Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

or

o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____

Commission File Number: 001-35925

TABLEAU SOFTWARE, INC.
(Exact name of Registrant as specified in its charter)

    
Delaware
 
47-0945740
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
837 North 34th Street, Suite 200
Seattle, Washington 98103
(Address of principal executive offices and zip code)

(206) 633-3400
(Registrant's telephone number, including area code)
                    
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. x Yes o No

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). x Yes o No

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
x
 
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if smaller reporting company)
 
Smaller reporting company
o


Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of November 1, 2016, there were approximately 57,755,482 shares of the Registrant's Class A common stock and 18,336,609 shares of the Registrant's Class B common stock outstanding.

 
 



TABLEAU SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2016
Table of Contents

 
PART I. FINANCIAL INFORMATION
Page
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
PART II. OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 


 
 


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Tableau Software, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
September 30, 2016
 
December 31, 2015
 
(in thousands, except share data)
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
864,593

 
$
795,900

Accounts receivable, net of allowance for doubtful accounts of $895 and $888
136,940

 
131,784

Prepaid expenses and other current assets
27,716

 
16,977

Income taxes receivable
5

 
78

Total current assets
1,029,254

 
944,739

Property and equipment, net
91,056

 
72,350

Goodwill
15,531

 
932

Deferred income taxes
1,455

 
1,544

Deposits and other assets
12,154

 
11,146

Total assets
$
1,149,450

 
$
1,030,711

Liabilities and stockholders' equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
6,804

 
$
1,152

Accrued compensation and employee related benefits
62,070

 
53,003

Other accrued liabilities
40,746

 
31,838

Income taxes payable
1,496

 
1,000

Deferred revenue
230,736

 
185,608

Total current liabilities
341,852

 
272,601

Deferred revenue
18,685

 
12,903

Other long-term liabilities
21,872

 
11,262

Total liabilities
382,409

 
296,766

Commitments and contingencies (Note 7)

 

Stockholders' equity
 
 
 
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; none issued

 

Class B common stock, $0.0001 par value, 75,000,000 shares authorized; 18,336,609 and 19,331,666 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
2

 
2

Class A common stock, $0.0001 par value, 750,000,000 shares authorized; 57,737,702 and 53,872,798 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
6

 
5

Additional paid-in capital
965,183

 
805,804

Accumulated other comprehensive income (loss)
(2,280
)
 
643

Accumulated deficit
(195,870
)
 
(72,509
)
Total stockholders' equity
767,041

 
733,945

Total liabilities and stockholders' equity
$
1,149,450

 
$
1,030,711



The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

Tableau Software, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands, except per share amounts)
Revenues
 
 
 
 
 
 
 
License
$
116,655

 
$
109,468

 
$
329,419

 
$
290,629

Maintenance and services
89,402

 
61,364

 
246,871

 
160,208

Total revenues
206,057

 
170,832

 
576,290

 
450,837

Cost of revenues
 
 
 
 
 
 
 
License
1,760

 
988

 
4,393

 
2,337

Maintenance and services
22,270

 
18,888

 
66,994

 
49,713

Total cost of revenues (1)
24,030

 
19,876

 
71,387

 
52,050

Gross profit
182,027

 
150,956

 
504,903

 
398,787

Operating expenses
 
 
 
 
 
 
 
Sales and marketing (1)
114,530

 
91,589

 
340,583

 
248,840

Research and development (1)
75,348

 
54,960

 
223,757

 
144,143

General and administrative (1)
21,505

 
17,584

 
63,178

 
50,753

Total operating expenses
211,383

 
164,133

 
627,518

 
443,736

Operating loss
(29,356
)
 
(13,177
)
 
(122,615
)
 
(44,949
)
Other income, net
814

 
217

 
3,496

 
1,404

Loss before income tax expense (benefit)
(28,542
)
 
(12,960
)
 
(119,119
)
 
(43,545
)
Income tax expense (benefit)
1,719

 
413

 
4,242

 
(1,166
)
Net loss
$
(30,261
)
 
$
(13,373
)
 
$
(123,361
)
 
$
(42,379
)
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
Basic
$
(0.40
)
 
$
(0.19
)
 
$
(1.65
)
 
$
(0.59
)
Diluted
$
(0.40
)
 
$
(0.19
)
 
$
(1.65
)
 
$
(0.59
)
 
 
 
 
 
 
 
 
Weighted average shares used to compute net loss per share:
 
 
 
 
 
 
 
Basic
75,647

 
72,089

 
74,743

 
71,341

Diluted
75,647

 
72,089

 
74,743

 
71,341


(1) Includes stock-based compensation expense as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Cost of revenues
$
2,614

