also damage our reputation. Any damage to our reputation could harm our ability to attract and retain customers and key personnel and adversely affect our operating results. Attempts to repair our reputation, if damaged, may be costly and time consuming, and such efforts may not ultimately be successful.
 
 
22

 
Our hosting, collection, use and storage of customer information and data require the implementation of effective security controls, and a data security breach could disrupt our business, result in the disclosure of confidential information, expose us to liability and protracted and costly litigation, adversely affect our reputation and revenue and cause losses.
 
We and our customers through which our solutions are made available to end users, collect, use, transmit and store confidential end user-permissioned financial information such as bank account numbers, portfolio holdings, credit card data and outstanding debts and bills. The measures we take to provide security for collection, use, storage, processing and transmission of confidential end user information may not be effective to protect against data security breaches by third parties. We use commercially available security technologies, including hardware and software data encryption techniques and multi-layer network security measures, to protect transactions and information. Although we encrypt data fields that typically include sensitive, confidential information, other unencrypted data fields may include similar information that could be accessible in the event of a security breach. We use security and business controls to limit access and use of confidential end user information. However, a portion of the security protection begins with our customers because they are the initial point of user authentication of hosted solutions. Although we require our Internet services customers and third-party suppliers to implement controls similar to ours, the technologies and practices of our customers and third-party suppliers may not meet all of the requirements we include in our contracts and we may not have the ability to effectively monitor the implementation of security measures of our customers and third-party suppliers. In many cases, our customers build and host their own web applications and access our solutions through our APIs. In these cases, additional risks reside in the customer’s system with respect to security and preventive controls. As a result, inadequacies of our customers’ and third-party suppliers’ security technologies and practices may only be detected after a security breach has occurred. Errors in the collection, use, storage or transmission of confidential end user information may result in a breach of privacy or theft of assets.

The risk of unauthorized circumvention of our security measures has been heightened by advances in computer capabilities and the increasing sophistication of hackers. Criminals are using increasingly sophisticated techniques to engage in illegal activities involving solutions such as ours or end user information, such as counterfeiting, fraudulent payment and identity theft. Because the techniques used by hackers change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. In addition to hackers, it is possible that a customer could gain unauthorized access to our database through the use of our solutions. Improper access to our systems or databases by hackers or customers intending to commit criminal activities could result in the theft, publication, deletion or modification of confidential end user information. An actual or perceived breach of our security may require notification under applicable data privacy regulations.
 
A data security breach of the systems on which sensitive user data and account information are stored could lead to claims or regulatory actions against us. If we are sued in connection with any data security breach, we could be involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our revenue and profitability. Our customer contracts typically include security standards that must be complied with by us and our customers. If a data security breach occurs and we have not been in compliance with the security standards included in our applicable contracts, we could be liable for breach of contract claims brought by our customers. We could also be required to indemnify our customers for third-party claims, fines, penalties and/or other assessments imposed on our customers as a result of any data security breach and our liability could exceed our insurance coverage or ability to pay.
 
Our security procedures and technologies are regularly audited by independent security auditors engaged by us, and many of our prospective and current customers conduct their own audits or review the results of such independent security audits as part of their evaluation of our solutions. We are also periodically audited by regulatory agencies to whom our operations or our customers are subject, including The Office of the Comptroller of the Currency, or the OCC, which is the Agency in Charge of multi-agency supervisory examinations of our operations. Adverse findings in these audits or examinations, even if not accompanied by any data security breach, could adversely affect our ability to maintain our existing customer relationships and establish new customer relationships.

 
23

 
Data security breaches, acts of fraud involving our solutions, or adverse findings in security audits or examinations, could result in reputational damage to us, which could reduce the use and acceptance of our solutions, cause our customers to cease doing business with us and have a significant adverse impact on our revenue and future growth prospects. Further, any of these events could lead to additional regulation and oversight by federal and state agencies, which could impose new and costly compliance obligations and may lead to the loss of our ability to make our solutions available.
 
Privacy concerns could have an adverse impact on our revenue and harm our reputation and may require us to modify our operations.
 
As part of our business, we use, transmit and store confidential end user-permissioned data. We are subject to laws, rules and regulations relating to the collection, use, and security of end user data. For privacy or security reasons, privacy groups, governmental agencies and individuals may seek to restrict or prevent our use of this data. New laws in this area have been passed by several jurisdictions, and other jurisdictions are considering imposing additional restrictions. These new laws may be interpreted and applied inconsistently from jurisdiction to jurisdiction and our current data protection policies and practices may not be consistent with those interpretations and applications. In addition, the ability to execute transactions and the possession and use of personal information and data in conducting our business subjects us to legislative and regulatory burdens that may require notification to customers or employees of a security breach, restrict our use of personal information, hinder our ability to acquire new customers or market to existing customers, require us to modify our operations and have an adverse effect on our business, financial condition and operating results. We have incurred, and will continue to incur, significant expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. As our business continues to expand to new industry segments that may be more highly regulated for privacy and data security, and to countries outside the United States that have more strict data protection laws, our compliance requirements and costs may increase.
 
If sources from which we obtain information limit our access to such information or charge us fees for accessing such information, our business could be materially and adversely harmed.
 
Our solutions require certain data that we obtain from thousands of sources, including banks, other financial institutions, retail businesses and other organizations, some of which are not our current customers. As of December 31, 2014, we receive over 75% of this data through structured data feeds that are provided under the terms of our contracts with most of our financial institution, or FI, customers. Although all of the information we currently gather is end user-permissioned data and, currently, we generally have free, unrestricted access to, or ability to use, such information, one or more of our current customers could decide to limit or block our access to the data feeds we currently have in place with these customers due to factors outside of our control such as more burdensome regulation of our or our customers’ industry, increased compliance requirements or changes in business strategy. If the sources from which we obtain information that is important to our solutions limit or restrict our ability to access or use such information, we may be required to attempt to obtain the information, if at all, through end user-permissioned data scraping or other means that could be more costly and time-consuming, and less effective or efficient. In the past, a limited number of third parties, primarily airline and international sites, have either blocked our access to their websites or requested that we cease employing data scraping of their websites to gather information, and we could receive similar, additional requests in the future. Any such limitation or restriction may also preclude us from providing our solutions on a timely basis, if at all. In addition, if in the future one or more third parties challenge our right to access information from these sources, we may be required to negotiate with these sources for access to their information or to discontinue certain services currently provided by our solutions. The legal environment surrounding data scraping and similar means of obtaining access to information on third-party websites is not completely clear and is evolving, and one or more third parties could assert claims against us seeking damages or to prevent us from accessing information in that manner. In the event sources from which we obtain this information begin to charge us fees for accessing such information, we may be forced to increase the fees that we charge our customers, which could make our solutions less attractive, or our gross margins and other financial results could suffer.

Failure by our customers to obtain proper permissions and waivers might result in claims against us or may limit or prevent our use of data, which could harm our business.
 
We require our customers to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of information through our solutions. Our contracts with our customers include assurances from them that they have done so and will do so, but we do not audit our customers to ensure that they have acted, and continue to act, consistent with such assurances. If, despite these requirements and contractual obligations, our customers do not obtain necessary permissions and waivers, then our use and disclosure of information that we receive from them or on their behalf might be limited or prohibited by federal, state or foreign privacy laws or other laws. Such a failure to obtain proper permissions and waivers could impair our functions, processes and databases that reflect, contain, or are based upon such data and might prevent use of such data. In addition, such a failure could interfere with, or prevent creation or use of, rules, analyses, or other data-driven activities that benefit us and our business. Moreover, we might be subject to claims or liability for use or disclosure of information by reason of lack of valid notices, agreements, permissions or waivers. These claims or liabilities could subject us to unexpected costs and adversely affect our operating results.
 
 
24

 
We operate in a highly regulated environment, and failure by us or financial institutions and other customers through which our solutions are made available to comply with applicable laws and regulations could have an adverse effect on our business, financial position and operating results.
 
We operate in a highly regulated environment at the federal, state and international levels, and failure by us or FIs and other customers through which our solutions are made available to comply with the laws and regulations to which we and they are subject could negatively impact our business. In particular, our solutions are subject to a strict set of legal and regulatory requirements intended to protect consumers and to help detect and prevent money laundering, terrorist financing and other illicit activities. Although we have internal controls in place to comply with applicable regulations, we cannot guarantee that our internal controls will always be effective in ensuring such compliance. Our FI customers and prospective customers are highly regulated and may be required to comply with stringent regulations in connection with subscribing to and implementing our solutions.
 
We are examined on a periodic basis by various regulatory agencies. For example, we are a supervised third-party technology service provider subject to multi-agency supervisory examinations in a wide variety of areas based on published guidance by the Federal Financial Institutions Examination Council. These examinations include examinations of our management, acquisition and development activities, support and delivery, IT, and disaster preparedness and business recovery planning. The OCC is the Agency in Charge of these examinations. If deficiencies are identified, customers may choose to terminate or reduce their relationships with us. As a result of obligations under our customer agreements, we are required to comply with certain provisions of the Gramm-Leach-Bliley Act, or GLBA, related to the privacy of consumer information and may be subject to other privacy and data security laws because of the solutions we provide. In addition, numerous regulations have been proposed and are still being written to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, for enhanced due diligence of the internal systems and processes of companies like ours by their FI customers. If we are required to make changes to our internal processes and solutions as result of this heightened scrutiny, we could be required to invest substantial additional time and funds and divert time and resources from other corporate purposes to remedy any identified deficiency.

Money movement services are potentially subject to regulation under a variety of federal and state laws, including state statutes regulating “money transmitters” and federal laws, such as the Bank Secrecy Act and the regulations thereunder, which regulate “money transmitting businesses” and “money services businesses.” Many of these statutes are broadly worded and have not been subject to published judicial or administrative interpretation. While we believe that our money movement solutions comply with, or are exempt from, all applicable laws, as we conduct these services on behalf of regulated financial institutions, it is possible that one or more regulatory agencies could take the position that we are not in compliance or that we are required to register as a money transmitter in order to provide our money movement solutions. In addition, new laws or regulations, or interpretations of existing laws or regulations, could subject us to additional regulatory requirements. If we were prevented from operating our money movement solutions in one or more states, our ability to provide our money movement solutions would suffer as our customers generally require that our money movement solutions handle payments in all states. Moreover, if we were required to be licensed in one or more states, the licensing process could be time-consuming and expensive.
 
Many of these laws and regulations are evolving, unclear and inconsistent across various jurisdictions, and ensuring compliance with them is difficult and costly. Changes in laws and regulations or interpretations of existing laws and regulations may occur that could increase our compliance and other costs of doing business, require significant systems redevelopment, substantially change the way that banks and other FIs are regulated and able to offer their products to consumers, or render our solutions less profitable or obsolete, any of which could have an adverse effect on our operating results. Currently, the Consumer Financial Protection Bureau, or CFPB, has exclusive rulemaking authority under the GLBA, and many of our customers are subject to regulatory enforcement by the CFPB and/or the Federal Trade Commission, or FTC. It is difficult to predict future regulatory requirements that may be enacted by the CFPB, the manner in which such regulatory requirements will be enforced by the CFPB or the FTC, and the impact such requirements or enforcement actions may have on our or our customers’ business. Compliance with any new regulatory requirements may divert internal resources and be expensive and time-consuming. In order to comply with new regulations, we may be required to increase investment in compliance functions or new technologies. Failure to comply with the laws and regulations to which we are subject could result in fines, penalties or limitations on our ability to conduct our business, or federal or state actions, any of which could significantly harm our reputation with consumers, banks and regulators, and could materially and adversely affect our business, operating results and financial condition.
 
 
25

 
If we are unable to expand our business with our existing customers, our business and ability to increase our revenue may suffer.
 
Our ability to increase our revenue depends in part on increasing revenue from our existing customers. We intend to seek to increase penetration among our existing customer base, both by increasing usage of product offerings in business units we currently serve and by expanding into new business units. However, the adoption of our solutions by specific business units of our existing customers does not necessarily indicate that we will be successful in expanding usage into other business units, which may have different needs, priorities and budgetary and other constraints. In addition, while we intend to introduce features and applications that will make our solutions increasingly attractive to end users, we cannot be certain that we will be successful in increasing usage of our solutions with existing customers. If we are unable to expand our business as we anticipate, our revenue could decrease and our business could be harmed.

If we do not successfully market and sell our solutions to new customers, including Internet services companies, our revenue growth will be harmed.
 
Our ability to increase our revenue depends in part on our ability to attract new customers, including additional FI customers and new Internet services companies providing innovative financial solutions, or YI customers. While we believe that there are significant opportunities for sales to additional FIs, both in the United States and in international markets, we cannot be sure that we will be successful in achieving broader adoption of our solutions by FIs. Our future revenue growth is also dependent upon the continued purchase of our solutions by YI customers. Adoption and purchase of our solutions by these companies is still relatively new, and it is unclear if our solutions will be broadly adopted and purchased by these companies or the speed of any such adoption and purchases.
 
Increased revenue from YI customers may expose us to additional risks.
 
Our revenue from YI customers has increased in recent periods, and we expect that such customers will be increasingly important to our business in future periods. Some of these customers are smaller and may not be as financially stable as our FI customers and may not have the experience and resources relating to data security and operations that our FI customers generally have. Accordingly, although our contracts with these customers require them to, among other things, adhere to standards for data security and obtain necessary consents and waivers from end users to use their financial and other information, as we increase our business with YI customers we may be subject to an increased risk that one or more of such customers may fail to comply with these obligations and that such customers may not have the financial resources to satisfy any resulting indemnity obligations to us. If our YI customers experience financial difficulties, are limited by a lack of internal resources or otherwise fail to comply with their contractual obligations relating to data security, our revenue generated from these customers may suffer, our reputation could be harmed and we could be exposed to third-party claims.
 
We cannot be certain that we will be successful in increasing our revenue by introducing new revenue streams.
 
Important factors to our future growth include continued development and marketing of financial applications to make the Yodlee platform increasingly attractive to existing customers with the need for applications or combinations of applications tailored to their specific needs. In addition, we intend to seek to derive additional revenue by providing data solutions and market research services and are pursuing revenue-sharing opportunities with third-party developers of FinApps on the Yodlee platform. Each of these initiatives has individual challenges and risks. To market and sell data solutions and market research services successfully, we must continue to enhance our capabilities relating to the enrichment of massive data sets in order to provide tailored data services that appeal to the markets that we target, as well as develop additional capabilities in data solutions. We have only recently begun to derive revenue from the sale of data solutions and market research services, and in order to increase sales we will need to expand our sales and marketing capabilities. In addition, for FinApps to appeal to existing customers, or new customers, these applications must offer the functionality and user experience that is responsive to their needs and valued by end users. Moreover, we have not derived significant revenue to date from revenue-sharing arrangements with third-party developers of FinApps on the Yodlee platform, and we cannot be sure that we will enter into a substantial number of these arrangements or that any such arrangements will be successful. We cannot be certain that any of the activities described above will contribute to substantial additional revenue from the Yodlee platform or introduce substantial new revenue streams.
 
 
26

 
If our operations are interrupted as a result of service downtime or interruptions, our business and reputation could suffer.

The success of our business depends upon our ability to obtain and deliver time-sensitive, up-to-date data and information. Our operations and those of third parties on whom we rely for information and transaction processing services are vulnerable to interruption by technical breakdowns, computer hardware and software malfunctions, software viruses, infrastructure failures, fire, earthquake, power loss, telecommunications failure, terrorist attacks, wars, Internet failures and other events beyond our control. Any disruption in our solutions or operations, or those of third parties on whom we rely, could affect the ability of our solutions to perform effectively which in turn could result in a reduction in revenue. In addition, our contracts with our customers often include stringent requirements for us to maintain certain levels of performance and service availability. Failure by us to meet these contractual requirements could result in a claim for substantial damages against us, regardless of whether we are responsible for that failure. Our customers may also delay or withhold payment to us, elect to terminate or not to renew their contracts with us, or refuse to integrate our solutions into their online offerings, or we could lose future sales to new customers as a result of damage to our reputation due to such service downtime or interruptions. If we suffer a significant database or network facility outage, our business could experience disruption until we fully implement our back-up systems. The occurrence of any such disruptions in our solutions could materially and adversely affect our business.
 
If customers are unwilling to use our cloud-based solutions, our customer base may not grow or may decrease and our business could be harmed.
 
The cloud computing market is not as mature as the market for enterprise software, and it is uncertain whether cloud computing will achieve and sustain high levels of customer demand and market acceptance. Many enterprises have invested substantial personnel and financial resources to integrate legacy enterprise software into their businesses and are more familiar and comfortable with this type of infrastructure. Because our solutions involve the aggregation, storage and use of confidential information and related data, some customers, in particular customers located outside of the United States, may be reluctant or unwilling to migrate to our cloud-based solutions due to a lack of perceived cost and performance benefits associated with cloud-based solutions, and concerns regarding the ability of cloud computing companies to adequately address security and privacy concerns. If other cloud-based solutions experience security incidents, loss of customer data, disruptions in delivery or other problems, these concerns and perceptions regarding the market for cloud computing as a whole may be further negatively affected. If customers are unwilling to accept our cloud-based solutions as a result of these perceptions and concerns, we may be required to develop other alternative solutions for these customers, which would be time-consuming and costly and could negatively affect our gross margins. In addition, negative perceptions and concerns regarding cloud computing could cause the growth of our customer base to slow, which could result in decreased revenue and harm to our business.
 
Our revenue and operating results can fluctuate from period to period, which could cause our share price to fluctuate.
 
Our revenue and operating results have fluctuated in the past and may fluctuate from period to period in the future due to a variety of factors, many of which are beyond our control. If our operating results fall below the expectations of investors or any securities analysts who follow our common stock, the trading price of our common stock could decline substantially. Factors relating to our business that may contribute to these fluctuations include the following, as well as other factors described elsewhere in this Annual Report on Form 10-K:

·
the timing and extent of our customers’ deployment and promotion of our solutions, including the associated professional services revenue;

·
the timing of our customers’ renewals or any terminations of their contracts with us;

·
rate of expansion or contraction of our customer base;

·
changes in laws or regulatory policies that could impact our ability to offer our solutions to FIs or other customers;

·
the timing and success of the introduction of new solutions by us or competitors;

·
unanticipated delays of rollouts of our solutions;

·
downward pressure on fees we charge for our solutions;

 
27

 
·
our ability to control costs, including third-party service provider costs and sales and marketing expenses in an increasingly competitive market;

·
the amount and timing of operating costs related to the maintenance and expansion of our business, operations and infrastructure, including globally;

·
changes in customers’ budgets;

·
changes to economic terms in contracts with customers, including renegotiations or unanticipated changes to the relationship;

·
fluctuations in currency exchange rates and in our effective tax rate; and

·
general economic and political conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers operate.

In addition, our revenue has usually been the strongest during the last two quarters of the year due to the terms of existing customer contracts with certain of our largest customers and associated revenue recognition, and timing of our customers’ deployment of our solutions and associated professional services revenue. Although we expect this trend to continue in the future, historical patterns should not be considered indicative of our future results.
 
As a result of these and other factors, we believe that period-to-period comparisons of our revenue and operating results may not be meaningful and should not be relied upon as indications of our future revenue or operating performance.
 
We rely significantly on revenue from subscriptions, which may decline or may fluctuate based on the timing of renewals, and, because we recognize revenue from subscriptions over the term of the relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our operating results.
 
Our subscription revenue accounted for approximately 85% and 81% of our total revenue for the year ended December 31, 2014 and 2013, respectively. Customers that purchase our subscriptions have no contractual obligation to renew their contracts after the initial contract period, which are typically three years, and we may not maintain our historical subscription renewal rates. Although customer contracts are generally non-cancellable during a specified period of time, customers typically have the right to terminate their contracts for a fee before the expiration of the entire initial contract period. New or renewal subscriptions may decline or fluctuate as a result of a number of factors, including our customers’ and end users’ level of satisfaction with our solutions and our customer support; the frequency and severity of subscription outages; the functionality and performance of our solutions; the timeliness and success of product enhancements and introductions by us and those of our competitors; the prices of our solutions; the prices of solutions offered by our competitors or reductions in our customers’ spending levels. If new or renewal subscriptions decline, our revenue or revenue growth may decline, and our business may suffer.
 
In addition, we recognize subscription revenue over the term of the relevant subscription period based on the terms of the applicable customer contract. As a result, most of the revenue we report each quarter is the recognition of billings from subscriptions entered into during previous quarters. Consequently, a decline in new or renewal subscriptions in any one quarter will not be fully reflected in revenue in that quarter, but will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in new or renewed sales of our solutions would not be reflected in full in our results of operations until future periods.

Because a portion of our revenue depends on the usage of our platform by end users, it may be difficult to evaluate our future prospects.
 
Our subscription contracts with our customers generally contain a minimum subscription fee, and usage-based fees which depend on the extent their customers or end users use our platform. This usage-based aspect to our pricing model makes it difficult to accurately forecast revenue because end users’ activities on our platform may vary from period to period based on a variety of factors, including personal financial circumstances, privacy and security concerns regarding online solutions such as ours, seasonality or other factors. As a result, historical revenue from a customer may not be a good indicator of our future revenue from that customer and changes in end user activity may limit our ability to forecast revenue.
 
 
28

 
Material defects or errors in the software we use to deliver our solutions or in the information we gather and disclose could harm our reputation, result in significant costs to us and impair our ability to sell our solutions.
 
The software applications underlying our solutions are inherently complex and may contain material defects or errors, particularly when first introduced or when new versions or enhancements are released. From time to time, we provide incremental releases of software updates and functional enhancements. Such new versions frequently contain undetected errors when first introduced or released. We have from time to time found defects in our solutions, and new errors in our existing solutions may be detected in the future. In addition, errors may result from the interface of our solutions with legacy systems and data, which we did not develop and the function of which is outside of our control.
 
Defects or errors in the information we gather from third parties or in storing end users’ data, in processing payment transactions, or that cause interruptions to the availability of our solutions could result in a reduction in sales or delay in market acceptance of our solutions, sales credits or refunds to our customers, loss of existing customers and difficulty in attracting new customers, diversion of development resources, harm to our reputation, and increased service and maintenance costs, and expose us to potential liability to our customers. We may not be able to identify or resolve these defects or errors in a timely manner. Correction of defects or errors could prove to be impossible or impracticable. The costs incurred in correcting any material defects or errors in our solutions or the information we provide, or in responding to resulting claims or liability, may be substantial. Resolving a defect or error and implementing remedial measures would likely divert the attention and resources of our management and key technical personnel from other business concerns, and could be extremely difficult if the underlying defect or error is located in a third party’s system or database.
 
Although we attempt to limit our contractual liability for consequential damages in delivering our solutions, these limitations on liability may be unenforceable in some cases, or may be insufficient to protect us from liability for damages. We maintain general liability insurance coverage, including coverage for errors or omissions; however, this coverage may not continue to be available on reasonable terms or may be insufficient to cover one or more large claims. An insurer might disclaim coverage as to any future claim. A successful assertion of one or more large claims against us that exceeds our available insurance coverage or changes in our insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirement, could harm our operating results and financial condition.
 
If we fail to process transactions effectively or fail to adequately protect against disputed or potential fraudulent activities, our revenue and earnings may be harmed.
 
We process a significant volume and dollar value of transactions on a daily basis using our money movement solutions. Effective processing systems and controls are essential to ensure that transactions are handled appropriately. Despite our efforts, it is possible that we may make errors or that funds may be misappropriated due to fraud. If we are unable to effectively manage our systems and processes we may be unable to process money movement transactions in an accurate, reliable and timely manner, which may harm our business. In addition, if we do not detect suspected fraudulent or non-sufficient fund transactions within agreed-upon timelines, we may be required to reimburse our customers for the transactions and such reimbursements may exceed the amount of the reserves we have established to make such payments.

The online payments industry has been experiencing an increasing amount of fraudulent activities by third parties. Although we do not believe that any of this activity is uniquely targeted at our business, this type of fraudulent activity may adversely impact us. In addition to any direct damages and potential fines that may result from such fraud, which may be substantial, a loss of confidence in our controls may seriously harm our business and damage our reputation. We may implement risk control mechanisms that could make it more difficult for legitimate end users to use our solutions, which could result in lost revenue and negatively impact our operating results.
 
If we are unable to maintain our payment network with third-party service providers, or if our disbursement partners encounter business difficulties, our business could be harmed.
 
Our payment network consists of a single Originating Deposit Financial Institution, or ODFI, and a small number of bill payment processors. Our ODFI clears and processes the funds from the customer. In the instance of funds transfers, the ODFI also processes funds to the end user’s destination institution. For bill payment, funds are sent to the bill pay processors for disbursement to biller sites.
 
While we have entered into an agreement with our ODFI and each of our bill payment processors, these partners could choose to terminate or not renew their agreements with us. If we are unable to maintain our agreements with our current partners, or our current partners are unable to handle increased transaction volumes, our ability to disburse transactions and our revenue and business may be harmed. If we are unable to sign new payment processors and/or ODFIs under terms consistent with, or better than, those currently in place, our revenue and business may be harmed.
 
 
29

 
Payment processors and ODFI partners also engage in a variety of activities in addition to providing our services and may encounter business difficulties unrelated to our services. Such activities or difficulties could cause the affected partner to reduce the services provided, cease to do business with us, or cease doing business altogether. This could lead to our inability to move funds on a timely basis as required to settle transactions. In addition, because we offer next day automated clearing house transactions in certain cases, if a disbursement partner experiences insufficient liquidity or ceases to do business, we may not be able to recover funds that are held with that disbursement partner which could harm our financial condition and operating results.
 
We may also be forced to cease doing business with payment processors and/or ODFIs if rules governing electronic funds transfers change or are reinterpreted to make it difficult or impossible for us to operate our money movement solutions.
 
If we are unable to effectively compete, our business and operating results could be harmed.
 
While we do not believe any single company in the financial services space offers a comprehensive platform with diverse features such as ours, the following companies offer individual solutions that compete with one or more of our solutions:

·
for data aggregation: Intuit, Inc. and Fiserv, Inc. (CashEdge);

·
for personal financial management: Intuit (direct to consumer service) and internal IT departments of FIs, as well as early-stage companies;

·
for online bill pay: Fiserv and FIS Global Corporation;

·
for data products and services: global payment networks, credit bureaus and other institutions that have access to large pools of data; and

·
for account verification: MicroBilt Corporation and Early Warning Systems, LLC.

Many of the companies that compete with one or more of our applications have greater name recognition, substantially greater financial, technical, marketing and other resources, the ability to devote greater resources to the promotion, sale and support of their solutions, more extensive customer bases and broader customer relationships, longer operating histories, and greater name recognition than we have.
 
We expect competition to increase as other companies continue to evolve their offerings and as new companies enter our market. New companies entering our market may choose to offer internally-developed solutions at little or no additional cost to their end users by bundling them with their existing applications and solutions. Increased competition is likely to result in pricing pressures, which could negatively impact our gross margins. If we are unable to effectively compete, our revenue could decline and our business, operating results and financial condition could be adversely affected.
 
Our business could be harmed if we do not keep up with rapid technological change, evolving industry standards or changing expectations and requirements of our customers.
 
We expect technological developments to continue at a rapid pace in our industry. Our success will depend, in part, on our ability to:

·
continue to develop our technology expertise;

·
recruit and retain skilled technology professionals;

·
effectively manage the technology associated with our business;

·
enhance our current solutions;

·
develop new solutions that meet our customers’ needs; and

 
30

 
·
influence and respond to emerging industry standards and other technological changes.

In addition, we must continue to meet changing expectations and requirements of our customers. We must accomplish all of these tasks in a timely and cost-effective manner, and our failure to do so could harm our business, including materially reducing our revenue and operating results.
 
As a result of our customers’ increased usage of our platform, we will need to continually improve our hosting infrastructure to meet our customers’ needs and avoid service interruptions or slower system performance.
 
We have experienced significant growth in the number of transactions and data that our hosting infrastructure supports. We seek to maintain sufficient excess capacity in our infrastructure to meet the needs of all of our existing and new customers. A component of our growth strategy involves the establishment of additional data centers in new locations. If our business continues to grow, we may also need to increase bandwidth, storage or other elements of our infrastructure.
 
The amount of infrastructure needed to support our customers is based on our estimates of anticipated usage. If we do not accurately predict our infrastructure capacity requirements, our customers could experience service outages or slower system performance that may subject us to financial penalties and result in customer losses, which could harm our reputation and adversely affect our revenue growth. In addition, increasing our infrastructure as a result of experiencing unforeseen increases in usage or in anticipation of increased usage from new or existing customers would cause us to have increased cost of revenue, which could adversely affect our gross margins until we sufficiently increase revenue to offset the increased costs.

We rely on relationships with third-party service providers to conduct our business, and our operating results and financial position could be materially and adversely affected if we fail to maintain these relationships or we maintain them under new terms that are less favorable to us.
 
We rely on data center and other service providers in order to deliver our solutions and operate our business. We also rely on software licenses from third parties and support from third parties for the operation of our business by maintaining our physical facilities, equipment, power systems and infrastructure. The failure of these third parties to provide acceptable and high quality services and technologies or to update their services and technologies may result in a disruption to our business operations and our customers, which may reduce our revenue, cause us to lose customers and damage our reputation. If we lose the services of one or more of our third-party service providers for any reason or if their services are disrupted, for example due to viruses or denial of service or other attacks on their systems, or due to human error, intentional bad acts, power loss, hardware failures, telecommunications failures, wars, terrorist attacks, earthquakes, or similar catastrophic events, we could experience a disruption in our ability to offer our solutions and adverse perception of our solutions’ reliability, or we could be required to retain the services of replacement third-party service providers. Alternative arrangements and services may not be available to us on commercially reasonable terms, if at all, or we may experience business interruptions upon a transition to an alternative partner, either of which could increase our operating costs and harm our business.
 
If we are unable to effectively manage certain risks and challenges related to our India operations, our business could be harmed.
 
Our India operations are a key factor to our success. We believe that our significant presence in India provides certain important advantages for our business, such as direct access to a large pool of skilled professionals and assistance in growing our business internationally. However, it also creates certain risks that we must effectively manage. As of December 31, 2014, approximately 80% of our total employees were based in India. Wage costs in India for skilled professionals are currently lower than in the United States for comparably skilled professionals. However, wages in India are increasing at a faster rate than in the United States, which could result in us incurring increased costs for technical professionals and reduced margins. There is intense competition in India for skilled technical professionals, and we expect such competition to increase. As a result, we may be unable to cost-effectively retain our current employee base in India or hire additional new talent. In addition, India has experienced significant inflation, low growth in gross domestic product and shortages of foreign exchange. India also has experienced civil unrest and terrorism and, in the past, has been involved in conflicts with neighboring countries. The occurrence of any of these circumstances could result in disruptions to our India operations, which, if continued for an extended period of time, could have a material adverse effect on our business. If we are unable to effectively manage any of the foregoing risks related to our India operations, our development efforts could be impaired, our growth could be slowed, and our operating results could be negatively impacted.
 
 
31

 
As a global organization, our business is susceptible to risks associated with our international operations and sales.
 
We currently maintain international operations in India, the United Kingdom, Canada and Australia, lease space in other jurisdictions outside of the United States for the purpose of gathering data, and have customers located around the globe. Managing a global organization and conducting sales outside of the United States is difficult and time-consuming and introduces risks that we may not face with our operations and sales in the United States. These risks include:

·
the burdens of complying with a wide variety of foreign regulations, laws and legal standards, including privacy, data security, tax and employment, some of which may be more stringent than those of the United States;

·
regional data privacy laws that apply to the transmission of data across international borders;

·
lack of familiarity with, and unexpected changes in, foreign regulatory requirements;

·
customers’ unfamiliarity with and concerns regarding laws and regulations of the United States that may impact our business operations in their jurisdictions;

·
negative, local perception of industries and customers that we may pursue;

·
laws and business practices favoring local competitors;

·
localization of our solutions, including translation into foreign languages and adaptation for local practices and regulatory requirements;

·
different pricing environments and longer sales cycles;

·
longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

·
difficulties in managing and staffing international operations;

·
reduced or varied protection for intellectual property rights in some countries;

·
compliance with laws and regulations for foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell our solutions in certain foreign markets, and the risks and costs of compliance;

·
fluctuations in currency exchange rates;

·
potentially adverse tax consequences, including the complexities of foreign value added tax systems, difficulty in interpreting international tax laws and restrictions on the repatriation of earnings;

·
increased financial accounting and reporting burdens and complexities; and

·
political, social and economic instability abroad, terrorist attacks and security concerns in general.

Operating in international markets also requires significant management attention and financial resources. A component of our growth strategy involves the further expansion of our operations and the development of new customer relationships internationally. As we seek to expand internationally, we will need to develop relationships with additional partners and add internal capabilities to effectively manage the operational, financial, legal and regulatory requirements and risks associated with our international operations. The investment we make and additional resources we use to expand our operations, target new international customers, expand our presence globally within our existing customers and manage operational and sales growth in other countries may not produce desired levels of revenue or profitability, which could adversely affect our business and operating results.
 
 
32

 
Our future success depends on the continued services of our management team and our ability to recruit, train and retain qualified and skilled employees, including research and development, sales, marketing and support personnel.
 
Our ability to effectively develop and provide our solutions and maintain and develop relationships with current and potential customers depends largely on the continued services of our management team and our ability to attract, train, motivate and retain highly skilled professionals, particularly professionals with backgrounds in sales, marketing, technology, customer support and financial management services. We believe that success in our business will continue to be based upon the strength of our intellectual capital. For example, due to the complexity of our solutions and the intellectual capital invested in our technology, the loss of personnel that are integral to the development of our solutions and engineering efforts would harm our ability to maintain and grow our business. In addition, our customers depend on our professional services team to assist them with the deployment of our solutions within their infrastructure and, after deployment, to help resolve any issues relating to our solutions that may arise. A high level of support is an important factor in contract renewals and cross-selling of our platform. Consequently, we must hire and retain employees with the technical expertise, skill set and industry knowledge necessary to continue to develop our solutions and effectively manage our growing sales, support and marketing organizations to ensure the growth of our business and the satisfaction of our customers.
 
We plan to continue to expand our engineering team, our direct sales force and marketing teams, and our customer support teams both domestically and internationally. We believe there is significant competition for professionals in these areas with the skills and technical knowledge necessary to develop the solutions and perform the services we offer. Competition for these employees is particularly intense in the software and technology industries, including in India where a significant portion of our employee headcount is located, and we may not be able to retain our existing employees or be able to recruit and retain other highly qualified personnel in the future. In addition, new hires require significant training and, in most cases, take significant time before they achieve full productivity. Our recent hires and planned hires may not become as productive as we expect or may take longer to become productive than we anticipate. If we cannot hire, train and retain qualified personnel, our ability to continue to conduct our business could be impaired and our revenue could decline.
 
If our intellectual property and technology are not adequately protected to prevent use or appropriation by our competitors, our business and competitive position would suffer.
 
We rely on a combination of patent, copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. As of December 31, 2014, we had 66 issued U.S. patents, 21 pending U.S. patent applications, 8 issued patents in foreign jurisdictions and 13 pending patent applications in foreign jurisdictions. Some of these patents relate to technology that is included in our data aggregation platform and expire beginning in 2018. Any owned patents or patents that may issue in the future from pending or future patent applications may not provide sufficiently broad protection, may be invalidated or circumscribed or may not prove to be enforceable in actions against alleged infringers. In addition, recent changes to the patent laws in the United States may bring into question the validity of certain categories of software patents. As a result, we may not be able to obtain adequate patent protection for our software or effectively enforce any patents that issue in the future that cover our software. Also, we cannot assure you that any future service mark or trademark registrations will be issued for pending or future applications or that any registered service marks or trademarks will be enforceable or provide adequate protection of our proprietary rights. Furthermore, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are available. Unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for doing so, which could harm our business.
 
We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business to limit access to and disclosure of our proprietary information. The steps we have taken may be inadequate to prevent the misappropriation of our proprietary technology. There can be no assurance that others will not develop or patent similar or superior technologies, products or services.

Policing the unauthorized use of proprietary technology is difficult and expensive and our monitoring and policing activities may not be sufficient to identify any misappropriation and protect our proprietary technology. In addition, third parties may knowingly or unknowingly infringe our patents, trademarks and other intellectual property rights, and litigation may be necessary to protect and enforce our intellectual property rights. If litigation is necessary to protect and enforce our intellectual property rights, any such litigation could be very costly, could divert management attention and resources and may not be successful, even when our rights have been infringed. For example, on December 2, 2014, we filed a complaint in the United States District Court for the District of Delaware alleging that Plaid Technologies Inc. (“Plaid”) has and is continuing to infringe on seven of our U.S. patents.  The complaint seeks unspecified monetary damages, enhanced damages, interest, fees, expenses, costs and injunctive relief against Plaid.  It is too early to predict the outcome of these legal proceedings or whether an adverse result would have a material adverse impact on our operations or financial position. For additional information concerning the lawsuit, see Item 3, “Legal Proceedings” in this Annual Report on Form 10-K.
 
We also expect that the more successful we are, the more likely it becomes that competitors will try to develop products that are similar to ours, which may infringe on our proprietary rights. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenue, reputation and competitive position could be harmed.
 
 
33

 
Assertions by a third party that we are infringing on its intellectual property, whether successful or not, could subject us to costly and time-consuming litigation, expensive licenses or substantial indemnity obligations and may prevent us from selling our products and services.
 
The software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Although we have not suffered a material loss from third-party claims to date, from time to time, we face allegations that we or our customers have infringed, misappropriated or violated intellectual property rights. Litigation may be necessary to determine the validity and scope of third-party intellectual property rights. Some of the claims may involve patent holding companies or non-practicing entities who have no relevant product revenue of their own, and against whom our own patents may provide little or no deterrence. Our technologies may not be able to withstand third-party claims or rights against their use. Additionally, although we have licensed from other parties proprietary technology covered by patents, we cannot be certain that any such patents will not be challenged, invalidated or circumvented.
 
Furthermore, many of our agreements require us to indemnify our customers for certain third-party intellectual property infringement claims, which could increase our costs as a result of defending such claims and may require that we pay damages if there were an adverse ruling related to any such claims. Such indemnity claims are often difficult to assess, particularly at an early stage and without significant further investigation, as the third-party intellectual property claims at issue often relate to features or functions offered by our customers that include a combination of our customers’ solutions and those of third parties, as well as those provided by our platform; we may not have complete information regarding the infringement claims being asserted by the third party; and there may exist substantial questions relating to the validity of the third-party intellectual property alleged to be infringed. In addition, even if third-party infringement claims are successful, we may have defenses that limit or eliminate our indemnification obligations. Although we have not been obligated to pay material amounts pursuant to such indemnification claims in the past, we could be obligated to do so in the future, and any such indemnity obligations could significantly exceed the revenues that we have derived under the related customer contract. These types of claims could harm our relationships with our customers, may deter future customers from subscribing to our services and could expose us to litigation for these claims. Even if we are not a party to any litigation between a customer and a third party, an adverse outcome in any such litigation could make it more difficult for us to defend our intellectual property in any subsequent litigation in which we are a named party.
 
Any intellectual property rights claim against us or our customers, with or without merit, could be time-consuming and expensive to litigate or settle, and could divert management attention and financial resources. An adverse determination also could cause us to have to pay damages, modify our solutions or the Yodlee platform, stop using technology found to be in violation of a third party’s rights or prevent us from offering our solutions to our customers. In addition, we may have to seek a license for the technology, which may not be available on reasonable terms, if at all, or procure or develop substitute solutions that do not infringe.

Our use of “open source” software could negatively affect our ability to sell our solutions and subject us to possible litigation.
 
Portions of the Yodlee platform and our solutions incorporate so-called “open source” software, and we may incorporate additional open source software in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. If we fail to comply with these licenses, we may be subject to specified conditions, including requirements that we offer our solutions that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of the particular open source license. If an author or other third party that distributes open source software that we use were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, including being enjoined from the sale of our solutions that contained the open source software and could be required to comply with the foregoing conditions, which could disrupt the sale of the affected solution. In addition, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition and require us to devote additional research and development resources to change our solutions.
 
 
34

 
Litigation or investigations could result in significant settlements, fines or penalties.
 
We have been the subject of general litigation in the past, and could be the subject of litigation, including class actions, and regulatory or judicial proceedings or investigations in the future. The outcome of litigation and regulatory or judicial proceedings or investigations is difficult to predict. Plaintiffs or regulatory agencies in these matters may seek recovery of very large or indeterminate amounts or seek to have aspects of our business suspended or modified. The monetary and other impact of these actions may remain unknown for substantial periods of time. The cost to defend, settle or otherwise resolve these matters may be significant.
 
If regulatory or judicial proceedings or investigations were to be initiated against us by private or governmental entities, our business, operating results and financial condition could be adversely affected. Adverse publicity that may be associated with regulatory or judicial proceedings or investigations could negatively impact our relationships with our customers and decrease acceptance and use of our solutions.
 
We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, we may be unable to execute our business plan or maintain high levels of service and our financial results could be negatively impacted.
 
We have increased our number of full-time employees to 969 at December 31, 2014 from 747 at December 31, 2013 and have increased our revenue to $89.1 million in the year ended December 31, 2014 from $70.2 million in the year ended December 31, 2013. Our recent growth and expansion has placed, and our anticipated growth may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We intend to continue to expand our overall business, customer base, headcount and operations. Expansion creates new and increased management and training responsibilities for our employees. In addition, continued growth increases the challenges involved in:

·
recruiting, training and retaining sufficient skilled technical, marketing, sales and management personnel, in particular in our India location;

·
preserving our culture, values and entrepreneurial environment;

·
successfully expanding the range of solutions offered to our customers;

·
developing and improving our internal administrative infrastructure, particularly our financial, operational, compliance, recordkeeping, communications and other internal systems;

·
managing our international operations and the risks associated therewith;

·
supporting a potentially broad pool of third-party developers who may use our open platform;

·
maintaining high levels of satisfaction with our solutions among our customers; and

·
effectively managing expenses related to any future growth.

If we fail to manage our growth effectively, we may be unable to execute our business plan or maintain high levels of service for our customers. In addition, if we are unable to manage our expenses related to growth effectively in the future, our gross margins or operating expenses may be negatively impacted in any particular quarter.
 
Acquisition activity involving our customers could adversely affect our business.
 
Acquisitions or similar transactions involving our customers, including financial institutions, could negatively affect our business in a number of ways. After such a transaction, the acquirer might terminate, not renew or seek to renegotiate the economic terms of its contract with us. Companies involved in these transactions may experience integration difficulties that could increase the risk of providing us inaccurate or untimely data or delay deployment of our solutions. Any of our existing customers may be acquired by an organization with no relationship with us, effectively terminating our relationship, or be acquired by an organization that already has online personal financial management and payment solutions integrated into its systems, or that offers competing services to ours, which might cause us to lose business and harm our revenue, operating results or financial condition.
 
Future acquisitions or investments could disrupt our business and harm our financial condition.
 
As part of our business strategy, we may pursue acquisitions or investments that we believe will help us to achieve our strategic objectives. The process of integrating an acquired business, product or technology can create unforeseen operating difficulties, expenditures and other challenges such as:

 
35

 
·
increased regulatory and compliance requirements;

·
implementation or remediation of controls, procedures and policies at the acquired company;

·
diversion of management time and focus from operation of our then-existing business to acquisition integration challenges;

·
coordination of product, sales, marketing and program and systems management functions;

·
transition of the acquired company’s customers onto our systems;

·
retention of employees from the acquired company;

·
integrating employees from the acquired company into our organization;

·
integration of the acquired company’s accounting, information management, human resource and other administrative systems and operations generally with ours;

·
liability for activities of the acquired company prior to the acquisition, including violations of law, commercial disputes, and tax and other known and unknown liabilities; and

·
litigation or other claims in connection with the acquired company, including claims brought by terminated employees, customers, former stockholders or other third parties.

If we are unable to address these difficulties and challenges or other problems encountered in connection with any future acquisition or investment, we might not realize the anticipated benefits of that acquisition or investment, we might incur unanticipated liabilities or we might otherwise suffer harm to our business generally.
 
To the extent we pay the consideration for any future acquisitions or investments in cash, the payment would reduce the amount of cash available to us for other purposes. Future acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, or impairment charges against goodwill on our balance sheet, any of which could harm our financial condition and negatively impact our stockholders.
 
We are a multinational organization faced with increasingly complex tax issues in several jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions.
 
As a multinational organization, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and operating results. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material impact on us and the results of our operations. For example, the taxing authorities of India and other jurisdictions in which we operate may challenge our methodologies for allocating income and expense under our intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business is not consistent with the manner in which we report our income to the jurisdictions. If such a disagreement were to occur, and our positions were not sustained, we could be required to pay additional taxes, interest and penalties, resulting in higher effective tax rates, reduced cash flows and higher expenses.
 
We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales, which could adversely harm our business.
 
State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of such taxes to our subscription cloud-based software platform in various jurisdictions is unclear. Further, these jurisdictions’ rules regarding tax nexus are complex and vary significantly. As a result, we could face the possibility of tax assessments and audits, and our liability for these taxes and associated penalties could exceed our original estimates. A successful assertion that we should be collecting additional sales, use, value added or other taxes in those jurisdictions where we have not historically done so and do not accrue for such taxes could result in substantial tax liabilities and related penalties for past sales, discourage customers from purchasing our services or otherwise harm our business and operating results.
 
 
36

 
We face exposure to foreign currency exchange rate fluctuations.
 
We have costs denominated in foreign currencies, primarily the Indian Rupee, and our revenue is primarily denominated in the U.S. dollar. This exposes us to the risk of fluctuations in foreign currency exchange rates. Accordingly, changes in exchange rates, and in particular a weakening of the U.S. dollar, would negatively affect our expenses and other operating results as expressed in U.S. dollars. We manage our exposure to fluctuations in the Indian Rupee by entering into forward contracts to cover a portion of our projected expenditures paid in the Indian Rupee. These contracts generally have a term of less than 12 months. The use of such forward contracts, or other hedging activities in which we may engage in the future, may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
 
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, or GAAP. If we are unable to maintain adequate internal controls over financial reporting, we might be unable to report our financial information on a timely basis and might suffer adverse regulatory consequences or violate stock market listing standards. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. We have in the past and may in the future discover areas of our internal financial and accounting controls and procedures that need improvement. Our internal controls over financial reporting will not prevent or detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company will be detected. If we are unable to maintain proper and effective internal controls, we may not be able to produce accurate financial statements on a timely basis, which could adversely affect our ability to operate our business and could result in regulatory action, and could require us to restate, our financial statements. Any such restatement could result in a loss of public confidence in the reliability of our financial statements and sanctions imposed on us by the U.S. Securities and Exchange Commission, or the SEC.
 
Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and harm our operating results.
 
GAAP is subject to interpretation by the Financial Accounting Standards Board, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in accounting standards or practices could harm our operating results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may harm our operating results or the way we conduct our business.
 
We might not be able to utilize a significant portion of our net operating loss or other tax credit carryforwards, which could adversely affect our profitability.
 
As of December 31, 2014, we had federal and state net operating loss carryforwards of approximately $162.0 million and $90.1 million, respectively. If not utilized, these federal and state net operating loss carryforwards will begin to expire in 2019 and 2015, respectively.
 
In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we experience an “ownership change”. A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules might apply under state tax laws. Future issuances or trading of our stock could cause an “ownership change”. It is possible that any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our profitability.

 
37

 
Natural disasters and other events beyond our control could harm our business.
 
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our solutions to our customers, and could decrease demand for our solutions. The majority of our research and development activities, corporate headquarters, information technology systems, and other critical business operations are located in California and India, both of which areas have experienced major earthquakes in the past. Significant recovery time could be required to resume operations and our financial condition and operating results could be harmed in the event of a major earthquake or catastrophic event.
 
Adverse global economic conditions could harm our business and financial condition.
 
The onset or continuation of adverse macroeconomic developments could negatively affect our business and financial condition. Adverse global economic events have caused, and could, in the future, cause disruptions and volatility in global financial markets and increased rates of default and bankruptcy, and could impact consumer and small business spending. Challenging economic times could cause potential new customers not to purchase or to delay purchasing our solutions, and could cause our existing customers to discontinue purchasing or delay upgrades of our existing solutions, thereby negatively impacting our revenue and future financial results. In addition, a downturn in the banking and finance sector may disproportionately affect us because a significant portion of our customers operate in that sector. We cannot predict the timing, strength or duration of any economic slowdown or recovery, whether global, regional or within specific markets. If the conditions of the general economy or markets in which we operate worsen, our business and our future operating results could be harmed.
 