 
$
1,856

 
$
8,060

 
$
4,804

Sales and marketing
17,487

 
11,966

 
51,037

 
31,265

Research and development
23,372

 
14,826

 
67,880

 
37,374

General and administrative
3,910

 
2,925

 
10,977

 
8,834


The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

Tableau Software, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Net loss
$
(30,261
)
 
$
(13,373
)
 
$
(123,361
)
 
$
(42,379
)
Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation, net
(880
)
 
(584
)
 
(2,923
)
 
(259
)
Comprehensive loss
$
(31,141
)
 
$
(13,957
)
 
$
(126,284
)
 
$
(42,638
)

The accompanying notes are an integral part of these condensed consolidated financial statements.


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Tableau Software, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
 
 (in thousands)
Operating activities
 
 
 
Net loss
$
(123,361
)
 
$
(42,379
)
Adjustments to reconcile net loss to net cash provided by operating activities
 
 
 
Depreciation and amortization expense
25,091

 
16,221

Stock-based compensation expense
137,954

 
82,277

Excess tax benefit from stock-based compensation
(827
)
 
(4,688
)
Deferred income taxes
282

 
(3,132
)
Changes in operating assets and liabilities
 
 
 
Accounts receivable, net
(5,150
)
 
(16,509
)
Prepaid expenses, deposits and other assets
(10,355
)
 
(13,166
)
Income taxes receivable
72

 
21

Deferred revenue
49,868

 
37,807

Accounts payable and accrued liabilities
32,043

 
26,612

Income taxes payable
517

 
157

Net cash provided by operating activities
106,134

 
83,221

Investing activities
 
 
 
Purchases of property and equipment
(42,334
)
 
(32,792
)
Business combinations
(16,399
)
 
(1,000
)
Net cash used in investing activities
(58,733
)
 
(33,792
)
Financing activities
 
 
 
Proceeds from issuance of common stock
21,203

 
16,110

Excess tax benefit from stock-based compensation
827

 
4,688

Net cash provided by financing activities
22,030

 
20,798

Effect of exchange rate changes on cash and cash equivalents
(738
)
 
(649
)
Net increase in cash and cash equivalents
68,693

 
69,578

Cash and cash equivalents
 
 
 
Beginning of period
795,900

 
680,613

End of period
$
864,593

 
$
750,191

 
 
 
 
Non-cash activities
 
 
 
Accrued purchases of property and equipment
$
10,928

 
$
8,937

Asset retirement obligations recognized, net
585

 
447


The accompanying notes are an integral part of these condensed consolidated financial statements.

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Tableau Software, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of Business
Tableau Software, Inc., a Delaware corporation, and its wholly-owned subsidiaries (the "Company," "we," "us" or "our") are headquartered in Seattle, Washington. Our software products put the power of data into the hands of everyday people, allowing a broad population of business users to engage with their data, ask questions, solve problems and create value. Based on innovative core technologies originally developed at Stanford University, our products dramatically reduce the complexity, inflexibility and expense associated with traditional business intelligence applications. We currently offer five key products: Tableau Desktop, a self-service, powerful analytics product for anyone with data; Tableau Server, a business intelligence platform for organizations; Tableau Online, a hosted software-as-a-service ("SaaS") version of Tableau Server; Tableau Public, a free cloud-based platform for analyzing and sharing public data; and Vizable, a free application used to easily analyze data on a tablet.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial information has been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet data as of December 31, 2015 was derived from audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated financial information should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on February 25, 2016.
In the opinion of management, the accompanying unaudited condensed consolidated financial information includes all normal recurring adjustments necessary for a fair statement of the Company's financial position, results of operations, comprehensive loss and cash flows for the interim periods, but is not necessarily indicative of the results that may be expected for the year ending December 31, 2016. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
In the Condensed Consolidated Balance Sheets, certain prior year amounts have been reclassified to conform to the current year presentation. Specifically, "Goodwill" was previously included in the line item "Deposits and other assets" and is now separately stated. There was no change to total assets as a result of the reclassification.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include depreciable lives for property and equipment, stock-based compensation, income taxes, accrued liabilities and collectability of accounts receivable. Actual results could differ from those estimates.
Risks and Uncertainties
Inherent in our business are various risks and uncertainties, including our limited history of operating our business at its current scale and development of advanced technologies in a rapidly changing industry. These risks include our ability to manage our growth and our ability to attract new customers and expand sales to existing customers, as well as other risks and uncertainties. In the event that we do not successfully implement our business plan, certain assets may not be recoverable, certain liabilities may not be paid and investments in our capital stock may not be recoverable. Our success depends upon the acceptance of our technology, development of sales and distribution channels and our ability to generate significant revenues from the sale of our technology.