Risks Related to Ownership of Our Common Stock

The regulatory compliance requirements of being a public company subject us to increased costs, and our management has limited experience managing a public company.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The individuals who constitute our management team have limited experience managing a publicly-traded company, and limited experience complying with the increasingly complex and changing laws pertaining to public companies. Our management team and other personnel must now devote a substantial amount of time to new compliance initiatives, and we may not successfully or efficiently manage our continuing transition into a public company. We expect rules and regulations such as the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act, and the rules and regulations of our stock exchange to increase our legal and finance compliance costs and to make some activities more time-consuming and costly.

The Securities Exchange Act of 1934, as amended, requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing the costly process of implementing and testing our systems to report our results as a public company, to continue to manage our growth and to implement internal controls. We are required to implement and maintain various other control and business systems related to our equity, finance, treasury, information technology, other recordkeeping systems and other operations. As a result of this implementation and maintenance, management’s attention may be diverted from other business concerns, which could adversely affect our business. Furthermore, we rely on third-party software and system providers for ensuring our reporting obligations and effective internal controls, and to the extent these third parties fail to provide adequate service including as a result of any inability to scale to handle our growth and the imposition of these increased reporting and internal controls and procedures, we could incur material costs for upgrading or switching systems and our business could be materially affected.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

 
38

 
We expect these laws, rules and regulations to also make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain appropriate levels of coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

As a result of disclosure of information in filings required of a public company, our business and financial condition is more visible than it was as a private company, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the time and resources of our management and adversely affect our business and operating results.
 
We are an emerging growth company, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. For as long as we continue to be an emerging growth company, we intend to take advantage of certain of these exemptions. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. However, we chose to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates that adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We will remain an emerging growth company until the earliest of (i) the date on which we qualify as a “large accelerated filer” with at least $700 million of our equity securities held by non-affiliates as of June 30 of that fiscal year, (ii) the end of the fiscal year in which we have total annual gross revenue of $1 billion or more during such fiscal year, (iii) the date on which we have issued more than $1 billion in non-convertible debt in a three-year period, or (iv) December 31, 2019.

Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from executing our growth strategy.

We believe that our existing cash and cash equivalents will be sufficient to fund our planned capital expenditures and other anticipated cash needs for at least the next 12 months. If our capital resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain debt financing. We have not made arrangements to obtain additional financing and there is no assurance that financing, if required, will be available in amounts or on terms acceptable to us, if at all.

Our share price has been and may continue to be volatile and you may be unable to sell your shares at or above your purchase price.

Technology stocks have historically experienced high levels of volatility. The trading price of our common stock has been and is likely to continue to be highly volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance. Since shares of our common stock were sold in our IPO in October 2014 at a price of $12.00 per share, the reported high and low sales prices of our common stock have ranged from $11.36 to $17.97 through December 31, 2014. Factors that may cause the market price of our common stock to fluctuate include:
 
 
39

 
·
actual or anticipated fluctuations in our financial condition and operating results;

·
changes in the economic performance or market valuations of other companies engaged in providing portfolio management services, investment advice and retirement help;

·
loss of a significant amount of existing business;

·
actual or anticipated changes in our growth rate relative to our competitors;

·
actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rates;

·
issuance of new or updated research or reports by securities analysts;

·
our announcement of actual results for a fiscal period that are higher or lower than projected results or our announcement of revenue or earnings guidance that is higher or lower than expected;

·
regulatory developments in our target markets affecting us, our customers or our competitors;

·
fluctuations in the valuation of companies perceived by investors to be comparable to us;

·
share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

·
sales or expected sales of additional common stock;

·
terrorist attacks or natural disasters or other such events impacting countries where we or our customers have operations; and

·
general economic and market conditions.
 
Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry
fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may cause the market price of shares of our common stock to decline. If the market price of shares of our common stock does not exceed your purchase price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our insiders who are significant stockholders may control the election of our board and may have interests that conflict with those of other stockholders.

A majority of our directors are affiliated with management or our principal stockholders. In addition, our directors and executive officers and holders of more than five percent of our outstanding shares of common stock (on an as-converted basis) beneficially owned, in the aggregate, approximately 66% of our outstanding capital stock as of December 31, 2014. As a result, acting together, this group has the ability to exercise significant control over most matters requiring our stockholders’ approval, including the election and removal of directors and significant corporate transactions. The interests of this group may differ from those of other stockholders and they may vote their shares in a way that is contrary to the way other stockholders vote their shares.

 
40

 
Substantial future sales of our common stock in the public market could cause our stock price to fall.

Additional sales of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline. As of December 31, 2014, we had 29,263,852 shares of common stock outstanding, which includes the conversion of convertible preferred stock into our common stock. In October 2014, we sold an aggregate of 7,010,724 common shares in our IPO (including 760,724 common shares sold in connection with the underwriters’ exercise of their over-allotment option). All shares sold in our IPO are freely tradable (except for shares purchased by affiliates) and the remaining 22,253,128 shares of common stock outstanding as of December 31, 2014 may be sold after April 1, 2015 when the lock-up agreements and market standoff agreements expire 180 days after the date of our IPO (subject in some cases to volume limitations). In addition, as of December 31, 2014, there were outstanding options and RSUs equivalent to 5,957,555 shares of our common stock that, if exercised, will result in these additional shares becoming available for sale upon expiration of lock-up agreements and market standoff agreements. If a substantial number of these shares are sold, the market price of our common stock could be significantly reduced. Moreover, some holders of shares of common stock have rights, subject to some conditions, to require us to file registration statements covering the shares they currently hold, or to include these shares in registration statements that we might file for ourselves or other stockholders.

We filed a registration statement to register 7,953,661 shares of common stock reserved for issuance under our stock plans. If a large number of these shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Management may apply the net proceeds from our IPO to uses that do not increase our market value or improve our operating results.

We intend to use our net proceeds from our IPO for general corporate purposes, including as yet undetermined amounts related to working capital and capital expenditures. Our management has considerable discretion in applying our net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether we are using our net proceeds appropriately. Until the net proceeds we received from our IPO are used, they may be placed in investments that do not produce income or that lose value. We may use our net proceeds from our IPO for purposes that do not result in any increase in our operating results, which could cause the price of our common stock to decline.

We do not currently intend to pay dividends on our common stock, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future, and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

·
the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;

·
the classification of our board of directors so that only a portion of our directors are elected each year, with each director serving a three-year term;

·
the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;

·
the ability of the board of directors to alter our bylaws without obtaining stockholder approval;

·
the ability of the board of directors to issue, without stockholder approval, up to 5,000,000 shares of preferred stock with rights set by the board of directors, which rights could be senior to those of common stock;

 
41

 
·
the required approval of holders of at least two-thirds of the outstanding shares of common stock to amend specified provisions of our bylaws and certificate of incorporation; and

·
the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written consent.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit or restrict large stockholders, in particular, those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our certificate of incorporation and bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in our market price being lower than it would without these provisions.
 
Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

We currently lease approximately 36,000 square feet of space for our corporate headquarters located at 3600 Bridge Parkway, Redwood City, California under a lease agreement that expires in March 2022. As part of the amendment to our lease entered into on October 28, 2014, we have agreed to the expansion of the premises covered under the Lease by approximately 12,000 square feet of office space effective no later than April 1, 2017. We will occupy temporary space beginning no later than April 1, 2015 until construction of the expanded office spaces is complete.

We also lease approximately 84,000 square feet of space for our Bangalore, India office under three lease agreements that expire between April and May 2017. These offices are used for administrative, marketing, support and development operations. In connection with our sales efforts, we also lease office space in London, England. We believe that our current facilities are sufficient for our current needs.

We intend to add new facilities or expand existing facilities as we add staff or expand our geographic markets, and we believe that suitable additional space will be available as needed to accommodate any such expansion of our organization. We believe our facilities are sufficient for our current needs. See Note 7, “Commitments and Contingencies,” in the Notes to the Consolidated Financial Statements for more information about our lease commitments.

Item 3.  Legal Proceedings

We may, from time to time, be subject to legal proceedings and claims arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect our future business, results of operations, financial condition or cash flows. For a description of our material pending legal proceedings, see Note 7 – “Commitments and Contingencies - Legal Matters” of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
 
On December 2, 2014, we filed a complaint in the United States District Court for the District of Delaware alleging that Plaid Technologies Inc. (“Plaid”) has and is continuing to infringe on seven of our U.S. patents.  The complaint seeks unspecified monetary damages, enhanced damages, interest, fees, expenses, costs and injunctive relief against Plaid.  On January 23, 2015, in lieu of filing an answer to the complaint, Plaid filed a motion to dismiss, alleging that our patents do not claim patent eligible subject matter.  We filed our answering brief to the motion to dismiss on February 20, 2015.  At the outset of the litigation, the judge presiding over the litigation referred certain matters to be handled by the assigned magistrate judge, including discovery, case scheduling, and any motions to dismiss.  Under the applicable procedural rules, the magistrate judge will issue a report and recommendation regarding Plaid’s motion to dismiss.  Either party may then file objections to the report,  and those objections will be reviewed by the judge presiding over the litigation. it is too early to predict the outcome of these legal proceedings or whether an adverse result would have a material adverse impact on our operations or financial position. See Item 1A, “Risk Factors” for further discussion of risks related to intellectual property protection.

Item 4.  Mine Safety Disclosures

Not applicable.
 
 
42

 
PART II.

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock began trading publicly on the Nasdaq Global Select Market under the symbol "YDLE" on October 3, 2014. Prior to that time, there was no public market for our common stock. The following table sets forth for the indicated periods the high and low closing sales prices of our common stock as reported by the Nasdaq Global Select Market:
 
   
Stock Price
 
   
High
   
Low
 
Fiscal Year Ended December 31, 2014
           
Fourth Quarter (beginning October 3, 2014)
  $ 15.34     $ 11.50  

Holders of Record

As of February 27, 2015, there were 370 registered stockholders of record of our common stock. Because many of our shares of common stock are held by brokers or other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by the record holders.

Dividend

We have never declared or paid cash dividends on our common 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 dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

Issuer Purchases of Equity Securities

During the quarter and year ended December 31, 2014, we did not purchase any of our equity securities that are registered under Section 12(b) of the Exchange Act.

Securities Authorized for Issuance under Equity Compensation Plans

See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding securities authorized for issuance.
 
 
43

 
Stock Performance Graph

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by reference into any filing of Yodlee, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

This chart compares the cumulative total return on our common stock with that of the S&P 500 Index and the S&P Information Technology Index from October 3, 2014 (the date our common stock commenced trading on the Nasdaq Global Select Market) through December 31, 2014. The chart assumes $100 was invested at the close of market on October 3, 2014, in each of the common stock of Yodlee, Inc., the S&P 500 Index and the S&P Information Technology Index, and assumes the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

 
Sale of Unregistered Securities

During the year ended December 31, 2014, we issued an aggregate of 353,029 shares of common stock that were not registered under the Securities Act to our employees pursuant to the exercise of stock options for cash consideration with aggregate exercise proceeds of approximately $1.4 million. These issuances were undertaken in reliance upon the exemption from registration requirements available under Rule 701 of the Securities Act.

Use of Proceeds

On October 2, 2014, the SEC declared our registration statement on Form S-1 (File No. 333-197116) effective for our IPO pursuant to which we registered an aggregate of 7,187,500 shares of our common stock, including 937,500 shares of common stock registered for sale by us upon the exercise of the underwriters’ over-allotment option, at the initial public offering price of $12.00 per share. The offering commenced on October 3, 2014 and did not terminate before 7,010,724 of the securities registered in the registration statement were sold.  Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC were the lead bookrunning managers for the offering. BofA Merrill Lynch and UBS Investment Bank were joint bookrunning managers for the offering. Pacific Crest Securities LLC was acting as co-manager.
 
In conjunction with our IPO, we raised approximately $74.4 million in net proceeds after deducting underwriting discounts and commissions of $5.9 million, and other estimated issuance costs of $3.9 million. Net proceeds included $8.5 million received from the exercise of underwriters’ option to purchase shares upon completion of the IPO. We issued 7,010,724 shares of our common stock, including the exercise of underwriters’ option to purchase 760,724 shares of common stock at the public offering price of $12.00 per share. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries.
 
 
44

 
As of December 31, 2014, we have repaid the entire outstanding balance under our credit facility and invested the remaining net proceeds in short-term, interest bearing obligations and money market funds. We currently intend to use the remaining net proceeds we receive from this offering primarily for general corporate purposes, including working capital, research and development activities, sales and marketing activities, general and administrative matters and capital expenditures, to fund our growth plans, although we do not otherwise currently have any specific or preliminary plans with respect to the use of proceeds for such purposes.
 
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on October 3, 2014 pursuant to Rule 424(b).


 
45

 
Item 6.  Selected Financial Data

We derived the selected statement of operations data for the years ended December 31, 2014, 2013 and 2012 and the selected balance sheet data as of December 31, 2014 and 2013 from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We derived the selected statement of operations data for the year ended December 31, 2011 and 2010 and the selected balance sheet data as of December 31, 2012, 2011 and 2010 from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in the future.

The selected consolidated financial data below should be read together with the consolidated financial statements including the related notes thereto, and "Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K.

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
   
(in thousands, except per share data)
 
Consolidated Statements of Operations Data:
                             
Revenue:
                             
Subscription
  $ 76,005     $ 56,838     $ 44,336     $ 37,029     $ 30,746  
Professional services and other
    13,076       13,322       13,458       17,400       15,593  
Total revenue
    89,081       70,160       57,794       54,429       46,339  
Cost of revenue(1):
                                       
Subscription
    25,511       19,139       17,177       17,325       16,022  
Professional services and other
    9,704       7,693       7,594       9,537       8,006  
Total cost of revenue
    35,215       26,832       24,771       26,862       24,028  
Gross profit
    53,866       43,328       33,023       27,567       22,311  
Operating expenses(1):
                                       
Research and development
    23,601       17,948       16,193       16,768       14,742  
Sales and marketing
    22,377       15,418       13,638       12,911       9,885  
General and administrative
    13,321       9,386       8,852       9,793       8,382  
Total operating expenses
    59,299       42,752       38,683       39,472       33,009  
Operating income (loss) from continuing operations
    (5,433 )     576       (5,660 )     (11,905 )     (10,698 )
Other income (expense), net
    261       (318 )     230       (917 )     (342 )
Income (loss) from continuing operations before provision for (benefit from) income taxes
    (5,172 )     258       (5,430 )     (12,822 )     (11,040 )
Provision for (benefit from) income taxes
    1,803       1,439       1,091       (3,736 )     (4,848 )
Net loss from continuing operations
    (6,975 )     (1,181 )     (6,521 )     (9,086 )     (6,192 )
Income from discontinued operations
    -       -       -       6,999       8,260  
Net income (loss)
  $ (6,975 )   $ (1,181 )   $ (6,521 )   $ (2,087 )   $ 2,068  
                                         
Basic and diluted net income (loss) per share attributable to common stockholders(2)
                                       
Net loss from continuing operations
  $ (0.54 )   $ (0.16 )   $ (0.98 )   $ (1.54 )   $ (1.09 )
Income from discontinued operations
    -       -       -       1.19       1.46  
Net income (loss)
  $ (0.54 )   $ (0.16 )   $ (0.98 )   $ (0.35 )   $ 0.37  
Weighted average shares used to compute net loss per share attributable to common stockholders - basic and diluted(2)
    12,802       7,263       6,649       5,888       5,657  

(1) 
 Costs and expenses include stock-based compensation expense as follows:

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
   
(in thousands)
 
Cost of revenue - subscription
  $ 931     $ 201     $ 170     $ 163     $ 194  
Cost of revenue - professional services and other
    562       107       119       112       146  
Research and development
    1,159       243       236       266       290  
Sales and marketing
    1,586       302       242       302       263  
General and administrative
    2,897       658       588       524       443  
Total stock-based compensation
  $ 7,135     $ 1,511     $ 1,355     $ 1,367     $ 1,336  

(2)  
See Note 9 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for an explanation of the calculations of our net loss per share attributable to common stockholders for the years ended December 31, 2014, 2013 and 2012.
 
 
46

 
   
As of December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
   
(in thousands)
 
Consolidated Balance Sheet Data:
                             
Cash and cash equivalents
  $ 73,520     $ 8,134     $ 7,963     $ 8,763     $ 10,885  
Working capital (deficit)
    70,295       213       (1,710 )     (7,939 )     (11,789 )
Property and equipment, net
    9,481       6,297       4,335       3,580       3,753  
Total assets
    107,544       34,460       30,399       28,840       43,978  
Deferred revenue
    7,252       7,984       7,464       11,503       28,419  
Total bank borrowings and capital lease obligations
    2,396       7,763       7,955       9,195       5,303  
Convertible preferred stock warrant liabilities
    -       760       505       554       608  
Convertible preferred stock
    -       102,224       102,211       92,268       92,207  
Total stockholders' equity (deficit)
    80,077       (98,079 )     (99,074 )     (97,878 )     (96,884 )



 
47

 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Yodlee is a leading technology and applications platform powering dynamic innovation for digital financial services in the cloud. We refer to our platform as the Yodlee Financial Cloud. Our customers include financial institutions, Internet service companies providing innovative financial solutions and third-party developers of financial applications. As of December 31, 2014, more than 800 organizations in over 15 countries use the Yodlee platform to power their consumer-facing digital offerings, and we receive subscription fees for 18.4 million of these consumers, whom we refer to as our paid users.

Our financial institution customers subscribe to the Yodlee platform to power offerings that improve consumer satisfaction and enhance engagement, while capturing cross-sell and up-sell opportunities. We estimate that our current network of financial institution customers alone reaches more than 100 million end users as of December 31, 2014, representing a significant opportunity to grow our paid user base within existing customers. Our customers that are Internet service companies have an increasingly large and diverse base of users that also provides additional growth opportunities.

The Yodlee Financial Cloud delivers a wide variety of financial applications, or FinApps, targeted at the retail financial, wealth management, small business, card and other financial solutions sectors. These FinApps help consumers and small businesses simplify and manage their finances, review their financial accounts, track their spending, calculate their net worth, and perform a variety of other activities. Our platform also enables our customers to develop their own applications through our open application programming interfaces, or APIs, that deliver trusted and secure data, money movement solutions, and other feature functionality.

Our technology infrastructure is designed to provide a highly available and secure multi-tenant cloud-based platform across hundreds of customers and millions of end users. Our solutions use a single code base for all customers and are globally accessible across multiple digital channels. Our multi-tenancy model uses a common data model for all customers but isolates data with logical controls and separate encryption keys for each customer. Our architecture utilizes state-of-the-art technologies to achieve enhanced availability, scalability and security.

We provide subscription services on a business-to-business-to-consumer, or B2B2C, basis to financial services clients, whereby our customers offer Yodlee-based solutions to their customers, whom we refer to as end users. On a business-to-business, or B2B, basis we deliver the same platform to third-party developers.

We introduced our financial account aggregation product to the digital financial services industry in 1999. In 2006, we introduced online personal financial management tools. With the introduction of our open platform for digital financial services in 2010, we created an ecosystem that enables us, our customers and third-party developers to create new financial applications which can be made available across a broad base of end users. In 2013, we expanded our platform to offer these financial applications, to our customers, individually or in combinations. In addition, in 2012, we began to broadly market and sell end user-permissioned anonymized data solutions and market research services.

We derive revenue primarily from subscription fees and professional service fees. We sell subscriptions to the Yodlee platform to financial institutions, or FI, customers, and to Internet services companies providing innovative financial solutions, which we refer to as our Yodlee Interactive, or YI, customers. Subscription revenue includes both contractual minimum payments and usage-based fees and is driven primarily by the number of customers, including new customers as well as customers who renew their existing subscription contracts, and the number of paid users. Subscription revenue accounted for 85%, 81% and 77% of our revenue during the years ended December 31, 2014, 2013 and 2012, respectively. We also derive revenue from professional services primarily relating to the implementation and configuration of our solutions for our customers. Professional services and other revenue accounted for 15%, 19% and 23% of our revenue during the years ended December 31, 2014, 2013 and 2012, respectively. As more of our revenue is derived from our YI customers, we anticipate that professional services and other revenue will continue to decline over time as a percentage of our total revenue. For each of the years ended December 31, 2014, 2013 and 2012, the substantial majority of our subscription revenue was derived from subscriptions that provide for an initial three-year term, and a majority of subscription revenue was derived from committed minimums. As usage increases and customers are required to pay additional usage fees calculated on a per-paid-user basis, we expect that a more significant portion of our revenue over time may be derived from usage by paid users as compared to revenue derived from contractual minimum payments.

 
48

 
A substantial proportion of our revenue has been derived from a limited number of large FI customers. For example, revenue from our three largest customers for the years ended December 31, 2014, 2013 and 2012, aggregated 25%, 32% and 31% of total revenue, respectively, during those periods. Eight of our ten largest customers for the year ended December 31, 2014 have been our customers for five or more years. We anticipate that revenue from a small group of customers will continue to account for a significant proportion of our revenue in the near term. The continued growth of our business partially depends on our ability to maintain our customer relationships, renew subscriptions from our current customers and generate additional paid users and sources of revenue from existing customers. As we seek to engage additional FI and YI customers, we expect that our revenue will diversify over time. The continued growth of our business partially depends on our ability to secure new subscriptions and deployments of the Yodlee platform by new customers.

Sales to large organizations have typically been characterized by longer sales cycles, significant contract negotiations and less predictability in completing sales. Our revenue has usually been the strongest during the last two quarters of the calendar year due to the terms of existing customer contracts with certain of our largest customers and associated revenue recognition, and timing of our customers’ deployment of our solutions and associated professional services revenue.

The substantial majority of our revenue is derived from our customers in the United States. We believe the markets outside of the United States offer an opportunity for growth, and we intend to continue to pursue expansion in international markets. Revenue outside of the United States represented approximately 14% of total revenue in the years ended December 31, 2014, 2013 and, 2012.

Factors Affecting our Future Performance

We believe that our future success will be dependent on many factors, including our ability to expand our relationships with existing customers, grow the number of customers and derive revenue from new offerings such as our data solutions and market research services and premium FinApps. While these areas present significant opportunity, they also present risks that we must manage to ensure successful results. See “Risk Factors” included in Item 1A of this Annual Report on Form 10-K for more information on the risks relating to our customers and product offerings.

Growth in Number of Customers Deploying the Yodlee Platform

The continued growth of our business partially depends on our ability to secure new subscriptions and deployments of the Yodlee platform by new customers. We continue to target additional major FIs domestically and internationally to increase the number of paid users and our subscription revenue. We also intend to drive growth with Internet services companies by participating in additional vertical markets and expanding the breadth of applications and solutions running on the Yodlee platform. Revenue from these types of companies has accounted for a growing proportion of our total revenue in recent periods and we believe there is a significant opportunity to increase revenue from these companies in the future.

Renewals and Additional Revenue from Current Customers

The continued growth of our business partially depends on our ability to maintain our customer relationships, renew subscriptions from our current customers and generate additional paid users and sources of revenue from existing customers. Our ability to increase adoption among existing customers is particularly important in light of our land and expand business model, pursuant to which we target customers with initial product offerings and expand the use cases and relationship over time. For example, an FI customer may initially subscribe to Yodlee data aggregation and later expand its relationship with us by licensing additional product offerings and FinApps. As our existing customers increase their adoption and promotion of the functionality of our solutions and deploy FinApps and additional value-added offerings to their end users, we anticipate that our number of paid users will increase.

Mix and Timing of Subscriptions and Deployments

Sales to large organizations have typically been characterized by longer sales cycles, significant contract negotiations and less predictability in completing sales. For example, our sales cycle can generally last one year or more with our largest FI customers, but is variable and difficult to predict and can be much longer or shorter. Many of our YI customers have shorter sales cycles of one to three months. In addition, FI customers and some large YI customers deploy our solutions in six to nine months. In contrast, many other YI customers can implement our applications and solutions in approximately three months. All of these factors impact the timing of revenue recognition and have resulted in fluctuations in our subscription revenue and overall operating results.
 