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Segments
We follow the authoritative literature that established annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products and services, geographic regions and major customers.
We operate our business as one operating segment. Our chief operating decision makers are our Chief Executive Officer and Chief Financial Officer, who review financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources.
Concentrations of Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We extend credit to customers based upon an evaluation of the customer's financial condition and generally collateral is not required. As of September 30, 2016 and December 31, 2015, no individual customer accounted for 10% or more of total accounts receivable. For the three and nine months ended September 30, 2016 and 2015, no individual customer represented 10% or more of our total revenues.
Business Combinations
As of the date of an acquisition we recognize the identifiable assets acquired and liabilities assumed at fair value. Any excess of the consideration over the fair value of identifiable net assets is recorded as goodwill. Amounts that are not part of the consideration transferred are recognized separately from a business combination and are expensed as incurred. Intangible assets acquired are measured at their acquisition date fair value using valuation techniques that are subject to judgment.
Goodwill and Intangible Assets
Intangible assets with a finite life are typically amortized over their useful lives which range from three to five years. Goodwill is tested for impairment on an annual basis in the third quarter and more frequently if circumstances indicate that the carrying value may not be recoverable. As part of our goodwill impairment test, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. For purposes of this assessment, we consider the enterprise to be the reporting unit. If we determine it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we will perform a two-step quantitative impairment test. The first step is to compare the fair value of our reporting unit to its carrying value. If step one indicates that an impairment may exist, the second step is performed to measure the amount impaired, if any. Impairment is recognized when the carrying amount of goodwill exceeds its fair value. We have not had any impairments of the goodwill balance.
Recent Accounting Pronouncements
In May 2014, as part of its ongoing efforts to assist in the convergence of GAAP and International Financial Reporting Standards ("IFRS"), the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09 related to revenue recognition. The guidance sets forth a new five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Since the issuance of ASU 2014-09, the FASB has also issued ASU 2016-08, ASU 2016-10 and ASU 2016-12, all of which clarify certain aspects of ASU 2014-09. ASU 2014-09 provides for retrospective or modified prospective methods of initial adoption and is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2016 and interim periods within those annual periods. We are currently evaluating the method of adoption and the impact that these standards will have on our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15 related to status as a going concern. The new guidance explicitly requires that management assess an entity's ability to continue as a going concern and may require additional detailed disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Though permitted, we do not plan to adopt this standard early. We do not believe that this standard will have an impact on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05 related to a customer's accounting for fees paid in a cloud computing arrangement. The new guidance requires that management evaluate each cloud computing arrangement

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in order to determine whether it includes a software license that must be accounted for separately from hosted services. ASU 2015-05 applies the same guidance cloud service providers use to make this determination and also eliminates the existing requirement for customers to account for software licenses they acquire by analogizing to the guidance on leases. ASU 2015-05 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015 and provides the option of applying the guidance prospectively to all arrangements entered into or materially modified after the effective date or on a retrospective basis. We adopted this standard prospectively in the first quarter of 2016. The adoption did not have a significant impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 related to lease accounting. The new guidance will require lessees to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases that do not meet the definition of a short-term lease. ASU 2016-02 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018 and requires modified retrospective transition. Early adoption is permitted. We are currently evaluating the impact that this standard will have on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09 related to stock-based compensation. The new guidance, which simplifies the accounting and presentation for share-based payments, provides for a number of amendments which impact the accounting for income taxes and the accounting for forfeitures. ASU 2016-09 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016 and requires varied adoption methods for each respective amendment. Though permitted, we do not plan to adopt this standard early. We are currently evaluating the impact that this standard will have on our consolidated financial statements.
Note 3. Business Combinations
On March 1, 2016, we acquired HyPer, a high-performance main-memory database system, for $16.4 million in cash. Through this acquisition, we acquired new technology, capable of enhancing our key products, and additional engineering talent. We have accounted for this transaction as a business combination, and allocated $1.8 million to the acquired technology intangible asset. The remaining purchase price was recorded to goodwill which is primarily attributable to the synergies between HyPer and our key products. No other assets or liabilities were identified as part of the acquisition. A portion of the goodwill balance associated with this transaction is deductible for U.S. income tax purposes.
Pro forma results of operations for this acquisition have not been presented as the effects were not material to our consolidated financial results.
Certain employees hired in conjunction with the acquisition receive restricted stock units ("RSUs"). These awards are subject to service conditions, and certain awards are also subject to the completion of a technology milestone. We will account for these awards as a post-business combination expense.
Note 4. Stockholders' Equity
Common Stock
Our certificate of incorporation, as amended and restated, authorizes us to issue 75,000,000 shares of Class B common stock, at $0.0001 par value per share, and 750,000,000 shares of Class A common stock, at $0.0001 par value per share. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each holder of Class B common stock is entitled to ten votes per share and each holder of Class A common stock is entitled to one vote per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder and are automatically converted upon sale or transfer to Class A common stock, subject to certain limited exceptions. At its discretion, the board of directors may declare dividends on shares of common stock, subject to the rights of our preferred stockholders, if any. Upon liquidation or dissolution, holders of common stock will receive distributions only after preferred stock preferences have been satisfied.
Preferred Stock
Our certificate of incorporation, as amended and restated, authorizes us to issue 10,000,000 shares of preferred stock at $0.0001 par value per share. Our board of directors has the authority to provide for the issuance of all the shares in one or more series. At its discretion, our board of directors may designate the voting rights and preferences of the preferred stock.