 
49

 
Growth of Data Solutions and Market Research Services
 
We have commenced deriving revenue by providing data solutions and market research services. We believe there are significant opportunities to increase our revenue and average revenue per paid user by providing these services to our existing customers and to new customers for such uses as market analytics, credit and risk analytics and other use cases. In the year ended December 31, 2014, revenue derived from data solutions and marketing research services was a key factor in the increase of average revenue per paid user we realized. We anticipate that revenue from data solutions and marketing research service will continue to be an important factor in our future financial results. Our future growth and profitability will also be affected by our ability to generate higher average revenue per paid user through revenue-sharing arrangements with partners who develop premium FinApps. An API set built for FIs to speed internal innovation, enterprise API is designed to allow FIs to offer the same types of developer tools and integration capabilities previously only available to tech focused innovators. This is a product designed to allow the FIs to level the playing field against the Internet service companies currently disrupting the traditional models.
 
Operating Efficiencies and Investment
 
The cloud-based nature of the Yodlee platform provides us with economies of scale and operating leverage as the number of deployments and paid users grows. In addition, historically, we have enjoyed increasing operating efficiencies by leveraging our significant presence in India, which provides us with direct access to a large pool of talented engineers for research and development, customer support and operations. Our gross margins have expanded in recent periods and will continue to expand over the long term to the extent we are able to realize operating efficiencies.
 
To support our growth, we have made and expect to continue to make investments in our data center and other infrastructure in connection with enhancing and expanding our operations both domestically and internationally. For example, we expect to continue to invest in additional data center resources to keep pace with our growth. We believe that our investment in infrastructure will contribute to improvements in our operating results in the long-term; however, this investment will require capital expenditures and may impact our profitability in the near-term. In addition, we have continued to invest in research and development to continually improve and enhance the Yodlee platform and the breadth of applications and services running on the platform to meet our customers’ and potential customers’ needs and to develop new offerings to more effectively realize the value of the transaction-level data that we gather and refine. We also expect to continue to expand our sales and marketing efforts domestically and increase awareness of our solutions on a global basis and grow our international operations. We also expect to incur additional general and administrative expenses as a result of both our growth and the infrastructure required to be a public company. Investment in these areas will cause our operating expenses to continue to increase in absolute dollars in future periods.


 
50

 
Key Metrics

In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the following non-GAAP and other operational measures are useful in evaluating our operating performance. We regularly review the key metrics set forth below as we evaluate our business.

   
Year Ended December, 31
 
   
2014
   
2013
   
2012
 
Adjusted EBITDA
  $ 5,468     $ 4,772     $ (1,915 )
 
   
As of December 31,
 
   
2014
   
2013
   
2012
 
Paid users (in thousands)
    18,354       14,295       10,671  
Average revenue per paid user
  $ 4.60     $ 4.52     $ 4.38  
Subscription and support revenue net retention rate
    124 %     123 %     114 %
 
Adjusted EBITDA

We define adjusted EBITDA as net loss before income from discontinued operations; provision for (benefit from) income taxes; other (income) expense, net; depreciation and amortization; and stock-based compensation expense. We believe adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. We believe adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance. We use adjusted EBITDA in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.

Adjusted EBITDA increased to $5.5 million in the year ended December 31, 2014 from $4.8 million in the year ended December 31, 2013 and from $(1.9) million in the year ended December 31, 2012.  The increase in adjusted EBITDA from 2013 to 2014 was primarily due to an increase in revenue from both existing and new customers. The increase in adjusted EBITDA from 2012 to 2013 was primarily due to the reduction in our net losses in the periods.

Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. We understand that, although adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, adjusted EBITDA has limitations as an analytical tool, including: depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future; adjusted EBITDA does not reflect any cash requirements for these replacements; adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or contractual commitments; adjusted EBITDA does not reflect cash requirements for income taxes and the cash impact of other income or expense; and other companies may calculate adjusted EBITDA differently than we do. We compensate for the inherent limitations associated with using adjusted EBITDA through disclosure of these limitations, presentation of our financial statements in accordance with GAAP and reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net loss. The table below provides a reconciliation of net loss to adjusted EBITDA:

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Net loss
  $ (6,975 )   $ (1,181 )   $ (6,521 )
Provision for income taxes
    1,803       1,439       1,091  
Other expense (income), net
    (261 )     318       (230 )
Depreciation and amortization
    3,766       2,685       2,390  
Stock-based compensation
    7,135       1,511       1,355  
Adjusted EBITDA
  $ 5,468     $ 4,772     $ (1,915 )

Paid Users
 
A paid user is defined as a user of an application or service provided to our customer using the Yodlee platform whose status corresponds to a billable activity under the associated customer contract. We believe that our ability to increase the number of paid users is an indicator of our market penetration, the growth of our business, and our potential future business opportunities.
 
 
51

 
Paid users increased to 18.4 million as of December 31, 2014 from 14.3 million as of December 31, 2013, and 10.7 million as of December 31, 2012, as a result of an increase in our number of customers as well as expansion of user base within certain existing customers.
 
Average Revenue Per Paid User
 
Average revenue per paid user is defined as of any point in time as the trailing twelve-month subscription revenue divided by the average number of paid users over the same time period. For a given contract, as the number of paid users increases, our usage fee per paid user generally decreases due to volume-tiered pricing. However, at the same time, our cost of subscription revenue has declined more rapidly on a per user basis, which has contributed to increases in our gross margins. Our ability to maintain average revenue per paid user during the last year is an indicator of our success in developing and monetizing expanding use cases for the Yodlee platform, including data solutions and market research services. In order to support average revenue per paid user, we intend to continue to develop additional applications and services, including data services and premium FinApps.
 
Average revenue per paid user increased to $4.60 as of December 31, 2014 from $4.52 as of December 31, 2013, due to revenue derived from data solutions and market research services. This increase more than offset the decrease in per user fees resulting from volume-tiered pricing under our customer contracts.

Average revenue per paid user increased to $4.52 as of December 31, 2013 from $4.38 as of December 31, 2012, due to data solutions and market research services. This increase more than offset the decrease in per user fees resulting from volume-tiered pricing under our customer contracts. Our subscription gross margin further increased by an additional 5 percentage points to 66% for the year ended December 31, 2013 primarily due to additional economies of scale realized on higher revenue and higher average revenue per paid user.

Subscription Revenue Net Retention Rate

We believe that our ability to retain our customers through renewals of subscription agreements and expand the number of paid users of our applications and services is an indicator of the stability of our recurring revenue base and the long-term value of our customer relationships. We calculate our subscription revenue net retention rate for a particular period by dividing subscription revenue for the four most recent quarters by the subscription revenue for the corresponding quarters in the preceding year for those customers for which subscription revenue was recognized in the corresponding quarters of the preceding year. This calculation includes the impact on our revenue from customer non-renewals and attrition, deployments of additional services or discontinued use of services by our customers, price changes for our services and increases or decreases in the number of paid users.

Our subscription revenue net retention rate increased to 124% for the year ended December 31, 2014 from 123% for the year ended December 31, 2013 and 114% for the year ended December 31, 2012, primarily as a result of increased revenues from our existing customer base and, in particular, the increased maturity of our YI customer base. We expect our subscription revenue net retention rate to fluctuate from period to period based on renewals by, and the extent of additional deployments within, our existing customers.


 
52

 
Components of Results of Operations

Revenue
 
We derive our revenue primarily from subscription fees and professional services fees. We sell subscriptions to the Yodlee platform to our FI and YI customers who make our solutions available to their end users. Professional services include implementation services, upgrade services, development of interfaces requested by customers, assistance with integration of our services with the customers’ other applications, dedicated support, and advisory services to customers who choose to develop their own interfaces and applications.
 
Subscription revenue is driven primarily by the number of customers, the number of paid users and the renewal of existing subscription contracts. Subscription revenue is recognized ratably over the contracted term of each respective subscription agreement, commencing on the date the service is provisioned to the customer, provided all applicable revenue recognition criteria have been satisfied. As part of the subscription contracts, our customers generally commit to a minimum level of paid users from which a minimum level of non-refundable subscription revenue is derived. As paid users in excess of the guaranteed minimum level access the Yodlee platform, the customer is then required to pay additional usage fees calculated based upon a contracted per-paid-user fee. No refunds or credits are given if fewer paid users access the Yodlee platform than the contracted minimum level. Usage-based revenue is recognized as earned, provided all applicable revenue recognition criteria have been satisfied. For subscription agreements, we typically invoice our customers in monthly or annual fixed installments. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period. Because the invoicing terms of our customer agreements vary, the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time. Accordingly, we do not believe that change in deferred revenue is an accurate indicator of future revenues for a given period of time. Customer contracts are generally non-cancellable for some specified period and, to the extent such contracts are cancelable before expiration of the term, they generally provide for payment of certain penalties and/or minimums. We expect our subscription revenue to increase as we add new customers, expand our paid user base and renew existing subscription contracts.
 
The proportion of our revenue derived from customer minimum paid user commitments, together with favorable subscription revenue net retention rates, have historically assisted us in predicting our near-term revenues. As usage increases and customers are required to pay additional usage fees calculated on a per-paid-user basis, a more significant proportion of our revenue over time may be derived from usage by paid users. This usage-based aspect of our subscription contracts adds some volatility to our revenue because end users’ activities may vary from period to period based on a variety of factors outside of our control, including personal financial and other circumstances affecting end user activity, seasonality and decisions by our customers that affect the extent to which they promote our solutions. Our experience with customers’ growth and our awareness of deployment and promotional plans helps us forecast these usage-based revenues.
 
Professional services are sold either on a fixed-fee or on a time-and-materials basis. Revenue for time-and-material arrangements is recognized as the services are performed. Revenue for fixed-fee arrangements is recognized under the proportional performance method of accounting. We expect our professional services and other revenue to fluctuate based on the number of new customers added and version upgrade work performed in any given period, and the presence of other companies who are able to implement our services for customers.
 
Cost of Revenue
 
Our total cost of revenue consists of cost of subscription revenue and cost of professional services and other revenue, both of which consist primarily of personnel-related costs for the operations team or professional services team, respectively, including salaries, benefits and stock-based compensation.

Cost of revenue–subscription also includes data center costs to host the Yodlee platform and related support and maintenance costs; depreciation of servers and networking equipment; security operations; payment processing cost; and allocated facilities and other supporting overhead costs. We expect our cost of subscription revenue to increase in absolute dollars, although it may fluctuate as a percentage of subscription revenue from period to period, as our subscription revenue increases.
 
Cost of revenue–professional services and other also includes cost of consultants engaged in providing professional services to our customers; and allocated facilities and other supporting overhead costs. When we defer professional services revenue, we defer the related direct labor costs that we consider recoverable and recognize them in cost of revenue in the same periods as the related professional service revenue is recognized. We expect our cost of professional services and other revenue to fluctuate in absolute dollars as our professional services and other revenue fluctuates.
 
 
53

 
Gross Profit
 
Gross profit is total revenue less total cost of revenue. Gross margin, or gross profit expressed as a percentage of total revenue, has been and will continue to be affected by a variety of factors, including the sales price of our product offerings, costs to deliver our platform, our ability to leverage our existing infrastructure as we continue to grow and the mix of revenue between subscription and professional services and other. Our subscription services generally have a higher gross margin than our professional services and other revenue. Gross margin for professional services and other is impacted by the size of customer deployments, with smaller projects typically having lower gross margins. We expect our gross margins to fluctuate over time depending on these and other factors.
 
Operating Expenses
 
Our operating expenses consist of research and development, sales and marketing, and general and administrative expense. Personnel costs are the most significant component of operating expenses and consist primarily of salaries, benefits, employee bonuses, stock-based compensation, and with regard to sales and marketing expense, sales commissions.
 
Research and Development.    Research and development expense consists primarily of personnel costs for employees on our engineering and technical teams who are responsible for increasing the functionality and enhancing the ease of use of the Yodlee platform and the development of new products and services. Research and development expense also includes the cost of third-party service providers and allocated facilities and other supporting overhead costs. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services, although our research and development expense may fluctuate as a percentage of total revenue.
 
Sales and Marketing.    Sales and marketing expense consists primarily of sales commissions and other personnel costs for employees engaged in sales, sales support, business development and marketing functions. In addition, sales and marketing expense also includes travel-related expenses, marketing and public relations costs, and allocated facilities and other supporting overhead costs. We expect sales and marketing expense to increase in absolute dollars as we continue to hire additional personnel and invest in sales initiatives and marketing programs, although our sales and marketing expense may fluctuate as a percentage of total revenue.
 
General and Administrative.    General and administrative expense consists primarily of personnel costs, professional services and allocated facilities and other supporting overhead costs. General and administrative personnel include our chief executive officer, finance and legal organizations. Professional services expense consists primarily of legal, auditing, accounting and other consulting costs. We expect general and administrative expense to increase in absolute dollars as we incur additional legal, accounting, investor relations, and other costs associated with being a public company, although our general and administrative expense may fluctuate as a percentage of total revenue.

Other Income (Expense), Net
 
Other income (expense), net consists primarily of the interest expense associated with our bank borrowings, foreign exchange gains or loss, gain or loss on foreign currency forward contracts, revaluation impact of convertible preferred stock warrant liabilities and other non-operating income or expense.
 
Provision for Income Taxes
 
Provision for income taxes consists primarily of income taxes in our wholly-owned subsidiary in India and other foreign operations. The provision for income taxes related to our foreign operations is impacted by items such as increases and decreases in uncertain tax positions in our foreign locations, as well as foreign withholding taxes. These items, and their impact to our effective tax rate, may fluctuate from year to year. Valuation allowances are provided when necessary to reduce deferred tax assets to amount expected to be realized. Due to uncertainty as to the realization of benefits from our U.S. federal and state deferred tax assets, including net operating loss carry forwards, research and development and other tax credits, we have a full valuation allowance against such assets. We expect to maintain this full valuation allowance in the near term.
 
 
54

 
Consolidated Results of Operations

The following table summarizes our consolidated results of operations for the years ended December 31, 2014, 2013 and 2012. Our historical results are not necessarily indicative of the results that may be expected in the future.

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
   
(in thousands)
 
Consolidated Statements of Operations Data:
                 
Revenue:
                 
Subscription
  $ 76,005     $ 56,838     $ 44,336  
Professional services and other
    13,076       13,322       13,458  
Total revenue
    89,081       70,160       57,794  
Cost of revenue:
                       
Subscription
    25,511       19,139       17,177  
Professional services and other
    9,704       7,693       7,594  
Total cost of revenue
    35,215       26,832       24,771  
Gross profit
    53,866       43,328       33,023  
Operating expenses:
                       
Research and development
    23,601       17,948       16,193  
Sales and marketing
    22,377       15,418       13,638  
General and administrative
    13,321       9,386       8,852  
Total operating expenses
    59,299       42,752       38,683  
Operating income (loss)
    (5,433 )     576       (5,660 )
Other income (expense), net
    261       (318 )     230  
Income (loss) before provision for income taxes
    (5,172 )     258       (5,430 )
Provision for income taxes
    1,803       1,439       1,091  
Net loss
  $ (6,975 )   $ (1,181 )   $ (6,521 )

The following tables summarize our consolidated results of operations as a percentage of total revenue for the years ended December 31, 2014, 2013 and 2012:

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
   
(as a percentage of total revenue)
 
Revenue:
                 
Subscription
    85 %     81 %     77 %
Professional services and other
    15       19       23  
Total revenue
    100       100       100  
Cost of revenue:
                       
Subscription
    29       27       30  
Professional services and other
    11       11       13  
Total cost of revenue
    40       38       43  
Gross profit
    60       62       57  
Operating expenses:
                       
Research and development
    26       26       28  
Sales and marketing
    25       22       24  
General and administrative
    15       13       15  
Total operating expenses
    66       61       67  
Operating income (loss)
    (6 )     1       (10 )
Other income (expense), net
    -       (1 )     1  
Income (loss) before provision for income taxes
    (6 )     -       (9 )
Provision for income taxes
    2       2       2  
Net loss
    (8 %)     (2 %)     (11 %)

 
55

 
Revenue

   
Year Ended December 31,
   
2013 to 2014
   
2012 to 2013
 
   
2014
   
2013
   
2012
   
% Change
   
% Change
 
   
(in thousands)
             
Revenue:
                             
Subscription
  $ 76,005     $ 56,838     $ 44,336       34 %     28 %
Professional services and other
    13,076       13,322       13,458       (2 %)     (1 %)
Total revenue
  $ 89,081     $ 70,160     $ 57,794       27 %     21 %

2014 compared to 2013. Total revenue increased $18.9 million, or 27%, for the year ended December 31, 2014, compared to the same period in 2013.

The increase in subscription revenue of $19.2 million, or 34%, was due primarily to increases in our paid users and average revenue per user. Paid users increased to 18.4 million as of December 31, 2014 from 14.3 million as of December 31, 2013. Average revenue per paid user increased to $4.60 for the year ended December 31, 2014 from $4.52 for the year ended December 31, 2013 as a result of revenue from data solutions and marketing research services. There was a marginal decrease in professional services and other revenue of $0.2 million, or 2%.

2013 compared to 2012.    Total revenue increased $12.4 million, or 21%, from 2012 to 2013.

The increase in subscription revenue of $12.5 million, or 28%, was due primarily to an increase in our paid users to 14.3 million as of December 31, 2013 from 10.7 million as of December 31, 2012 while average revenue per paid user remained relatively consistent. Of the 28% increase in subscription revenue, 23 percentage points resulted from increased revenue from existing customers as calculated for purposes of the subscription revenue net retention rate. Professional services and other revenue decreased by $0.1 million, or 1%, as implementation efficiencies resulted in a decrease of professional services and other revenue despite an increase in new customers.

Cost of Revenue, Gross Profit and Gross Margin

   
Year Ended December 31,
   
2013 to 2014
   
2012 to 2013
 
   
2014
   
2013
   
2012
   
% Change
   
% Change
 
   
Amount
   
Gross Margin
   
Amount
   
Gross Margin
   
Amount
   
Gross Margin
             
   
(dollars in thousands)
             
Cost of revenue:
                                               
Subscription
  $ 25,511           $ 19,139           $ 17,177             33 %     11 %
Professional services and other
    9,704             7,693             7,594             26 %     1 %
Total cost of revenue
  $ 35,215           $ 26,832           $ 24,771             31 %     8 %
                                                           
Gross profit:
                                                         
Subscription
  $ 50,494       66 %   $ 37,699       66 %   $ 27,159       61 %     0 %     5 %
Professional services and other
    3,372       26 %     5,629       42 %     5,864       44 %     (16 %)     (2 %)
Total gross profit
  $ 53,866       60 %   $ 43,328       62 %   $ 33,023       57 %     (2 %)     5 %

2014 compared to 2013. Total cost of revenue increased $8.4 million, or 31%, gross profit increased $10.5 million, and gross margin decreased by 2 percentage points from 2013 to 2014.
 
Cost of subscription revenues increased $6.4 million, or 33%, from 2013 to 2014. This increase was primarily due to a $2.1 million increase in personnel costs, driven by the increase in headcount to support the business growth, and an increase in stock-based compensation expense. Additionally, a $0.9 million increase in depreciation expense was recognized related to additional servers and equipment, $1.2 million in increased expenses were attributable to data center and other hosting related costs, and $1.3 million in additional expenses related to outside services were incurred to support the increase in subscription revenue.

Gross profit from subscription increased $12.8 million, and gross margin remained flat.

Cost of professional services and other revenue increased by $2.0 million, or 26%, from 2013 to 2014. This increase was due to a $1.1 million increase in employee-related expenses (including stock-based compensation) driven by an increased headcount needed to support our overall revenue growth. Additional expenses of $0.4 million were incurred to support private cloud implementation services.

 
56

 
Gross profit from professional services and other decreased $2.3 million and gross margin decreased by 16 percentage points due primarily to timing of customer deployments and increased investment in services capacity to support our overall revenue growth.

2013 compared to 2012.    Total cost of revenue increased $2.1 million, or 8%, and gross profit increased $10.3 million, and gross margin increased by 5 percentage points, from 2012 to 2013.

Cost of subscription revenue increased $2.0 million, or 11%, from 2012 to 2013. The increase was primarily due to an increase of $1.3 million in personnel costs related to increased headcount to support the business growth, an increase of $0.3 million in depreciation expense related to additional servers and equipment and $0.4 million increase in data center and other hosting related costs to support the increase in subscription revenue. Gross profit from subscription increased $10.5 million, and gross margin increased by 5 percentage points primarily due to economies of scale achieved as a result of higher sales during the year.

Cost of revenue from professional services and other increased slightly by $0.1 million, or 1%, from 2012 to 2013. Gross profit from professional services and other decreased $0.2 million and gross margin decreased by 2 percentage points.
 
Operating Expenses

Research and development

   
Year Ended December 31,
   
2013 to 2014
   
2012 to 2013
 
   
2014
   
2013
   
2012
    % Change     % Change  
   
(dollars in thousands)
             
Research and development
  $ 23,601     $ 17,948     $ 16,193       31 %     11 %
Percentage of revenue
    26 %     26 %     28 %                

2014 compared to 2013. Research and development expense increased $5.7 million, or 31%, from 2013 to 2014. The increase was due primarily to an increase in personnel-related expenses, including stock-based compensation expenses, due to increased headcount needed to support our overall revenue growth.

2013 compared to 2012.    Research and development expenses increased $1.8 million, or 11% from 2012 to 2013. The increase was primarily due to a $0.8 million increase in personnel related expenses including salaries, benefits and employee bonuses, due primarily to increased head count, and an increase of $0.8 million in outside services for consultants and contractors used in the research and development department. This investment supported our efforts to build our future product offerings.

Sales and marketing


   
Year Ended December 31,
   
2013 to 2014
   
2012 to 2013
 
   
2014
   
2013
   
2012
    % Change     % Change  
   
(dollars in thousands)
             
Sales and marketing
  $ 22,377     $ 15,418     $ 13,638       45 %     13 %
Percentage of revenue
    25 %     22 %     24 %                

2014 compared to 2013. Sales and marketing expense increased $7.0 million, or 45%, from 2013 to 2014. The increase was primarily attributable to an increase of $5.0 million in personnel costs related to increased headcount to support the business growth and stock-based compensation expense, a $0.7 million increase in expense related to outside consultants, increased travel-related expenses of $0.7 million, and a $0.3 million increase in expenses related to trade shows and conventions.

2013 compared to 2012.    Sales and marketing expenses increased $1.8 million, or 13%, from 2012 to 2013. The increase was primarily attributable to an increase of $1.2 million in employee-related expense, due primarily to increased head count needed to drive our overall revenue growth, a $0.4 million increase in expenses related to trade shows and conventions, and a $0.2 million increase in travel-related expense as we continue to expand our customer base and presence internationally.

 
57

 
General and Administrative

   
Year Ended December 31,
   
2013 to 2014
   
2012 to 2013
 
   
2014
   
2013
   
2012
    % Change     % Change  
   
(dollars in thousands)
             
General and administrative
  $ 13,321     $ 9,386     $ 8,852       42 %     6 %
Percentage of revenue
    15 %     13 %     15 %                

2014 compared to 2013. General and administrative expenses increased $3.9 million, or 42%, from 2013 to 2014. This was primarily due to an increase of employee-related expenses as a result of increased headcount and stock-based compensation expense, as well as increased indirect costs associated with our initial public offering.

2013 compared to 2012.    General and administrative expenses increased marginally, $0.5 million, or 6%, from 2012 to 2013. This was primarily due to an increase of $0.4 million in employee-related expenses, including salaries and bonus, due primarily to increased head count.


Other Income (Expense), Net

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
   
(in thousands)
 
Other income (expense), net
  $ 261     $ (318 )   $ 230  

2014 compared to 2013. Other income (expense), net, increased by $0.6 million from 2013 to 2014. The increase was primarily due to net foreign exchange gains.

2013 compared to 2012.    Other income (expense), net, decreased $0.5 million, from 2012 to 2013. The decrease was primarily due to the receipt of proceeds from an insurance settlement in 2012 and the re-measurement of our convertible preferred stock warrants.

Provision for Income Taxes

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
   
(dollars in thousands)
 
Provision for income taxes
  $ 1,803     $ 1,439     $ 1,091  
Effective tax rate
    (35 %)     558 %     20 %

2014 compared to 2013. Income tax expense increased $0.4 million. The increase in the provision for 2014 compared to 2013 was primarily due to increased foreign taxes resulting from the expansion of business operations in 2014.

2013 compared to 2012.    Provision for (benefit from) income taxes increased $0.3 million. The increase in the provision for 2013 compared to 2012 was primarily due to the inclusion of $0.2 million tax expense related to an uncertain tax position for permanent establishment in a foreign jurisdiction, changes in uncertain tax positions in our foreign and domestic operations, as well as foreign withholding taxes.
 
Litigation and Contingencies

From time to time, we may become subject to legal proceedings and claims with respect to such matters as patents and other actions arising out of the normal course of business, as well as other matters identified in "Legal Proceedings" in Part I, Item 3 of this Annual Report on Form 10-K.

It is possible that other companies might pursue litigation with respect to any claims such companies purport to have against us. In addition, litigation may be necessary to protect and enforce our intellectual property rights. The results of any litigation are inherently uncertain.  Any such litigation could be very costly, could divert management attention and resources and may not be successful, even when our rights have been infringed.

Given the uncertainties associated with litigation, if our assessments prove to be wrong, or if additional information becomes available such that we estimate that there is a probable loss or probable range of loss associated with these contingencies, then we would record the minimum estimated liability, which could materially impact our results of operations, financial position or cash flows.

Quarterly Results of Operations

The following tables presenting our quarterly results of operations should be read in conjunction with the consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. Our operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year.

 
58

 
The following table presents our unaudited quarterly results of operations for the eight quarters ended December 31, 2014. This table includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for fair presentation of our consolidated financial position and operating results for the quarters presented.

   
For The Three Months Ended
 
   
Dec. 31, 2014
   
Sep. 30, 2014
   
June. 30, 2014
   
Mar. 31, 2014
   
Dec. 31, 2013
   
Sep. 30, 2013
   
June. 30, 2013
   
Mar. 31, 2013
 
   
(in thousands, except per share amounts)
 
Consolidated Statements of Operations:
                                               
Revenue:
                                               
Subscription
    21,315     $ 19,787     $ 18,172     $ 16,731     $ 16,420     $ 14,298     $ 13,669     $ 12,451  
Professional services and other
    3,547       3,366       3,131       3,032       3,618       3,968       2,717       3,019  
Total revenue
    24,862       23,153       21,303       19,763       20,038       18,266       16,386       15,470  
Cost of revenue:
                                                               
Subscription
    7,384       6,728       5,744       5,655       5,066       4,867       4,541       4,665  
Professional services and other
    3,049       2,263       2,206       2,186       2,010       1,839       1,892       1,952  
Total cost of revenue
    10,433       8,991       7,950       7,841       7,076       6,706       6,433       6,617  
Gross profit
    14,429       14,162       13,353       11,922       12,962       11,560       9,953       8,853  
Gross margin
    58 %     61 %     63 %     60 %     65 %     63 %     61 %     57 %
Operating expenses:
                                                               
Research and development
    7,116       6,225       5,351       4,909       4,443       4,096       4,640       4,769  
Sales and marketing
    6,721       5,966       5,149       4,541       4,071       3,946       3,795       3,606  
General and administrative
    4,784       3,018       2,817       2,702       2,408       2,795       2,207       1,976  
Total operating expenses
    18,621       15,209       13,317       12,152       10,922       10,837       10,642       10,351  
Operating income (loss)
    (4,192 )     (1,047 )     36       (230 )     2,040       723       (689 )     (1,498 )
Other income (expenses), net
    214       (40 )     68       19       (100 )     (258 )     (41 )     81  
Income (loss) before provision for income taxes
    (3,978 )     (1,087 )     104       (211 )     1,940       465       (730 )     (1,417 )
Provision for income taxes
    429       532       465       377       693       261       308       177  
Net income (loss)
  $ (4,407 )   $ (1,619 )   $ (361 )   $ (588 )   $ 1,247     $ 204     $ (1,038 )   $ (1,594 )
Net income (loss) attributable to common stockholders:
                                                               
Basic
  $ (0.16 )   $ (0.21 )   $ (0.05 )   $ (0.08 )   $ 0.06     $ 0.01     $ (0.14 )   $ (0.22 )
Diluted
  $ (0.16 )   $ (0.21 )   $ (0.05 )   $ (0.08 )   $ 0.05     $ 0.01     $ (0.14 )   $ (0.22 )

Quarterly Revenue Trends

Our quarterly subscription revenue has increased sequentially over the past eight quarters. The increases resulted primarily from growth in subscription revenue from new customers, upgrades and additional subscriptions from existing customers, and an increase in the number of paid users due to the launch and expansion of customers’ applications. Our quarterly professional services and other revenue has fluctuated from quarter to quarter depending on the nature and extent of customer deployments. In addition, our revenue has usually been the strongest during the last two quarters of the year due to the terms of existing customer contracts with certain of our largest customers and associated revenue recognition, and timing of our customers’ deployment of our solutions and associated professional services revenue.

Quarterly Cost and Expense Trends

Cost of revenue in absolute dollars varied from quarter-to-quarter in the quarters presented. However, cost of revenue generally increased over the periods presented primarily due to overall business growth and implementation and service related costs that we incur and recognize in the same periods as the related revenue.

Our operating expenses have increased in absolute dollars as we have continued to hire additional employees, introduce new marketing programs to increase brand awareness and incur additional costs in becoming a public company.

Our quarterly results of operations may fluctuate significantly due to a variety of factors, many of which are outside of our control, making our results of operations variable and difficult to predict. As such, we believe sequential quarterly comparisons of our results of operations may not be meaningful and should not be relied upon as an indication of future performance.

Liquidity and Capital Resources

As of December 31, 2014, we had cash and cash equivalents of $73.5 million, all of which was held in the United States. We anticipate that the amount of our cash and cash equivalents held in India may increase in the future as funds are remitted to our Indian subsidiary for services performed under our intercompany agreements.

 
59

 
Our cash and cash equivalents are comprised primarily of deposits with commercial banks in checking, interest-bearing and money market accounts. To date, we have satisfied our capital and liquidity needs through cash collections from our customers, private placements of convertible preferred stock and bank borrowings. We have incurred significant losses in the past as we continued to expand our business. Our cash flow from operating activities will continue to be affected principally by the extent to which our revenue exceeds or does not exceed any increase in spending on personnel to support the growth of our business. Our largest source of operating cash flow is cash collections from our customers.
 
We believe that our existing cash and cash equivalents, cash flow from operations and availability under our line of credit will be sufficient to meet our working capital needs and planned capital expenditures for at least the next 12 months. From time to time, we may explore additional financing sources which could include equity, equity-linked and debt financing arrangements. We cannot assure you that any additional financing will be available to us on acceptable terms or at all.

Cash Flows
 
The following table summarizes our cash flows for the periods presented:

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
   
(in thousands)
 
Consolidated Statements of Cash Flows:
                 
Net cash provided by (used in) operating activities
  $ 2,366     $ 3,509     $ (10,777 )
Net cash used in investing activities
    (5,221 )     (2,884 )     (2,578 )
Net cash provided by (used in) financing activities
    68,241       (454 )     12,555  
Net increase (decrease) in cash and cash equivalents
  $ 65,386     $ 171     $ (800 )

Operating Activities

Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash inflows from operating activities to be affected by the level of sales and timing of collections. Our primary uses of cash from operating activities have been for personnel costs. Our cash flow from operations will continue to be affected principally by the extent to which we grow our revenue and increase our headcount in order to grow our business.

Cash provided by operating activities in 2014 of $2.4 million was driven by a net loss of $7.0 million as adjusted for the exclusion of non-cash expenses of $10.9 million and changes in our working capital of $1.5 million. Non-cash charges consist primarily of depreciation and amortization of our property and equipment and stock-based compensation for stock options. The changes in our working capital were due primarily to an increase in accrued compensation and accounts payable of $2.4 million and $1.3 million, respectively, as well as increases in accounts receivable and prepaid assets of $3.1 million and $1.5 million, respectively. These changes were partially offset by a decrease in deferred revenue of $0.7 million, and an increase in accrued liabilities and other long term liabilities of $0.2 million. The increase in accounts receivable resulted from the growth in our business.

Cash provided by operating activities in 2013 of $3.5 million was driven by a net loss of $1.2 million as adjusted for the exclusion of non-cash expenses of $4.3 million and changes in our working capital of $0.4 million. Non-cash charges consist primarily of depreciation and amortization of our property and equipment and stock-based compensation for stock options. The changes in our working capital were due primarily to an increase in accrued compensation of $2.9 million and an increase in deferred revenue of $0.5 million, partially offset by an increase in accounts receivable of $2.2 million and a decrease in accrued liabilities and other long term liabilities of $0.6 million. The increase in accrued compensation was due to the partial-payment of 2012 bonuses within the year ended December 31, 2012, whereas no such partial-payment of bonuses was made in the year ended December 31, 2013 for 2013 bonuses. The increase in accounts receivable resulted from the growth in our business.

Cash used in operating activities in 2012 of $10.8 million was driven by a net loss of $6.5 million as adjusted for the exclusion of non-cash expenses of $3.3 million and changes in our working capital of $7.6 million. Non-cash charges consist primarily of depreciation and amortization and stock-based compensation. The changes in our working capital were due primarily to a decrease in our deferred revenue of $4.0 million, a decrease in accrued compensation of $1.1 million, a decrease in accrued liabilities of $0.9 million and an increase in accounts receivable of $1.8 million. The decrease in deferred revenue was due to the recognition in 2012 of deferred professional services revenue upon completion of professional services engagements. The decrease in accrued compensation was due to the timing of bonus payments. The increase in accounts receivable resulted from the growth in our business.

 
60

 
Investing Activities

Our investing activities consist primarily of capital expenditures to purchase property and equipment, particularly purchases of servers, networking equipment and software licenses. We expect to continue investing in capital expenditures to support continued growth of our business.

We used $5.2 million, $3.0 million and $3.0 million for purchases of property and equipment in 2014, 2013 and 2012, respectively.  In 2014 and 2013, $1.8 million and $1.7 million, respectively, of additional purchases were financed through capital leases.  In addition, we received proceeds of $0.1 million and $0.5 million in 2013 and 2012, respectively, from an insurance settlement.

Financing Activities

Our financing activities have consisted primarily of bank borrowings, net proceeds from the issuance of our common stock in our initial public offering and upon the exercise of stock options, and issuance of convertible preferred stock.

In 2014, cash provided by financing activities was $68.2 million, which consisted of $74.5 million in net proceeds from our initial public offering of common stock in October 2014 and $1.4 million in proceeds from the issuance of shares of our common stock upon the exercise of stock options, offset by $6.4 million of repayment on our bank borrowings, $0.8 million of capital lease payments, and $0.5 million used towards the repurchase of common stock.

In 2013, cash used in financing activities was $0.5 million, which consisted of $1.5 million of net repayments on our bank borrowings and $0.4 million of capital lease payments offset by $1.4 million of proceeds from the issuance of shares of our common stock upon the exercise of stock options.

In 2012, cash provided by financing activities was $12.6 million, which consisted primarily of $9.4 million of net proceeds from the issuance of shares of our convertible preferred stock, and $3.9 million of proceeds from the issuance of shares of our common stock upon the exercise of stock options, offset by $0.4 million of net repayments on our bank borrowings.

Backlog

We sell subscriptions to our solutions through contracts that are generally one to three years in length, although terms can extend to as long as five years. Our subscription agreements with our customers generally contain scheduled minimum subscription fees, and usage-based fees which depend on the extent their customers or end users use our platform. We consider the unpaid contractual minimum payments under our subscription agreements to be our backlog. Due to the inherent volatility of backlog measured using contractual minimums, and the fact that contractual minimums are becoming increasingly less important to our business, we do not utilize backlog as a key management metric internally and we do not believe that it is a meaningful measurement of our future revenues.

We expect that the amount of backlog relative to the total value of our subscription agreements will change from year to year for several reasons, including the timing of contract renewals, the proportion of total subscription revenue represented by contractual minimum payments and the average non-cancellable terms of our subscription agreements. The change in backlog that results from these events may not be an indicator of the likelihood of renewal or expected future revenues.

We also expect that as our customer base continues to mature and customer deployments scale usage, renewals over time will increasingly have fewer contractual minimum fees because such fees are intended to decrease the timing risk associated with initial deployment commitments.

In addition, because revenue for any period is a function of revenue recognized from deferred revenue under contracts in existence at the beginning of the period, as well as contracts that are renewed and new customer contracts that are entered into during the period, backlog at the beginning of any period is not necessarily indicative of future performance.

 
61

 
Off-Balance Sheet Arrangements

During the years ended December 31, 2014, 2013 and 2012, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements.

Contractual Obligations

A summary of our contractual commitments and obligations as of December 31, 2014 is as follows:

   
Payments Due by Period
 
   
Total
   
Less than 1 year
 
1-3 years
   
3-5 years
   
More than 5 years
 
   
(in thousands)
 
Contractual commitments(1)
    2,580       1,547       1,033       -       -  
Operating leases(2)
    15,851       1,971       5,034       4,027       4,819  
Capital leases(3)
    2,396       1,153       1,243       -       -  
Total
  $ 20,827     $ 4,671     $ 7,310     $ 4,027     $ 4,819  
 
(1)  
The contractual commitments are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. The contractual commitments relate primarily to third-party facilities that house our data centers.
(2)  
The operating leases consist of contractual obligations from our office spaces under non-cancelable operating leases.
(3)  
The capital lease obligations relate to the purchases of servers, networking equipment and software licenses.
 
 
No amounts related to Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 740-10, Income Taxes, are included.  As of December 31, 2014, we had approximately $2.9 million of tax liabilities recorded related to uncertainty in income tax positions.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Changes in these estimates and assumptions or conditions could significantly affect our financial condition and results of operations.

We believe that of our significant accounting policies, which are described in Note 2 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition

We primarily derive our revenue from subscription fees and professional services fees. We sell subscriptions to the Yodlee platform through contracts that are generally between one to three years in length, although terms can extend to as long as five years. Our arrangements do not contain general rights of return. Our subscription contracts do not provide customers with the right to take possession of the Yodlee platform and, as a result, are accounted for as service contracts. We record revenue net of any sales or excise taxes.

We commence revenue recognition for the Yodlee platform and professional services when all of the following criteria are met:

·
there is persuasive evidence of an arrangement;

·
the service has been or is being provided to the customer;

·
collection of the fees is reasonably assured; and

·
the amount of fees to be paid by the customer is fixed or determinable.
 
 
62

 
 Subscription Revenue

Subscription revenue is primarily derived from customers accessing the Yodlee platform and include subscription, support, and usage-based fees. Subscription revenue is recognized ratably over the contracted term of each respective subscription agreement, commencing on the date the service is provisioned to the customer, provided the four revenue recognition criteria have been satisfied. Usage-based revenue are recognized as earned, provided the four revenue recognition criteria have been satisfied.

Professional Services and Other Revenue

Professional services include implementation services, development of interfaces requested by customers, assistance with integration of our solutions with the customers’ applications, dedicated support, and advisory services to customers who choose to develop their own interfaces and applications. Professional services are typically performed within three to nine months of entering into an arrangement with the customer. Professional services are sold either on a fixed-fee or on a time-and-materials basis. Revenue for time-and-material arrangements is recognized as the services are performed. During the year ended December 31, 2012, revenue for fixed-fee arrangements was recognized under the completed performance method of accounting. During the years ended December 31, 2014 and 2013, revenue for fixed-fee arrangements was recognized under the proportional performance method of accounting as we have developed a history of accurately estimating activity. The change from completed performance method of accounting to the proportional performance method of accounting was due to a change in underlying facts and circumstances, primarily due to increased management oversight and knowledge of plan project hours. Professional services are not considered essential to the functionality of the Yodlee platform.

Multiple Element Arrangements

We enter into multiple element arrangements in which a customer may purchase a subscription and professional services. For arrangements with multiple deliverables, we evaluate whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, we account for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are combined with the final deliverable within the arrangement and treated as a single unit of accounting.

Subscription contracts have standalone value as we sell the subscriptions and support separately. In determining whether professional services can be accounted for separately from subscription services and support, we consider the availability of the professional services from other vendors, the nature of our professional services and whether we sell our applications to new customers without professional services. Based on these considerations we assessed that our professional services have standalone value.

We determine the selling price for each element based on the selling price hierarchy of: (i) vendor-specific objective evidence, or VSOE, of fair value, (ii) third-party evidence, or TPE, and (iii) estimated selling price or, ESP. We are unable to establish VSOE for any of our services, as we have not historically priced our services with sufficient consistency. We are also unable to establish TPE, as we do not have sufficient information regarding pricing of third-party subscription and professional services similar to our offerings. As a result, we have developed estimates of selling prices based on margins our senior management has established as the targets in the selling and pricing strategies after considering the nature of the services, the economic and competitive environment, and the nature and magnitude of the costs incurred. The amount of arrangement fee allocated is limited by contingent revenue, if any.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is presumed to have an indefinite life and is not subject to amortization. We test goodwill for impairment at the company level, which is the sole reporting unit, on at least an annual basis and at any interim date whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

 
63

 
When assessing goodwill for impairment, we have the option to first perform a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors such as macroeconomic conditions, industry and market conditions, overall financial performance and any other company developments, that the fair value of the reporting unit more likely than not is less than the carrying amount, or if significant changes to macroeconomic factors have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. Additionally, there is an option to bypass the qualitative assessment and directly perform the quantitative test. The quantitative test for goodwill impairment is a two-step process. The first step is a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If this step indicates impairment, then the second step is performed to measure the loss as the excess of recorded goodwill over its implied fair value. Implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and liabilities. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value.

We examined goodwill for impairment in the fourth quarter of each fiscal year. When assessing goodwill for impairment, we chose to bypass the qualitative assessment and directly perform the quantitative assessment. We compared the fair value of our reporting unit with its carrying amount including goodwill. The first step of the quantitative assessment indicated that the fair value of our reporting unit was significantly higher than the carrying amount including goodwill, and hence we were not required to perform the second step. The Company’s annual goodwill impairment test resulted in no impairment charges in any of the periods presented in the accompanying consolidated financial statements for the years ended December 31, 2014, 2013, and 2012.
 
Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation, or ASC 718, which requires the recognition of expense related to the fair value of stock-based compensation awards in the statements of operations and comprehensive loss. For stock options issued to employees and non-employees directors, we estimate the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, the value of the common stock and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, we recognize stock-based compensation expense, net of estimated forfeitures, equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to performance-based vesting conditions, we recognize stock-based compensation expense using the accelerated attribution method when it is probable that the performance condition will be achieved. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based payments issued to non-employees are recorded at their fair values, and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period in accordance with the provisions of ASC 718 and ASC Topic 505, Equity.

Stock-based compensation expense recognized by award type is as follows:

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
   
(in thousands)
 
Option awards
  $ 3,578     $ 1,511     $ 1,355  
Restricted stock awards
    3,557       -       -  
Total stock-based compensation expense
  $ 7,135     $ 1,511     $ 1,355  

Prior to our IPO, we were required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations at each grant date. We engaged an independent third-party valuation firm to assist our board of directors in determining the fair value of the common stock underlying our stock-based awards. All options to purchase shares of our common stock have been granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant.

Income Taxes

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

 
64

 
Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. Estimates of future taxable income are based on assumptions that are consistent with our plans. Assumptions represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Should actual amounts differ from our estimates, the amount of our tax expense and liabilities could be materially impacted.

We apply the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax liability as the largest amount that is more likely than not to be realized upon ultimate settlement.

Significant judgment is also required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our liabilities for uncertain tax positions are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these liabilities in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may impact the provision for income taxes in the period in which such determination is made.


 
65

 
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss to future earnings, values or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument might change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We do not use derivative financial instruments for speculative, hedging or trading purposes, other than as described below. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates as described below.

Interest Rate Risk

Borrowings under the revolving line of credit with Silicon Valley Bank, bear interest at rates that are variable. Increases in the Prime Rate would increase the amount of interest payable under this line of credit. As such, when amounts are outstanding, we are exposed to market risk related to changes in interest rates. As of December 31, 2014, we had no outstanding balance under this credit facility. We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition.

As of December 31, 2014, we had no investments other than cash and cash equivalents, held by a large, United States commercial bank, and therefore we were not exposed to material interest rate risk.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.

Foreign Currency Exchange Risk

We have costs denominated in foreign currencies, primarily the Indian Rupee. This exposes us to the risk of fluctuations in foreign currency exchange rates. Accordingly, changes in exchange rates, and in particular a weakening of the U.S. dollar, would negatively affect our expenses and other operating results as expressed in U.S. dollars. We manage our exposure to fluctuations in the Indian Rupee by entering into forward contracts to cover a portion of our projected expenditures paid in local currency. These contracts generally have a term of less than 12 months.

The notional amount of our forward contracts was $12.9 million, $9.3 million and $8.7 million at December 31, 2014, 2013 and 2012, respectively.

A sensitivity analysis performed on our hedging portfolio indicated that a hypothetical 10% appreciation of the U.S. dollar from its value at December 31, 2014, 2013 and 2012 would decrease the fair value of our foreign currency contracts by $1.5 million, $0.9 million and $0.8 million, respectively. A hypothetical 10% depreciation of the U.S. dollar from its value at December 31, 2014, 2013 and 2012 would increase the fair value of our foreign currency contracts by $1.8 million, $1.0 million and $1.0 million, respectively.
 
 
66

 
Item 8.  Financial Statements and Supplementary Data

Yodlee, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
Report of Independent Registered Public Accounting Firm
67
Financial Statements:
 
Consolidated Balance Sheets
68
Consolidated Statements of Operations
69
Consolidated Statements of Comprehensive Loss
70
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
71
Consolidated Statements of Cash Flows
72
Notes to Consolidated Financial Statements
73


 
67

 
Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Yodlee, Inc.

We have audited the accompanying consolidated balance sheets of Yodlee, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Yodlee, Inc. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP
Redwood City, California
March 4, 2015
 
 
68

 
Yodlee, Inc.
Consolidated Balance Sheets
(in thousands, except par value)

   
December 31,
 
   
2014
   
2013
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 73,520     $ 8,134  
Accounts receivable, net of allowance for doubtful accounts of $13 and $20 as of December 31, 2014 and 2013, respectively
    12,229       9,873  
Accounts receivable - related parties
    3,066       2,301  
Prepaid expenses and other current assets
    4,425       3,529  
Total current assets
    93,240       23,837  
Property and equipment, net
    9,481       6,297  
Restricted cash
    146       146  
Goodwill
    3,068       3,068  
Other assets
    1,609       1,112  
Total assets
  $ 107,544     $ 34,460  
Liabilities, convertible preferred stock and stockholders' equity (deficit)
               
Current liabilities:
               
Accounts payable
  $ 3,278     $ 1,880  
Accrued liabilities
    2,628       2,707  
Accrued compensation
    8,927       6,577  
Convertible preferred stock warrant liabilities
    -       760  
Deferred revenue, current portion
    6,959       7,655  
Bank borrowings, current portion
    -       3,471  
Capital lease obligations, current portion
    1,153       574  
Total current liabilities
    22,945       23,624  
Deferred revenue, net of current portion
    293       329  
Bank borrowings, net of current portion
    -       2,914  
Capital lease obligations, net of current portion
    1,243       804  
Other long-term liabilities
    2,986       2,644  
Total liabilities
    27,467       30,315  
Commitments and contingencies (Note 7)
               
Convertible preferred stock, $0.001 par value—0 and 14,666 shares authorized as of December 31, 2014 and 2013, respectively, 0 and 14,445 shares issued and outstanding as of December 31, 2014 and 2013, respectively (aggregate liquidation preference of $103,494 as of December 31, 2013)
    -       102,224  
Stockholders’ equity (deficit):
               
Preferred stock, $0.001 par value—5,000 and 0 shares authorized as of December 31, 2014 and 2013, respectively; no shares issued and outstanding at December 31, 2014 and 2013
    -       -  
Common stock, $0.001 par value—150,000 and 27,800 shares authorized as of December 31, 2014 and 2013, respectively; 29,264 and 7,444 shares issued and outstanding as of December 31, 2014 and 2013, respectively
    29       7  
Additional paid-in capital
    439,275       253,917  
Accumulated other comprehensive loss
    (1,979 )     (1,730 )
Accumulated deficit
    (357,248 )     (350,273 )
Total stockholders’ equity (deficit)
    80,077       (98,079 )
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)
  $ 107,544     $ 34,460  

See accompanying notes.

 
69

 
Yodlee, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Revenue(1):
                 
Subscription
  $ 76,005     $ 56,838     $ 44,336  
Professional services and other
    13,076       13,322       13,458  
Total revenue
    89,081       70,160       57,794  
Cost of revenue(2):
                       
Subscription
    25,511       19,139       17,177  
Professional services and other
    9,704       7,693       7,594  
Total cost of revenue
    35,215       26,832       24,771  
Gross profit
    53,866       43,328       33,023  
Operating expenses(2):
                       
Research and development
    23,601       17,948       16,193  
Sales and marketing
    22,377       15,418       13,638  
General and administrative
    13,321       9,386       8,852  
Total operating expenses
    59,299       42,752       38,683  
Operating income (loss)
    (5,433 )     576       (5,660 )
Other income (expense), net
    261       (318 )     230  
Income (loss) before provision for income taxes
    (5,172 )     258       (5,430 )
Provision for income taxes
    1,803       1,439       1,091  
Net loss
  $ (6,975 )   $ (1,181 )   $ (6,521 )
Net loss per share attributable to common stockholders:
                       
Basic and diluted
  $ (0.54 )   $ (0.16 )   $ (0.98 )
Weighted average shares used to compute net loss per share attributable to common stockholders:
                       
Basic and diluted
    12,802       7,263       6,649  

(1)  
The Company recorded revenue totaling $13.6 million, $11.2 million and $11.1 million, from related parties during the years ended December 31, 2014, 2013, and 2012, respectively. Refer to Note 15 to these consolidated financial statements for further information.
(2)  
Amounts include stock-based compensation expense as follows (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Cost of revenue - subscription
  $ 931     $ 201     $ 170  
Cost of revenue - professional services and other
    562       107       119  
Research and development
    1,159       243       236  
Sales and marketing
    1,586       302       242  
General and administrative
    2,897       658       588  
Total stock-based compensation expense
  $ 7,135     $ 1,511     $ 1,355  
 
See accompanying notes.
 
70

 
Yodlee, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Net loss
  $ (6,975 )   $ (1,181 )   $ (6,521 )
Other comprehensive income (loss), net of taxes
                       
Foreign currency translation loss
    (164 )     (599 )     (169 )
Change in unrealized gain (loss) on foreign currency contracts designated as cash flow hedges
    (85 )     (168 )     224  
Total other comprehensive income (loss)
    (249 )     (767 )     55  
Comprehensive loss
  $ (7,224 )   $ (1,948 )   $ (6,466 )

See accompanying notes.

 
71

 
Yodlee, Inc.
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands)


   
Convertible Preferred
Stock
   
Common Stock
   
Additional
Paid-in
   
Accumulated Other Comprehensive Income
   
Accumulated
   
Total Stockholders'
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
 Capital
    (Loss)    
Deficit
   
(Deficit)
 
Balance as of January 1, 2012
    13,639     $ 92,268       6,793     $ 7     $ 245,704     $ (1,018 )   $ (342,571 )   $ (97,878 )
Net loss
    -       -       -       -       -       -       (6,521 )     (6,521 )
Issuance of Series DD convertible preferred stock, net of issuance cost of $92
    762       9,426       -       -       -       -       -       -  
Conversion of Venture Debt Facility into convertible preferred stock, net of issuance cost of $5
    38       476       -       -       -       -       -       -  
Stock-based compensation expense
    -       -       -       -       1,355       -       -       1,355  
Repurchase of unvested common stock
    -       -       (800 )     (1 )     (7 )     -       -       (8 )
Issuance of common stock upon exercise of stock options
    -       -       1,174       1       3,922       -       -       3,923  
Issuance of preferred stock upon exercise of stock warrants
    5       41       -       -       -       -       -       -  
Foreign currency translation loss
    -       -       -       -       -       (169 )     -       (169 )
Change in unrealized gain (loss) on foreign currency contracts designated as accounting hedges
    -       -       -       -       -       224       -       224  
Balance as of December 31, 2012
    14,444       102,211       7,167       7       250,974       (963 )     (349,092 )     (99,074 )
Net loss
    -       -       -       -       -       -       (1,181 )     (1,181 )
Stock-based compensation expense
    -       -       -       -       1,511       -       -       1,511  
Issuance of common stock upon exercise of stock options
    -       -       277       -       1,432       -       -       1,432  
Issuance of preferred stock upon exercise of stock warrants
    1       13       -       -       -       -       -       -  
Foreign currency translation loss
    -       -       -       -       -       (599 )     -       (599 )
Change in unrealized gain (loss) on foreign currency contracts designated as accounting hedges
    -       -       -       -       -       (168 )     -       (168 )
Balance as of December 31, 2013
    14,445       102,224       7,444       7       253,917       (1,730 )     (350,273 )     (98,079 )
Net loss
    -       -       -       -       -       -       (6,975 )     (6,975 )
Issuance of common stock upon initial public offering, net of issuance costs of $9,774
    -       -       7,011       7       74,348       -       -       74,355  
Conversion of preferred stock to common stock
    (14,445 )     (102,224 )     14,445       14       102,210       -       -       102,224  
Stock-based compensation expense
    -       -       -       -       7,135       -       -       7,135  
Repurchase of common stock
    -               (48 )     -       (473 )     -       -       (473 )
Issuance of common stock upon exercise of stock options
    -       -       353       1       1,407       -       -       1,408  
Reclassification of preferred stock warrant liability to additional paid-in capital
    -       -       -       -       733       -       -       733  
Issuance of common stock upon exercise of stock warrants
    -       -       59       -       -       -       -       -  
Foreign currency translation loss
    -       -       -       -       -       (164 )     -       (164 )
Change in unrealized gain (loss) on foreign currency contracts designated as accounting hedges
    -       -       -       -       -       (85 )     -       (85 )
Other
    -       -       (0 )     -       (2 )     -       -       (2 )
Balance as of December 31, 2014
    -       -       29,264       29       439,275       (1,979 )     (357,248 )     80,077  
 
See accompanying notes.
 
 
72

 
Yodlee, Inc.
Consolidated Statements of Cash Flows
(in thousands)

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Cash flows from operating activities
                 
Net loss
  $ (6,975 )   $ (1,181 )   $ (6,521 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
                       
Depreciation and amortization
    3,766       2,685       2,390  
Proceeds from insurance settlement
    -       (141 )     (450 )
Amortization of debt discount
    -       -       22  
Revaluation of warrant liabilities
    (27 )     268       (8 )
Stock-based compensation expense
    7,135       1,511       1,355  
Changes in operating assets and liabilities:
                       
Accounts receivable, net
    (3,121 )     (2,204 )     (1,803 )
Prepaid expenses and other assets
    (1,522 )     (30 )     141  
Accounts payable
    1,276       (207 )     190  
Accrued liabilities and other long term liabilities
    175       (642 )     (945 )
Accrued compensation
    2,391       2,930       (1,109 )
Deferred revenue
    (732 )     520       (4,039 )
Net cash (used in) provided by operating activities
    2,366       3,509       (10,777 )
Cash flows from investing activities
                       
Purchases of property and equipment
    (5,221 )     (3,025 )     (3,028 )
Proceeds from insurance settlement
    -       141       450  
Net cash used in investing activities
    (5,221 )     (2,884 )     (2,578 )
Cash flows from financing activities
                       
Net proceeds from issuance of common stock upon initial public offering
    74,480       -       -  
Proceeds from bank borrowings
    6,600       7,500       9,400  
Principal payments on bank borrowings
    (12,986 )     (9,011 )     (9,809 )
Proceeds from issuance of convertible preferred stock
    -       -       9,421  
Proceeds from issuance of common stock upon exercise of stock options
    1,408       1,432       3,923  
Principal payments on capital lease obligations
    (788 )     (375 )     (372 )
Repurchase of common stock
    (473 )     -       (8 )
Net cash provided by (used in) financing activities
    68,241       (454 )     12,555  
Net (decrease) increase in cash and cash equivalents
    65,386       171       (800 )
Cash and cash equivalents—beginning of period
    8,134       7,963       8,763  
Cash and cash equivalents—end of period
  $ 73,520     $ 8,134     $ 7,963  
Supplemental disclosures of cash flow information
                       
Cash paid for interest
  $ 517     $ 595     $ 576  
Cash paid for income taxes
  $ 977     $ 929     $ 767  
Non-cash investing and financing activities
                       
Conversion of preferred stock to common stock
  $ 102,224     $ -     $ -  
Property and equipment financed through capital lease
  $ 1,806     $ 1,693     $ -  
Conversion of preferred stock warrant liability to equity
  $ 733     $ -     $ -  
Property and equipment purchased but not paid at period-end
  $ 681     $ 243     $ 623  
Unpaid deferred offering costs
  $ 125     $ -     $ -  
Issuance of convertible preferred stock upon conversion of venture debt facility, net of issuance cost
  $ -     $ -     $ 476  
Issuance of stock upon exercise of stock warrants
  $ -     $ 13     $ 41  

See accompanying notes.
 
 
73

 
Yodlee, Inc.
Notes to Consolidated Financial Statements

1. Description of Business and Basis of Presentation

Description of Business

Yodlee, Inc. (“Yodlee” or the “Company”) is a technology and applications platform powering digital financial services in the cloud. The Company refers to its platform as the Yodlee Financial Cloud. The Yodlee Financial Cloud delivers a wide variety of financial applications (“FinApps”) targeted at the retail financial, wealth management, small business, card and other financial solutions sectors. The Company was incorporated in the state of Delaware in February 1999 and is headquartered in Redwood City, California. The Company has wholly-owned subsidiaries in India, Canada, and Australia.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of Yodlee and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Initial Public Offering

On October 8, 2014, the Company completed its initial public offering (“IPO”) in which it issued and sold 6.25 million shares of common stock at a public offering price of $12.00 per share. The Company received net proceeds of $65.87 million after deducting underwriting discounts and commissions of $5.25 million and issuance costs of $3.9 million. Part of the IPO proceeds was used by us to repay the outstanding balance under our credit facility. On October 27, 2014, we received net proceeds of $8.5 million, after deducting underwriting discounts and commissions of $0.6 million, for the exercise by underwriters of their option to purchase 760,724 shares of our common stock.

Immediately prior to the closing of the Company’s IPO, all 113,457 convertible preferred stock warrants were automatically converted into common stock warrants to purchase shares of common stock. In the fourth quarter of 2014, shares of common stock were issued upon exercise of these common stock warrants. Additionally, all shares of the Company’s then-outstanding convertible preferred stock automatically converted into an aggregate of 14.4 million shares of common stock.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Such estimates include, but are not limited to, revenue recognition, allowance for doubtful accounts, stock-based compensation expense, fair value of the Company’s common stock and stock options issued, provision for income taxes and goodwill. The Company bases its estimates on historical experience and on assumptions that the Company believes are reasonable. The Company assesses these estimates on a regular basis; however, actual results could materially differ from those estimates and such differences could be material to the Company’s consolidated financial position and results of operations.

Revenue Recognition

The Company primarily derives revenue from subscription fees and professional services fees. The Company sells subscriptions to its SaaS technology platform through contracts that are generally between one to three years in length, although terms can extend to as long as five years. The Company’s arrangements do not contain general rights of return. The Company’s subscription arrangements do not provide customers with the right to take possession of the SaaS technology platform and, as a result, are accounted for as service arrangements. The Company records revenue net of any sales or excise taxes.

The Company commences revenue recognition for its SaaS technology platform and professional services when all of the following criteria are met:

 
·
there is persuasive evidence of an arrangement;

 
74

 
 
·
the service has been or is being provided to the customer;

 
·
collection of the fees is reasonably assured; and

 
·
the amount of fees to be paid by the customer is fixed or determinable.

Subscription Revenue

Subscription revenue is primarily derived from customers accessing the SaaS technology platform and includes subscription, support, and usage-based fees. Subscription revenue is recognized ratably over the contracted term of each respective subscription agreement, commencing on the date the service is provisioned to the customer, provided the four revenue recognition criteria have been satisfied. Usage-based revenue is recognized as earned, provided the four revenue recognition criteria have been satisfied.

Professional Services and Other Revenue

Professional services include implementation services, development of interfaces requested by customers, assistance with integration of the Company’s services with the customers’ applications, dedicated support, and advisory services to customers who choose to develop their own interfaces and applications. Professional services are typically performed within three to nine months of entering into an arrangement with the customer. Professional services are sold either on a fixed-fee or on a time-and-materials basis. Revenue for time-and-material arrangements is recognized as the services are performed. During the year ended December 31, 2012, revenue for fixed-fee arrangements was recognized under the completed performance method of accounting. During the years ended December 31, 2014 and 2013, revenue for fixed-fee arrangements was recognized under the proportional performance method of accounting as the Company has developed a history of accurately estimating activity. The Company uses labor hours incurred to the end of each reporting period compared to the total estimated labor hours as an input based measure of performance under customer arrangements. The Company believes labor hours incurred is materially representative of the value delivered to the customer at any point in time during the performance of the service. Professional services are not considered essential to the functionality of the SaaS offering.

Included in other revenue, the Company recognized software license revenue on a straight-line basis from the acceptance date over the contractual post-sale customer support (“PCS”) period, as the Company did not have sufficient vendor-specific objective evidence of the fair value of the PCS.

Multiple Element Arrangements

The Company enters into multiple element arrangements in which a customer may purchase a subscription and professional services. For arrangements with multiple deliverables, the Company evaluates whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple element arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are combined with the final deliverable within the arrangement and treated as a single unit of accounting.

Subscription contracts have standalone value as the Company sells subscriptions separately. In determining whether professional services can be accounted for separately from subscription services, the Company considers the availability of the professional services from other vendors, the nature of its professional services and whether the Company sells its applications to new customers without professional services. Based on these considerations the Company assessed that its professional services have standalone value.

The Company determines the selling price for each element based on the selling price hierarchy of: (i) vendor-specific objective evidence (“VSOE”) of fair value, (ii) third-party evidence (“TPE”), and (iii) estimated selling price (“ESP”). The Company is unable to establish VSOE for any of its services, as the Company has not historically priced its services with sufficient consistency. The Company is also unable to establish TPE, as the Company does not have sufficient information regarding pricing of third-party subscription and professional services similar to its offerings. As a result, the Company has developed estimates of selling prices based on margins established by senior management as the targets in the Company’s selling and pricing strategies after considering the nature of the services, the economic and competitive environment, and the nature and magnitude of the costs incurred. The amount of arrangement fee allocated is limited by contingent revenue, if any.

 
75

 
Deferred Revenue

Deferred revenue consists of billings and payments received in advance of revenue recognition from the Company’s subscription offerings as described above and is recognized as the revenue recognition criteria are met. For subscription agreements, the Company typically invoices its customers in monthly or annual fixed installments. Accordingly, the deferred revenue balance does not represent the total contract value of these multi-year subscription agreements. Deferred revenue also includes certain deferred professional services fees, which are recognized in accordance with the Company’s revenue recognition policy. The portion of deferred revenue the Company expects to recognize during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as noncurrent.

Cost of Revenue

Cost of revenue-subscription consists primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for the operations team; data center costs to host the SaaS technology platform and related support and maintenance costs; depreciation of servers and networking equipment; security operations; payment processing cost; and allocated facilities and other supporting overhead costs.

Cost of revenue-professional services and other consists primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for the professional services team; cost of consultants engaged in providing professional services to customers; and allocated facilities and other supporting overhead costs.

Deferred Professional Services Costs and Commissions

Deferred professional services costs are related to deferred professional services revenue that the Company considers recoverable and are recognized in cost of revenue in the same periods as the related revenue.

Deferred commissions are the incremental costs that are directly associated with noncancelable subscription contracts and consist of sales commissions paid to direct sales representatives. The commissions are deferred and amortized over the related subscription term. The commission payments are typically paid in full the month after the customer’s service commences. The deferred commission amounts are recoverable from the future revenue streams under the noncancelable subscription contracts.

Deferred professional services and deferred commissions are included in prepaid expenses and other current assets and other assets in the accompanying consolidated balance sheets. Amortization of deferred professional services and deferred commissions are included in cost of revenue and sales and marketing expense, respectively, in the accompanying consolidated statements of operations. The professional services costs are charged to expense over the same period that the related subscription or professional services revenue is recognized. The commission costs are charged to expense over the same period that the subscription revenue is recognized.

During the years ended December 31, 2014, 2013 and 2012, the Company capitalized $1.3 million, $0.6 million and $0.6 million, respectively, of commissions and amortized $0.7 million, $0.5 million and $0.5 million, respectively, to sales and marketing expense. During the year ended December 31, 2014, no deferred professional service fees were capitalized or amortized. During the years ended December 31, 2013 and 2012, the Company capitalized $0.8 million and $1.3 million, respectively, of deferred professional services costs and amortized $0.9 million and $1.5 million, respectively, to cost of revenue-professional services and other.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of amounts on deposit with commercial banks in checking, interest-bearing, and demand money market accounts.

Restricted Cash

As required by the lease agreement for the Company’s main facilities in Redwood City, California, the Company provided a certificate of deposit as collateral for a letter of credit issued for the benefit of the landlord in lieu of a security deposit. The letter of credit expires on July 31, 2022. The restricted certificate of deposit of $0.1 million is included in long-term restricted cash in the accompanying consolidated balance sheets.

The Company has restrictions as to the withdrawal or usage of its restricted cash until the completion of the contract term.

 
76

 
Operating and Capital Leases

The Company leases office spaces under noncancelable operating leases. The terms of the lease agreements provide for rental payments on a monthly basis. Certain operating lease arrangements contain rent holidays and rent escalation provisions. The Company recognizes rent expense on a straight-line basis over the lease period and accrues for rent expense incurred but not yet paid. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease inception.

The Company acquired certain software licenses and server and network equipment classified as capital leases. The Company’s server and networking equipment leases typically are accounted for as capital leases as they meet one or more of the four capital lease classification criteria. Assets acquired under capital leases are amortized over their estimated useful life of three years. The original term of the capital leases ranges from three to four years. The portion of the future payments designated as principal repayment was classified as a capital lease obligation on the consolidated balance sheets.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recognized on a straight-line basis and is recorded over the estimated useful lives of the respective assets of three years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life of the assets or the term of the lease.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is presumed to have an indefinite life and is not subject to amortization. The Company tests goodwill for impairment at the Company level, which is the sole reporting unit, on at least an annual basis and at any interim date whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors such as macroeconomic conditions, industry and market conditions, overall financial performance and any other Company developments, that the fair value of the reporting unit more likely than not is less than the carrying amount, or if significant changes to macroeconomic factors have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. Additionally, there is an option to bypass the qualitative assessment and directly perform the quantitative test.

The quantitative test for goodwill impairment is a two-step process. The first step is a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If this step indicates impairment, then the second step is performed to measure the loss as the excess of recorded goodwill over its implied fair value. Implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and liabilities.

The Company has goodwill of $3.1 million reported on the accompanying consolidated balance sheets as of December 31, 2014 and 2013. Goodwill is examined for impairment in the fourth quarter of each fiscal year, or earlier if indicators of potential impairment exist. The Company completed the annual impairment test during the fourth quarter of the year ended December 31, 2014. When assessing goodwill for impairment, the Company chose to bypass the qualitative assessment and directly perform the quantitative assessment. The fair value of the reporting unit, at Company level, was compared with its carrying amount including goodwill. The first step of quantitative assessment indicated that the fair value of the Company’s reporting unit was significantly higher than the carrying amount including goodwill, and hence the second step was not required to be performed. As of December 31, 2014, no impairment of goodwill has been identified.

Impairment of Long-Lived Assets

The Company identifies and records impairment losses on long-lived assets used in operations when events and circumstances indicate that assets may be impaired and when projected undiscounted cash flows from those assets are less than the carrying amounts of the assets. If those conditions are present, the impairment loss is measured as the amount by which the carrying amount of the asset exceeds the fair value. No significant impairment charges to long-lived assets were recorded during the years ended December 31, 2014, 2013 and 2012.

 
77

 
Research and Development

The Company expenses the cost of research and development as incurred. Research and development expenses consist primarily of personnel costs for research and development staff, the cost of third-party service providers, allocated facilities and other supporting overhead costs.

Capitalized Software Costs

For website development costs and the development costs related to the SaaS technology platform, the Company’s policy is to capitalize costs incurred during the application development stage, if material. Costs related to preliminary project activities and post-implementation activities are expensed as incurred.

While most of the Company’s customer arrangements are delivered to customers on the Company’s SaaS technology platform, whereby the customers do not have the ability to take possession of the software, customers could, and on occasion have, negotiated to purchase licenses to the Company’s products that would not involve hosting by the Company. Accordingly, when determining which software development costs to capitalize, the Company follows the guidance for cost of software to be sold, leased, or otherwise marketed. The Company begins to capitalize software development costs upon the establishment of technological feasibility, which is generally the completion of a working prototype that has been certified as having no critical bugs and is available to be purchased by the customers. To date, software development costs incurred between completion of a working prototype and general availability of the related product have not been material and are expensed as incurred.

Segment Information

The Company considers operating segments to be components of Yodlee in which separate financial information is available that is evaluated regularly by the chief operating decision-maker, the Company’s Chief Executive Officer, in deciding how to allocate resources and in assessing performance. The Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region, for purposes of allocating resources and evaluating financial performance. The Company has one business activity, and there are no segment managers who are held accountable for operations, operating results, or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reporting segment and operating unit structure.

Stock-Based Compensation

Stock-based compensation is accounted for in accordance with the provisions of Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation, or ASC 718, which requires the recognition of expense related to the fair value of stock-based compensation awards in the statements of operations and comprehensive loss. For stock options issued to employees and non-employees directors, the grant date fair value of each option is estimated using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, the value of the common stock and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, stock-based compensation expense is recorded, net of estimated forfeitures, equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to performance-based vesting conditions, stock-based compensation expense is recognized using the accelerated attribution method when it is probable that the performance condition will be achieved. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based payments issued to non-employees are recorded at their fair values, and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period in accordance with the provisions of ASC 718 and ASC Topic 505, Equity.

During 2013, the Company granted restricted stock units (RSUs) which vest upon the satisfaction of both a performance condition and a service condition. The performance condition includes, among other alternatives, the completion of our IPO which was satisfied on October 8, 2014. The service condition for the awards is satisfied if the RSU holder continues to be a service provider six months subsequent to our IPO, and the awards vest quarterly over 2 12 years from that date.

During 2014, the Company granted RSUs which vest upon the satisfaction of both a performance condition and a service condition. The performance condition includes, among other alternatives, the completion of our IPO which was satisfied on October 8, 2014. The service condition for the awards is satisfied if the RSU holder continues to be a service provider through the applicable annual vesting dates. RSUs for which the service condition or performance condition has not been satisfied are forfeited. Share-based compensation expense related to these grants is based on the grant date fair value of the RSUs and is recognized based on the accelerated attribution method over the applicable service period, net of estimated forfeitures. The grant date fair value of the RSUs is determined by the estimated fair value of Company’s common stock at the time of grant.

 
78

 
As of December 31, 2014, the Company recognized $3.6 million of stock-based compensation expense related to RSUs. The performance condition for the RSUs was satisfied upon completion of the IPO, therefore the Company recorded a significant cumulative stock-based compensation expense for these RSUs in the quarter in which the IPO occurred, using the accelerated attribution method, net of estimated forfeitures. The remaining unrecognized stock-based compensation expense related to the RSUs will be recorded over the remaining requisite service period using the accelerated attribution method, net of estimated forfeitures.

Income Taxes

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their financial statement carrying amounts, and consideration is given to operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company estimates actual current tax expense together with assessing temporary differences resulting from differences for financial reporting purposes and tax purposes for certain items, such as accruals and allowances not currently deductible for tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the consolidated statements of operations become deductible expenses under applicable income tax laws or when net operating loss or credit carryforwards are utilized. Accordingly, realization of deferred tax assets is dependent on future taxable income against which these deductions, losses, and credits can be utilized.

The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and, to the extent the Company believes that recovery is not likely, it establishes a valuation allowance.

The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. Evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits, and effective settlement of audit issues. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in the income tax provision.

Foreign Currency

The assets and liabilities of the foreign subsidiary, where the local currency is the functional currency, are translated into U.S. dollars at the exchange rate in effect at the consolidated balance sheet date. Income and expense amounts are translated at average rates during the period. The resulting foreign currency translation adjustment is recorded in accumulated other comprehensive income (loss) (“AOCI”) in stockholders’ equity (deficit) in the accompanying consolidated balance sheets. The Company is also subject to gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts, both of which are included in other income (expense), net in the accompanying consolidated statements of operations.

Derivative Financial Instruments

The Company uses foreign currency forward contracts to reduce its exposure to foreign currency exchange rate changes of the Indian Rupee on certain forecasted operating expenses and on certain existing assets and liabilities.

The contracts typically mature within 12 months, and they are not held for trading purposes. The Company may designate certain of its foreign currency forward contracts as hedging instruments subject to hedge accounting treatment. The Company records all of its derivative instruments at their gross fair value on the consolidated balance sheet, at each balance sheet date.

 
79

 
The accounting for changes in the fair value of a derivative instrument depends on whether the instrument has been designated and qualifies as a cash flow hedge for accounting purposes. For foreign currency forward contracts that are designated and qualify as hedging instruments, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss in stockholders’ equity/(deficit) and reclassified into operating expenses and cost of revenue in the same period during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is recognized in other income (expense), net in the accompanying consolidated statements of operations. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. The changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in other income (expense), net in the accompanying consolidated statements of operations.

Gains and losses related to derivative instruments that do not qualify for hedge accounting treatment are recognized in other income (expense), net in the accompanying consolidated statements of operations.

The Company classifies its cash flows from the derivative instruments as operating activities.

Credit Risk and Significant Concentrations

Financial instruments that potentially subject the Company to credit risk primarily consist of cash equivalents, accounts receivable, and derivative instruments to the extent of the amounts recorded as an asset on the accompanying consolidated balance sheets. For cash equivalents, the Company is exposed to credit risk in the event of default by the financial institution, and deposits may exceed federally insured limits. For accounts receivable, the Company does not require collateral, but instead limits its exposure to credit risk by performing ongoing credit evaluations of its customers’ financial condition and by limiting the amount of credit extended whenever deemed necessary. Derivative financial instruments are used to manage exposure to foreign currency risks. Derivatives expose the Company to credit risk to the extent the counterparty may be unable to meet the terms of the arrangement. The Company seeks to minimize such risk by limiting the counterparty to those with high credit ratings. The Company has not historically experienced any losses due to credit risk or lack of performance by counterparties.

During the year ended December 31, 2014, one customer (a related party) accounted for 14% of total revenue. During the year ended December 31, 2013, two customers accounted for 15% (a related party) and 11% of total revenue.  During the year ended December 31, 2012, one customer, a related party, accounted for 18% of total revenue.

As of December 31, 2014, one customer, a related party, accounted for 20% of total accounts receivable. As of December 31, 2013, one customer, a related party, accounted for 17% of total accounts receivable.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts, and are not interest bearing. Accounts receivable includes both billed and unbilled amounts due from customers. Unbilled receivables represent accrued revenue earned and recognized on contracts for which billings have not yet been presented to the customer. At December 31, 2014 and 2013, trade accounts receivable included unbilled receivables of $1.0 million and $0.7 million, respectively.

The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. The Company does not require collateral from customers. An allowance for doubtful accounts is determined using the specific-identification method for doubtful accounts. Uncollectible receivables are written off against the allowance for doubtful accounts when all efforts to collect them have been exhausted, and recoveries are recorded as a decrease to the bad debt expense when they are received. If the financial condition of customers were to deteriorate, additional allowances may be required and the Company’s operating results and financial position could be adversely affected.

Advertising Expense

Advertising costs are expensed as incurred and included in sales and marketing expense on the consolidated statements of operations. Advertising expenses were not significant during the years ended December 31, 2014, 2013, and 2012.

 
80

 
Freestanding Convertible Preferred Stock Warrants

The Company accounted for freestanding warrants to purchase shares of convertible preferred stock that were contingently redeemable as liabilities on the consolidated balance sheets at their estimated fair value because the Company may be obligated to redeem the preferred stock issuable upon exercise of these warrants at some point in the future. At the end of each reporting period, changes in the estimated fair value of the convertible preferred stock warrants during the period were recorded through other income (expense), net in the consolidated statements of operations. The Company continued to adjust the liability for changes in fair value until the Company’s IPO in October 2014 when the convertible preferred stock warrants were converted into warrants to purchase common stock. Upon conversion, the convertible preferred stock warrant liability was reclassified to additional paid-in capital.

Fair Value of Financial Instruments

The Company measures and reports its cash equivalents, foreign currency forward exchange contracts, and convertible preferred stock warrant liabilities at fair value. Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level I—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level II—Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level III—Unobservable inputs that are supported by little or no market activity for the related assets or liabilities and typically reflect management’s estimate of assumptions that market participants would use in pricing the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Recent Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update requiring an entity to release into net income the entire amount of a cumulative translation adjustment related to its investment in a foreign entity when as a parent it either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. This accounting standard update will be effective prospectively for the Company beginning in the fiscal year 2015. The Company does not expect the adoption of this accounting standard update will have a material impact on the consolidated financial statements.
 
 In May 2014, the FASB issued an accounting standard update on revenue from contracts with customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect that the new guidance will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In June 2014, the FASB issued new accounting standard update on stock-based compensation when the terms of an award provide that a performance target could be achieved after the requisite service period. The new guidance requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early adoption is permitted. Adoption of this new accounting standard update is expected to have no impact to the Company’s financial statements.

 
81

 
In August 2014, the FASB issued new accounting standard update which requires management to assess an entity’s ability to continue as a going concern and to provide related disclosures in certain circumstances. Under the new guidance, disclosures are required when conditions give rise to substantial doubt about an entity’s ability to continue as a going concern within one year from the financial statement issuance date. The guidance is effective for annual periods ending after December 15, 2016, and all annual and interim periods thereafter. Early application is permitted. The adoption of this guidance is not expected to have any impact on the Company’s financial position and results of operations and, at this time, the Company does not expect any impact on its disclosures.

In January 2015, the FASB eliminated the concept of extraordinary items (Subtopic 225-20) as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). This amendment aims to save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary (even if they ultimately would conclude it is not). This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this guidance is not expected to have any impact on the Company’s financial position and results of operations and, at this time, the Company does not expect any impact on its disclosures.
 
3. Derivative Financial Instruments

Derivative instruments measured at fair value and their classification on the consolidated balance sheets are presented in the following tables (in thousands):

   
December 31,
 
   
2014
   
2013
 
   
Notional
Amount
   
Fair
Value
   
Notional
Amount
   
Fair
Value
 
Derivative instruments included in prepaid and other current assets:
                       
Derivatives designated as hedging instruments
  $ 2,348     $ 4     $ 1,231     $ 1  
Derivatives not designated as hedging instruments
    935       1       -       -  
Total
  $ 3,283     $ 5     $ 1,231     $ 1  
Derivative instruments included in accrued liabilities:
                               
Derivatives designated as hedging instruments
  $ 6,433     $ (220 )   $ 3,859     $ (213 )
Derivatives not designated as hedging instruments
    3,222       (114 )     4,189       (101 )
Total
  $ 9,655     $ (334 )   $ 8,048     $ (314 )

Gains (losses) on derivative instruments designated as hedging instruments and their classification on the consolidated statements of operations are presented in the following tables (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Losses recognized in AOCI–effective portion
    (353 )     (268 )     (101 )
Gain (losses) reclassified from AOCI into net loss-effective portion(1)
    (184 )     (442 )     (469 )
Gain (losses) recognized-ineffective portion and amount excluded from effectiveness testing(2)
    259       (445 )     (244 )

(1) 
Derivatives in Cash Flow Hedging Relationship – Foreign currency forward contracts (in thousands):

 
82

 
   
Gains (losses) reclassified from AOCI into net loss-effective portion
 
   
Year Ended December 31,
 
Income Statement Location
 
2014
   
2013
   
2012
 
Cost of sales
  $ (94 )     (232 )     (258 )
Operating expenses
    (90 )     (210 )     (211 )
Total
  $ (184 )     (442 )     (469 )

(2) 
Included in other income (expense), net.

As of December 31, 2014 and 2013, the Company estimated that the entire net unrealized loss of $0.4 million and $0.3 million, respectively, included in AOCI will be reclassified into earnings within the next 12 months.

The gain (loss) recognized in other income (expense), net for foreign currency forward contracts not designated as hedging instruments amounted to $0.2 million, $(0.4) million and $23,000 in the years ended December 31, 2014, 2013 and 2012, respectively.

4. Fair Value Measurements

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 2013, based on the three-tier fair value hierarchy (in thousands):


   
As of December 31, 2014
 
   
Fair Value
   
Level I
   
Level II
   
Level III
 
Assets
                       
Money market funds(1)
  $ 70,969     $ 70,969     $ -     $ -  
Foreign currency forwards(2)
    5       -       5       -  
Total assets measured at fair value
  $ 70,974     $ 70,969     $ 5     $ -  
Liabilities
                               
Foreign currency forwards(3)
    334     $ -     $ 334     $ -  
Total liabilities measured at fair value
  $ 334     $ -     $ 334     $ -  
 
   
As of December 31, 2013
 
   
Fair Value
   
Level I
   
Level II
   
Level III
 
Assets
                       
Money market funds(1)
  $ 4,966     $ 4,966     $ -     $ -  
Foreign currency forwards(2)
    1       -       1       -  
Total assets measured at fair value
  $ 4,967     $ 4,966     $ 1     $ -  
Liabilities
                               
Convertible preferred stock warrant liabilities
  $ 760     $ -     $ -     $ 760  
Foreign currency forwards(3)
    314       -       314       -  
Total liabilities measured at fair value
  $ 1,074     $ -     $ 314     $ 760  

(1)
Included in cash and cash equivalents in the consolidated balance sheets. The carrying value of money market funds approximates fair value because of their short maturities.
(2)
Included in prepaid and other current assets in the consolidated balance sheets.
(3)
Included in accrued liabilities in the consolidated balance sheets.

There were no transfers of financial instruments, which are measured at fair value, between Level I, Level II, and Level III during the years ended December 31, 2014 and 2013.

Level II assets and liabilities consist of unrealized gain or loss on forward currency contracts, which are measured using the difference between the market quotes of trading currencies adjusted for forward points and the executed contract rate. For further details on the Company’s derivative financial instruments, refer to Note 3.

Level III liabilities consist of convertible preferred stock warrant liabilities, which are measured using the Black Scholes option-pricing model. Inputs used to determine their estimated fair value include the estimated fair value of the underlying stock at the measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends, and the expected volatility of the underlying stock. For further details on the convertible preferred stock warrant liabilities, refer to Note 10.

 
83

 
The following table sets forth a summary of the changes in the fair value of Level III financial liabilities (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Fair value - beginning of year
  $ 760     $ 505     $ 554  
Exercise or conversion of convertible preferred stock warrants
    (733 )     (13 )     (41 )
Change in fair value of Level III liabilities recorded in other income (expense), net
    (27 )     268       (8 )
Fair value—end of year
  $ -     $ 760     $ 505  
 
5. Balance Sheet Components

Allowance for Doubtful Accounts

Activity related to the allowance for doubtful accounts consisted of the following (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Balance, beginning of year
  $ 20     $ 9     $ 37  
Additions to the allowance
    129       22       17  
Write-offs of bad debt
    (119 )     (11 )     (30 )
Recovery of previously reserved items
    (17 )     -       (15 )
Balance, end of year
  $ 13     $ 20     $ 9  

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

   
December 31,
 
   
2014
   
2013
 
Prepaid expenses
  $ 1,846     $ 1,607  
Refundable tax
    492       510  
Deferred commissions
    871       593  
Unrealized gain on foreign currency forward contracts
    5       1  
Other current assets
    1,211       818  
Prepaid expenses and other current assets
  $ 4,425     $ 3,529  

Property and Equipment, Net

Property and equipment, net consist of the following (in thousands):

   
December 31,
 
   
2014
   
2013
 
Computer equipment
  $ 26,406     $ 20,217  
Furniture, fixtures, and equipment
    716       702  
Leasehold improvements
    2,447       1,760  
Total property and equipment(1)
    29,569       22,679  
Less accumulated depreciation and amortization(2)
    (20,088 )     (16,382 )
Property and equipment, net
  $ 9,481     $ 6,297  

(1) 
Includes assets under capital lease of $5.4 million and $3.6 million as of December 31, 2014 and 2013, respectively.
(2) 
Includes accumulated amortization of $2.8 million and $1.9 million relating to assets under capital lease as of December 31, 2014 and 2013, respectively.

 
84

 
Depreciation and amortization expense during the years ended December 31, 2014 and 2013 was $3.8 million, and $2.7 million, respectively. Included in these amounts were depreciation expenses for assets acquired under capital leases in the amount of $0.8 million and $0.1 million, respectively.

Other Assets

Other assets consist of the following (in thousands):

   
December 31,
 
   
2014
   
2013
 
Deferred costs and commissions
    674       365  
Facility deposits for operating leases
    891       683  
Others
    44       64  
Other assets
  $ 1,609     $ 1,112  

Accumulated Other Comprehensive Loss
 
The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):

   
Foreign Currency Translation Adjustments
   
Unrealized Gain
on Cash Flow
Hedges
   
Total
 
Balance, beginning of the year
  $ 1,462     $ 268     $ 1,730  
Other comprehensive loss before reclassifications
    164       269       433  
Amount reclassified from AOCI
    -       (184 )     (184 )
Other comprehensive income (loss)
    164       85       249  
Balance, end of the year
  $ 1,626     $ 353     $ 1,979  
 
6. Other Income (Expense), Net

Other income (expense), net consists of the following (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Interest expense
  $ (517 )   $ (595 )   $ (576 )
Foreign exchange gain (loss)
    60       553       116  
Gain (loss) on foreign currency forward contracts
    615       (186 )     249  
Convertible preferred stock warrants remeasurement
    27       (268 )     8  
Gain on proceeds from insurance settlement
    -       141       450  
Other non-operating income (expense), net
    76       37       (17 )
Total other income (expense), net
  $ 261     $ (318 )   $ 230  

7. Commitments and Contingencies

Operating Leases:    The Company has several operating leases for its office facilities with various expiration dates through March 2022. Rental expenses from these leases are recognized on a straight-line basis through the end of the lease. Under the terms of certain leases, the Company is responsible for certain taxes, insurance, maintenance and management expenses.

Future rental payments under noncancelable operating leases with initial terms in excess of one year, as of December 31, 2014, are as follows (in thousands):

 
85

 
Year ending December 31:
     
2015
  $ 1,971  
2016
    2,812  
2017
    2,222  
2018
    1,984  
2019
    2,043  
Thereafter
    4,819  
Total minimum payments
  $ 15,851  

Rent expense during the years ended December 31, 2014, 2013, and 2012, was $2.0 million, $2.0 million, and $1.8 million, respectively. As of December 31, 2014, the short-term deferred rent liability and long-term liability was $61,000 and $83,000, respectively. As of December 31, 2013, the short-term deferred rent liability and long-term liability was $0.2 million and $0.1 million, respectively.

Capital Leases:    The Company acquired certain software licenses and server and network equipment classified as capital leases. The original term of the capital leases unpaid as of December 31, 2014 ranges from three to four years. The portion of the future payments designated as principal repayment was classified as a capital lease obligation on the consolidated balance sheets. Future payments under the capital leases, as of December 31, 2014, are as follows (in thousands):

Year ending December 31:
     
2015
  $ 1,153  
2016
    1,052  
2017
    191  
Total minimum payments
  $ 2,396  

Interest expense recognized in years ended December 31, 2014, 2013 and 2012, is immaterial in relation to these capital lease arrangements.

Other Commitments:    As of December 31, 2014, the Company has several other commitments for telecommunication and data center services and support and maintenance with various expiration dates through the end of 2017 as follows (in thousands):

Year ending December 31:
     
2015
    1,547  
2016
    833  
2017
    200  
Total minimum payments
  $ 2,580  

Indemnification

Under the indemnification provisions of its standard sales contracts, the Company agrees to defend its customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets, and to indemnify its customers for certain losses resulting from such claims. In addition, the Company also agrees to indemnify its customers against losses, expenses, and liabilities from damages that may be awarded against them if its applications are found to result in a security breach in certain circumstances. The exposure to the Company under these indemnification provisions could potentially expose it to losses in excess of the amount received under the agreement. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, there have been no material claims under such indemnification provisions, and no liability related to these indemnification agreements has been recorded as of December 31, 2014 and 2013.

Legal Matters

In the ordinary course of business, the Company may be involved in lawsuits, claims, investigations, and proceedings consisting of intellectual property, commercial, employment, and other matters. Legal fees and other costs associated with such actions are expensed as incurred. The Company will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. Litigation accruals are recorded when and if it is determined that a loss is both probable and reasonably estimable. Material loss contingencies that are reasonably possible of occurrence, if any, are subject to disclosures. The Company believes that liabilities associated with any claims, while possible, are not probable, and therefore has not recorded any accrual for any claims as of December 31, 2014. Further, any possible range of loss cannot be reasonably estimated at this time.

 
86

 
8. Bank Borrowings and Extinguishment of Debt
 
As of December 31, 2014, the Company has repaid all amounts outstanding related to all bank borrowings using proceeds from the IPO. Bank borrowings consist of the following as of December 31, 2013 (in thousands):
 
   
December 31,
2013
 
Bank borrowings:
     
Revolving line of credit
  $ 1,600  
Equipment financing facility
    145  
Term loans
    4,640  
Total
    6,385  
Less: current portion
    3,471  
Bank borrowings, net of current portion
  $ 2,914  

In 2005, the Company entered into a loan and security agreement, as amended, with a lender. The agreement, as amended, provides for borrowings up to $15.0 million in revolving loans subject to a borrowing base of trailing three months subscription revenue. Borrowings under the revolving line of credit bear interest at the prime rate plus 1.25% per annum (prime rate was 3.25% per annum as of December 31, 2014 and 2013). The drawdown on the revolving line of credit can be made until March 2015 and must be repaid on or before March 2015. As of December 31, 2014, no amounts were outstanding on the revolving loans and up to $15.0 million was available for drawdown, subject to borrowing base limitations.

The agreement also provided an equipment financing facility for the purchase of equipment through March 31, 2011, with a repayment period of 36 months from the date of advance. The equipment financing facility is nonrevolving, and repaid equipment advances may not be reborrowed. As of December 31, 2014 and 2013, the interest rate for borrowings under the facility was 5.5% per annum. As of December 31, 2014, the facility has been repaid in full and no amount remains available to be borrowed. As of December 31, 2013, $0.1 million was outstanding.

In July 2012, the Company entered into an amendment to its credit facility with the same lender to borrow $3.0 million term loans with a repayment period of 36 months including interest and principal. This loan bears interest at a fixed rate of 5.5% per annum. In August 2013, the Company entered into another amendment to its credit facility with the same lender to borrow an additional $3.0 million in term loans with a repayment period of 42 months including interest only payments for the first six months and equal monthly payments including principal and interest for the next 36 months. This loan bears interest at a fixed rate of 5.0% per annum. As of December 31, 2014, the term loans have been repaid in full. As of December 31, 2013, $4.6 million was outstanding on the term loans.

9. Net Loss per Share

On September 18, 2014, the Company effected a one-for-ten reverse stock split of all outstanding shares, including common stock and convertible preferred stock. Any fractional shares of common stock, convertible preferred stock, stock options, RSUs and preferred stock warrants resulting from the reverse stock split were settled in cash equal to the fraction of a share, option, RSU or warrant of which the holder was entitled. All information related to common stock, convertible preferred stock, stock options, RSUs, preferred stock warrants and per share information presented in the consolidated financial statements has been adjusted to reflect the stock split on a retroactive basis for all periods presented and all share information is rounded down to the nearest whole share after reflecting the reverse stock split.

The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities. The Company considers all series of the Company’s convertible preferred stock to be participating securities as the holders of the preferred stock were entitled to receive a noncumulative dividend on a pari passu basis in the event that a dividend is paid on common stock. The holders of all series of convertible preferred stock did not have a contractual obligation to share in the losses of the Company. As such, the Company’s net losses for the years ended December 2014, 2013 and 2012, were not allocated to these participating securities.
 
 
87

 
Basic net loss per share is computed by dividing total net income (loss) attributable to common stockholders by the weighted-average common shares outstanding. The weighted-average common shares outstanding is adjusted for shares subject to repurchase.

Diluted net income (loss) per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding including potential dilutive common stock instruments. In the years ended December 31, 2014, 2013 and 2012, the Company’s potential common stock instruments such as stock options, RSUs, shares of preferred stock and the preferred stock warrants were not included in the computation of diluted net loss per share as the effect of including these shares in the calculation would have been anti-dilutive.

The following table presents the calculation of the numerators and denominators of the basic and diluted net income (loss) per share for periods presented (in thousands, except per share amounts).

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Basic and diluted net loss per share:
                 
Numerator:
                 
Net loss
  $ (6,975 )   $ (1,181 )   $ (6,521 )
Net loss attributable to common stockholders
  $ (6,975 )   $ (1,181 )   $ (6,521 )
Denominator:
                       
Weighted average shares used
    12,802       7,263       7,449  
Less: Weighted-average shares subject to repurchase
    -       -       (800 )
Weighted-average shares used to compute basic and diluted net loss per share
    12,802       7,263       6,649  
Basic and diluted net loss per share
  $ (0.54 )   $ (0.16 )   $ (0.98 )

The following potential common shares were excluded from the calculation of diluted loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Convertible preferred stock
    10,923       14,445       14,444  
Stock options
    5,233       4,662       4,033  
RSUs
    723       224       -  
Shares subject to repurchase
    -       -       800  
Convertible preferred stock warrants
    -       113       120  
      16,879       19,444       19,397  

10. Stock Warrants
 
The Company issued 113,457 warrants to purchase shares of convertible preferred stock at various times between the years ended December 31, 2006 and 2010, in connection with various financing arrangements. Immediately prior to the closing of the Company’s IPO on October 3, 2014, all 113,457 convertible preferred stock warrants were automatically converted into common stock warrants to purchase shares of common stock. The fair value of the common stock warrants as of October 3, 2014, estimated to be $0.7 million using the Black-Scholes option pricing model, was reclassified to additional paid in capital. The Company determined the fair value of the common stock warrants at October 3, 2014, December 31, 2013, and December 31, 2012 using the Black-Scholes option pricing model with the following weighted average assumptions:
 
   
October 3,
   
December 31,
 
    2014    
2013
   
2012
 
Dividend rate
    - %     - %     - %
Risk-free interest rate
    1.2 %     1.5 %     0.8 %
Remaining contractual term (in years)
    3.6       4.3       5.1  
Expected volatility
    40 %     40 %     50 %

As of December 31, 2014, all warrants were exercised. As of December 31, 2013, the following warrants were issued and outstanding (in thousands except exercise price per share):

 
88

 
Date Issued
 
Number of Warrants
Issued and
Outstanding
 
Class
 
Exercise Price
per Share
 
Expiration Date
 
Fair Value
 
December 2007
    23  
 Preferred Series BB
  $ 6.50  
 Earlier of 2014 or liquidation event
  $ 129  
November 2008
    54  
 Preferred Series BB
  $ 6.50  
 Earlier of 2018 or liquidation event
    371  
March 2009
    21  
 Preferred Series BB
  $ 6.50  
 Earlier of 2019 or liquidation event
    151  
March 2010
    15  
 Preferred Series BB
  $ 6.50  
 Earlier of 2020 or liquidation event
    109  
      113                 $ 760  
 
During the year ended December 31, 2014, there was a cashless exercise of these warrants, whereby 59,152 common stock shares were issued to the warrant holders. During the year ended December 31, 2013, there was a cashless exercise of 6,154 warrants, whereby 1,524 shares of Series AA convertible preferred stock were issued to the warrant holders.

11. Convertible Preferred Stock

Immediately prior to the closing of the IPO, all shares of the Company’s then-outstanding convertible preferred stock automatically converted into an aggregate of 14.4 million shares of common stock.

As of December 31, 2013, convertible preferred stock comprised the following (in thousands):

   
December 31, 2013
 
   
Shares
Authorized
   
Shares Issued
and Outstanding
   
Net
Proceeds
   
Liquidation Preference
 
Series AA
    7,437       7,384       47,236       47,994  
Series BB
    5,629       5,461       35,149       35,500  
Series CC
    800       800       9,937       10,000  
Series DD
    800       800       9,902       10,000  
Total
    14,666       14,445       102,224       103,494  
 
12. Stockholders’ Equity (Deficit)

On September 18, 2014, the Company’s board of directors and stockholders approved an increase to the authorized common stock to 150,000,000 shares and authorized 5,000,000 shares of undesignated preferred stock which became effective in connection with the completion of the IPO of the Company’s common stock on October 3, 2014. In addition, in accordance with the conversion rights of preferred stock, the holders of preferred stock elected to automatically convert the preferred stock to common stock. The conversion subsequently became effective immediately prior to the effective date of the Company’s IPO.

Equity Incentive Plans

On September 18, 2014, the Company’s board of directors and stockholders adopted the 2014 Equity Incentive Plan (“2014 Plan”), which became effective upon the IPO of the Company’s common stock on October 3, 2014. At the time of completion of the IPO, any shares of common stock reserved for issuance and any shares of common stock which are forfeited, cancelled or terminated, other than by exercise, under the 2009 Plan became available for issuance under the 2014 Plan. The 2009 Plan was canceled and the maximum number of shares to be added to the 2014 Plan from the 2009 Plan was 5,800,000 shares, subject to annual increases under such plan.

Prior to the 2014 Plan, the equity incentive plans consisted of the 1999 Stock Plan (the 1999 Plan), 2001 Stock Plan (the 2001 Plan) and 2009 Equity Incentive Plan (the 2009 Plan). The 1999 Plan expired during the year ended December 31, 2009, and the 2001 Plan expired during the year ended December 31, 2011, and further stock option grants cannot be made from these plans. Upon expiration of the 1999 Plan, the Company adopted the 2009 Plan. The remaining shares available for grant under the 1999 Plan were transferred to the 2009 Plan. Upon expiration of the 2001 Plan, remaining shares available for grant under 2001 Plan were cancelled. The 2009 Plan provided for the issuance of stock options, RSUs, stock appreciation rights and restricted stock awards.

 
89

 
Stock options granted under the 2009 Plan vest over the periods determined by the Board of Directors, generally four years, and expire no more than ten years after the date of grant. In the case of an incentive stock option granted to an employee, who at the time of grant, owns stock representing more than 10% of the total combined voting power of all classes of stock, the exercise price shall be no less than 110% of the fair value per share on the date of grant, and expire five years from the date of grant, and for options granted to any other employee, the per share exercise price shall be no less than 100% of the fair value per share on the date of grant. Stock options become exercisable at such times and under such conditions as determined by the board of directors. RSUs, stock appreciation rights and restricted stock awards are granted under such conditions as determined by the board of directors.

As of December 31, 2014 and 2013, the Company was authorized to grant up to 7,873,253 and 5,024,976 shares, respectively, under equity incentive plans.

Employee Stock Purchase Plan

On September 18, 2014, the Company’s board of directors and stockholders adopted the 2014 Employee Stock Purchase Plan (“2014 ESPP”). A total of 500,000 shares of common stock were initially reserved for future issuance under the 2014 ESPP. As of December 31, 2014, no purchase has been made pursuant to the 2014 ESPP and 500,000 shares remain available for future issuance. There has been no stock-based compensation expense recorded as of December 31, 2014 related to the ESPP.

Determining the Fair Values of Stock Options

The per-share weighted-average fair value of the options granted to employees and non-employees was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

   
December 31,
 
   
2014
   
2013
   
2012
 
Dividend rate
    - %     - %     - %
Risk-free interest rate
    2.0 %     1.0 %     1.0 %
Expected term (in years)
    6.0       6.1       6.0  
Expected volatility
    40 %     49 %     50 %
Weighted average grant date fair value
  $ 4.97     $ 4.05     $ 3.37  

The weighted-average valuation assumptions were determined as follows:

·
Risk-free interest rate: The Company bases the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.

·
Expected term of options: The Company estimated the expected term of stock options with service-based vesting using the "simplified" method, as prescribed in SAB No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to lack of sufficient historical data.

·
Expected stock price volatility: The Company determined the price volatility factor based on the historical volatilities of its peer group as there is insufficient trading history for our common stock. To determine the peer group of companies, the Company considered public enterprise cloud application providers and selected those that are similar in size, stage of life cycle, and financial leverage. The Company did not rely on implied volatilities of traded options in industry peers’ common stock because the volume of activity was relatively low. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of its own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

A summary of stock option activity for the year ended December 31, 2014 is as follows (in thousands, except per share amounts and contractual term):

 
90

 
         
Options Outstanding
 
   
Shares
Available
for Grant
   
Number of
Shares
   
Weighted-
Average
Exercise Price
Per Share
   
Weighted-Average Remaining Contractual Term
   
Aggregate Intrinsic
Value(1)
 
Balance as of December 31, 2013
    139       4,662     $ 5.56       6.1     $ 24,412  
Increase in share authorized
    2,700       -                          
Options granted
    (1,076 )     1,076       12.02                  
RSU granted
    (502 )     -                          
Options exercised
    -       (353 )     3.99                  
Options forfeited or expired
    152       (152 )     7.16                  
RSU forfeited
    3       -                          
Balance as of December 31, 2014
    1,416       5,233     $ 6.95       6.2     $ 27,483  
Vested and expected to vest - December 31, 2014
            4,983     $ 6.77       6.0     $ 27,079  
Vested - December 31, 2014
            3,419     $ 5.27       4.8     $ 23,710  

(1) 
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the assessed fair value of the Company’s common stock as of December 31, 2014 and 2013.

The intrinsic value of options exercised during the year ended December 31, 2014, 2013 and 2012 was $2.8 million, $0.9 million and $5.2 million, respectively. The fair value of stock options vested during the year ended December 31, 2014, 2013 and 2012, was $3.0 million, $1.6 million and $1.2 million, respectively. As of December 31, 2014, $6.4 million of total unrecognized compensation expense related to stock options was expected to be recognized over a weighted-average remaining vesting period of 2.6 years.

The following table summarizes the activity related to the Company’s RSUs for the year ended December 31, 2014:

   
Number of RSUs
   
Weighted-Average
Fair Value per
Share(1)
 
   
(in thousands)
       
Balance as of December 31, 2013
    224     $ 12.20  
Restricted stock units granted
    502     $ 11.97  
Restricted stock units forfeited
    (3 )   $ 12.03  
Balance as of December 31, 2014
    723     $ 12.04  

(1) 
Represents assessed fair value of RSUs.

As the Company completed its IPO on October 8, 2014, $4.4 million of stock-based compensation expense was recognized during the fourth quarter of fiscal year 2014.  As of December 31, 2014, total unrecognized compensation expense, net of forfeitures, related to RSUs was $4.8 million, and will be recognized over a weighted-average period of approximately 1.8 years.
 
13. Common Stock Reserved For Future Issuance

Common stock reserved for future issuance as of December 31, 2014 and 2013, is as follows (in thousands):

   
December 31,
 
   
2014
   
2013
 
Issuances under equity incentive plan
    7,873       5,025  
Conversion of convertible preferred stock
    -       14,445  
Issuances upon exercise of convertible preferred stock warrants
    -       113  
Total
    7,873       19,583  

 
91

 
14. Employee Benefit Plans

401(k) Retirement Plan.    The Company has a 401(k) retirement plan that covers substantially all of its U.S. employees. The 401(k) plan provides for voluntary salary deductions of up to 100% of eligible participants’ annual compensation, subject to the maximum allowed by law. The Company does not provide matching contributions.

Non-U.S. Pension Benefits.    The Company also provides a defined benefit pension plan to its employees in India. Consistent with the requirements of local law, funds are deposited for the pension plan with an insurance company and the Company accrues for the unfunded portion of the obligation, which is not significant.

15. Related-Party Transactions

The Company recorded revenue from a major financial institution, which is a significant stockholder, totaling $12.3 million, $10.4 million and $10.6 million, during the year ended December 31, 2014, 2013 and 2012, respectively. That financial institution comprised 20% and 17% of total accounts receivable as of December 31, 2014 and 2013, respectively.
 
The Company recorded revenue of $1.3 million, $0.8 million and $0.5 million, from other related parties during the year ended December 2014, 2013 and 2012, respectively. Total accounts receivable from other related parties as of December 31, 2014 and 2013, was not significant.

16. Income Taxes

The components of the provision for (benefit from) income taxes from continuing operations consist of the following (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Current:
                 
Federal
  $ -     $ (104 )   $ 16  
State
    -       -       -  
Foreign
    1,794       1,529       1,099  
Total current
    1,794       1,425       1,115  
Deferred:
                       
Foreign
    9       14       (24 )
Total deferred
    9       14       (24 )
Total provision for income taxes
  $ 1,803     $ 1,439     $ 1,091  

The Company’s geographical breakdown of its income (loss) from continuing operations before provision for income taxes is as follows (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Domestic
  $ (8,203 )   $ (1,688 )   $ (7,237 )
Foreign
    3,031       1,946       1,807  
Income (loss) from continuing operations before provision for (benefit from) income taxes
  $ (5,172 )   $ 258     $ (5,430 )

 
92

 
Net deferred tax assets consist of the following (in thousands):

   
December 31,
 
   
2014
   
2013
 
Deferred tax assets:
           
Net operating loss carryforward
  $ 50,170     $ 52,307  
Accruals and other
    2,830       1,284  
Depreciation and amortization
    274       -  
Deferred revenue
    1,978       2,412  
Income tax credits
    3,564       3,606  
Gross deferred tax asset
    58,816       59,609  
Valuation allowance
    (58,745 )     (58,780 )
Net deferred tax assets
    71       829  
Deferred tax liabilities:
               
Depreciation and amortization
    -       (744 )
Total deferred tax liabilities
    -       (744 )
Net deferred tax assets
  $ 71     $ 85  

Reconciliations of the statutory federal income tax to the Company’s effective tax consist of the following (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Tax at statutory federal rate
  $ (1,810 )   $ 90     $ (1,902 )
State tax—net of federal benefit
    (43 )     15       (460 )
Impact of foreign taxes
    871       628       432  
Nondeductible stock-based compensation
    738       455       437  
Nondeductible permanent items
    (26 )     73       41  
Foreign income inclusion
    186       34       358  
Release of uncertain tax position
    (104 )     (110 )     -  
Warrant revaluation
    (10 )     110       -  
Other
    -       7       50  
Valuation allowance
    2,001       137       2,135  
Provision for income taxes
  $ 1,803     $ 1,439     $ 1,091  

As of December 31, 2014, the Company had net operating loss carryforwards of approximately $162.0 million and $90.1 million to offset federal and state future taxable income, respectively. Of these amounts, $4.3 million and $3.1 million, respectively, represent federal and state tax deductions from stock-based compensation, which will be recorded as an adjustment to additional paid-in capital when they reduce taxes payable. The federal and state net operating loss carryforwards will expire beginning in 2019 and 2015, respectively. In addition, the Company has federal research tax credits of $3.1 million and state research tax credits of $4.4 million. The federal research tax credits will expire beginning in 2022. The state credits may be carried forward indefinitely.

Utilization of the Company’s net operating loss carryforwards is subject to substantial annual limitations due to ownership change limitations imposed by Section 382 of the Internal Revenue Code (“IRC”) and similar state provisions. Such an annual limitation could result in the expiration of the net operating losses before utilization. The Company believes a change of control occurred in August 2002, as defined by Sections 382 and 383 of the IRC, which resulted in a forfeiture of a significant portion of the Company’s net operating loss and credit carryforwards. The deferred tax assets related to these tax attributes have been reduced accordingly.

The tax benefit of operating losses, temporary differences, and credit carryforwards is recorded as a deferred tax asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefit is dependent upon the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of domestic losses, management believes that recognition of its federal and state deferred tax assets arising from the above mentioned tax benefit is not currently more likely than not to be realized, and accordingly, the Company’s domestic deferred tax assets have been fully offset by a valuation allowance.

The Company has not provided U.S. income tax on certain foreign earnings that are deemed to be permanently reinvested outside the U.S. As of December 31, 2014 and 2013, the amount of accumulated unremitted earnings from the Company’s foreign subsidiaries is approximately $5.8 million and $3.6 million, respectively. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

 
93

 
A reconciliation of the beginning and ending balances of the unrecognized tax benefit during the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Unrecognized benefit—beginning of year
  $ 14,648     $ 13,309     $ 12,616  
Gross increases—current year tax positions
    890       1,061       623  
Gross increases—prior year tax positions
    -       365       70  
Gross decreases—lapse of prior year statute of limitation
    (117 )     (87 )     -  
Gross decreases—prior year tax positions settlement
    (124 )     -       -  
Unrecognized benefit—end of year
  $ 15,296     $ 14,648     $ 13,309  

The total amount of unrecognized tax benefit that would affect the Company’s effective tax rate is $1.8 million as of December 31, 2014. The Company accounts for any applicable interest and penalties on uncertain tax positions as a component of income tax expense. The amount accrued as of December 31, 2014 and 2013 for interest and penalties was $1.1 million and $1.2 million, respectively. The amount of interest and penalties that the Company recognized in the consolidated statement of operations during the years ended December 31, 2014, 2013, and 2012 was $0.3 million, $0.4 million, and $0.2 million, respectively.

The Company’s tax jurisdictions are the United States, various state jurisdictions, India, United Kingdom, Australia, and Canada. The tax years 1999 through 2014 remain open and subject to examination by the appropriate governmental agencies in the U.S. due to tax attribute carryforwards and the tax years 2005 through 2014 remain open to examination in various foreign jurisdictions.

17. Information About Geographic Areas

Revenue by geography is based on the billing address of the customer. The following table sets forth revenue by geographic area (in thousands):

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
 
United States
  $ 76,403     $ 60,419     $ 49,909  
International(1)
    12,678       9,741       7,885  
Total
  $ 89,081     $ 70,160     $ 57,794  

(1) 
No foreign country accounted for more than 10% of total revenue.

The following table sets forth long-lived assets by geographic area (in thousands):

   
December 31,
 
   
2014
   
2013
 
United States
  $ 6,537     $ 5,194  
India
    2,231       857  
Other
    713       246  
Total
  $ 9,481     $ 6,297  
 
 
94

 
Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”).
 
In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on management’s evaluation, our principal executive officers and principal financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in U.S. Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer to allow timely decisions regarding required disclosures.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(c) Management’s Report on Internal Control over Financial Reporting

This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

Item 9B.  Other Information

None.

 
95

 
PART III.

Item 10.  Directors, Executive Officers and Corporate Governance

The information required by this item will be included under the caption “Directors, Executive Officers and Corporate Governance” in our Proxy Statement for the 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2014 (2015 Proxy Statement) and is incorporated herein by reference. The information required by this item regarding delinquent filers pursuant to Item 405 of Regulation S-K will be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2015 Proxy Statement and is incorporated herein by reference.

Item 11.  Executive Compensation

The information required by this item will be included under the captions “Director Compensation,” “Executive Compensation” and “Directors, Executive Officers and Corporate Governance—Corporate Governance and Board Matters—Compensation Committee Interlocks and Insider Participation” in the 2015 Proxy Statement and is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be included under the captions “Common Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the 2015 Proxy Statement and is incorporated herein by reference.

Item 13.  Certain Ownership and Related Transactions and Director Independence

The information required by this item will be included under the captions “Certain Relationships and Related Transactions” and “Directors, Executive Officers and Corporate Governance—Corporate Governance and Board Matters—Director Independence” in the 2015 Proxy Statement and is incorporated herein by reference.

Item 14.  Principal Accounting Fees and Services

The information required by this item will be included under the caption “Independent Registered Public Accounting Firm” in the 2015 Proxy Statement and is incorporated herein by reference.

 
96

 
PART IV.

Item 15.  Exhibits, Financial Statement Schedules

(a) We have filed the following documents as part of this Annual Report on Form 10-K:

1.  Consolidated Financial Statements

 
Report of Independent Registered Public Accounting Firm
 
Financial Statements:
 
Consolidated Balance Sheets
 
Consolidated Statements of Operations
 
Consolidated Statements of Comprehensive Loss
 
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity/(Deficit)
 
Consolidated Statements of Cash Flows

2. Financial Statement Schedules

None, as all information required in these schedules is included in the notes to our financial statements.

3. Exhibits

See the Exhibit Index following the signature page to this Annual Report on Form 10-K for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

 
97

 
Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated March 4, 2015
Yodlee, Inc.
 
 
By:
/s/: ANIL ARORA
   
Anil Arora
   
Director, President and Chief Executive Officer
   
(Principle Executive Officer)
     
Dated March 4, 2015
By:
/S/: MICHAEL ARMSBY
   
Michael Armsby
   
Chief Financial Officer
   
(Principle Accounting and Financial Officer)

 
POWER OF ATTORNEY
 
Each person whose signature appears below hereby constitutes and appoints Anil Arora and Michael Armsby, and each of them, with full power of substitution and resubstitution and full power to act without the other, as such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, and full power to act without the other, for such person and in such person’s name, place and stead and o sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
 
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated below:

 
 
Signature
 
 
Title
 
 
Date
     
 
 
 
Director, President and Chief Executive Officer
(Principal Executive Officer)
 
March 4, 2015
Anil Arora
   
 
 
 
Chief Financial Officer
(Principal Accounting and Financial Officer)
 
March 4, 2015
Michael Armsby
   
 
 
 
Director
 
March 4, 2015
Gayle Crowell
   
 
 
 
Director
 
March 4, 2015
Bruce C. Felt, Jr.
   
 
 
 
Director
 
March 4, 2015
William Harris, Jr.
   
 
 
 
Director
 
March 4, 2015
Patrick T. Hackett
   
 
 
 
Director
 
March 4, 2015
Mark Jung
       
 
 
98

 
Exhibit Index
 
Exhibit
     
Incorporated by Reference
Number
 
Exhibit Description
 
Form
 
File No.
 
Exhibit(s)
 
Filing Date
                     
3.1
 
Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect
 
S-1
 
333-197116
 
3.2
 
June 30, 2014
           
3.2
 
Amended and Restated Bylaws of the Registrant, as currently in effect
 
S-1
 
333-197116
 
3.4
 
June 30, 2014
           
4.1
 
Specimen Common Stock Certificate of the Registrant
 
S-1
 
333-197116
 
4.1
 
September 22, 2014
           
4.2
 
Ninth Amended and Restated Investors’ Rights Agreement, dated April 27, 2012, by and among the Registrant and certain holders of the Registrant’s capital stock party thereto
 
S-1
 
333-197116
 
4.2
 
June 30, 2014
           
10.1+
 
1999 Stock Plan
 
S-1
 
333-197116
 
10.2
 
September 22, 2014
           
10.2+
 
Form of Stock Option Agreement under 1999 Stock Plan
 
S-1
 
333-197116
 
10.3
 
June 30, 2014
           
10.3+
 
2001 Stock Plan
 
S-1
 
333-197116
 
10.4
 
September 22, 2014
           
10.4+
 
Form of Stock Option Agreement under 2001 Stock Plan
 
S-1
 
333-197116
 
10.5
 
June 30, 2014
           
10.5+
 
2009 Equity Incentive Plan
 
S-1
 
333-197116
 
10.6
 
September 22, 2014
           
10.6+
 
Form of Stock Option Agreement under 2009 Equity Incentive Plan
 
S-1
 
333-197116
 
10.7
 
June 30, 2014
           
10.7+
 
Form of Restricted Stock Unit Award Agreement under 2009 Equity Incentive Plan
 
S-1
 
333-197116
 
10.8
 
June 30, 2014
           
10.8+
 
2014 Equity Incentive Plan
 
S-1
 
333-197116
 
10.9
 
September 22, 2014
           
10.9+
 
Form of Stock Option Award Agreement under 2014 Equity Incentive Plan
 
S-1
 
333-197116
 
10.10
 
September 22, 2014
           
10.10+
 
Form of Restricted Stock Unit Award Agreement under 2014 Equity Incentive Plan
 
S-1
 
333-197116
 
10.11
 
September 22, 2014
           
10.11+
 
Form of Restricted Stock Award Agreement under 2014 Equity Incentive Plan
 
S-1
 
333-197116
 
10.12
 
September 22, 2014
           
10.12+
 
2014 Employee Stock Purchase Plan
 
S-1
 
333-197116
 
10.13
 
September 22, 2014
           
10.13+
 
Executive Incentive Compensation Plan
 
S-1
 
333-197116
 
10.14
 
July 18, 2014
           
10.14+
 
Offer Letter, dated January 27, 2000, by and between the Registrant and Anil Arora
 
S-1
 
333-197116
 
10.15
 
June 30, 2014
           
10.15+
 
Offer Letter, dated April 8, 2013, by and between the Registrant and Michael Armsby
 
S-1
 
333-197116
 
10.16
 
June 30, 2014
           
10.16+
 
Offer Letter, dated September 28, 2007, by and between the Registrant and William Parsons
 
S-1
 
333-197116
 
10.17
 
June 30, 2014
           
 
 
99

 
10.17
 
Lease Agreement between the Registrant and Westport Office Park, LLC, dated August 31, 2001, as amended on August 7, 2003, June 30, 2007, August 1, 2009 and May 17, 2010
 
S-1
 
333-197116
 
10.18
 
June 30, 2014
           
10.17.1
 
Fifth Amendment to Lease Agreement between the Registrant and Westport Office Park, LLC, dated October 23, 2014
 
8-K
 
001-36639
 
10.18.1
 
November 3, 2014
           
10.18
 
Lease Agreement between Yodlee Infotech Private Limited and NSL Properties Private Limited, Mr. M. Venkataramaiah and Mrs. M. Rama Devi, dated April 16, 2012
 
S-1
 
333-197116
 
10.19
 
June 30, 2014
           
10.19
 
Lease Agreement between Yodlee Infotech Private Limited and M/s. Omtek Technology Park Private Limited, dated December 1, 2012
 
S-1
 
333-197116
 
10.20
 
June 30, 2014
           
10.20
 
Lease Agreement between Yodlee Infotech Private Limited and M/s. Omtek Technology Park Private Limited, dated April 1, 2014
 
S-1
 
333-197116
 
10.21
 
June 30, 2014
           
10.21†
 
Amended and Restated General Services Agreement, dated May 12, 2014, by and between the Registrant and Bank of America, N.A.
 
S-1
 
333-197116
 
10.22
 
June 30, 2014
                     
10.21.1†
 
Amendment to the General Services Agreement, dated June 30, 2014, by and between the Registrant and Bank of America, N.A.
 
S-1
 
333-197116
 
10.22.1
 
July 18, 2014
           
10.22
 
Amended and Restated Loan and Security Agreement, dated July 11, 2011, by and between the Registrant and Silicon Valley Bank, as amended on March 2, 2012, July 12, 2012, February 28, 2013, August 2013 and February 2014.
 
S-1
 
333-197116
 
10.24
 
June 30, 2014
           
21.1
 
List of Subsidiaries of the Registrant
 
 
 
 
 
 
 
 
           
23.1
 
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
               
                     
24.1
 
Power of Attorney (see the signature page to this Annual Report on Form 10-K)
               
                     
31.1
 
Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
               
                     
31.2
 
Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
               
                     
32.1
 
Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350
               

 
100

 
101.INS††
 
XBRL Instance Document
                 
             
101.SCH††
 
XBRL Taxonomy Extension Schema Document
                 
             
101.CAL††
 
XBRL Taxonomy Extension Calculation Linkbase Document
                 
             
101.DEF††
 
XBRL Taxonomy Extension Definition Linkbase Document
                 
             
101.LAB††
 
XBRL Taxonomy Extension Label Linkbase Document
                 
             
101.PRE††
 
XBRL Taxonomy Extension Presentation Linkbase Document
                 
 
 


+
Indicates a management contract or compensatory plan.
 
Portions of have been granted confidential treatment by the SEC.
 
††
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not otherwise subject to liability under these Sections.