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Note 5. Stock-Based Compensation
Our 2004 Equity Incentive Plan (the "2004 Plan") authorized the granting of options to purchase shares of our Class B common stock, RSUs and other stock-based awards to our employees, consultants, officers and directors. Our 2013 Equity Incentive Plan, as amended, (the "2013 Plan" and, together with the 2004 Plan, the "Plans"), which was the successor to our 2004 Plan, authorizes the granting of options to purchase shares of our Class A common stock, RSUs and other stock-based awards to our employees, consultants, officers and directors. Options granted under the Plans may be incentive or nonstatutory stock options. Incentive stock options may only be granted to employees. The term of each option is stated in the award agreement, but shall be no more than ten years from the date of grant. The board of directors determines the period over which options and RSUs become vested. Currently, the vesting period for our options and RSUs is typically four years.
Our 2013 Employee Stock Purchase Plan ("2013 ESPP") allows eligible employees to purchase shares of our Class A common stock, at a discount, through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations. The 2013 ESPP currently includes purchase periods approximately six months in duration starting on the first trading date on or after June 1st and December 1st of each year. Participants are able to purchase shares of our common stock at 85% of the lower of its fair market value on (i) the first day of the purchase period or on (ii) the purchase date, which is the last day of the purchase period.
A summary of the option activity during the nine months ended September 30, 2016 is presented below:    
 
 
Options Outstanding
 
 
Shares
 
Weighted Average Exercise Price Per Share
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value
 
 
 
 
 
 
(in years)
 
(in thousands)
Balances at December 31, 2015
 
5,953,771

 
$
8.92

 
 
 
 
Options granted
 
75,000

 
54.87

 
 
 
 
Options exercised
 
(1,186,096
)
 
8.19

 
 
 
 
Options canceled
 
(287
)
 
57.87

 
 
 
 
Options forfeited
 
(90,862
)
 
23.83

 
 
 
 
Balances at September 30, 2016
 
4,751,526

 
$
9.53

 
5.41
 
$
217,321

Vested and expected to vest at September 30, 2016
 
4,751,489

 
$
9.53

 
5.41
 
$
217,320

Exercisable at September 30, 2016
 
4,391,379

 
$
8.38

 
5.27
 
$
205,899

RSUs entitle the holder to receive shares of Class A common stock as the award vests, which is generally based on length of service. The fair value of an RSU is determined by using the closing price of our Class A common stock as reported on the New York Stock Exchange on the date of grant. Our non-vested RSUs do not have nonforfeitable rights to dividends or dividend equivalents. The intrinsic value is the difference between the current fair value of the stock and the exercise price of the stock option.
For awards subject to technology milestones, we will recognize compensation cost over the required service period if it is probable that the technology milestone will be met. If our assessment of the probability of the technology milestone being met changes, we will recognize the impact of the change in estimate in the period of the change.

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A summary of the RSU activity during the nine months ended September 30, 2016 is presented below:
 
 
Number of Shares Underlying Outstanding RSUs
 
Weighted-Average Grant-Date Fair Value per RSU
Non-Vested outstanding at December 31, 2015
 
5,406,077

 
$
93.61

RSUs granted
 
4,207,257

 
44.54

RSUs vested
 
(1,421,083
)
 
93.42

RSUs forfeited
 
(496,327
)
 
72.76

Non-Vested outstanding at September 30, 2016
 
7,695,924

 
$
68.00

Stock-based compensation expense is amortized using the straight-line method over the requisite service period. As of September 30, 2016, total unrecognized compensation expense, adjusted for estimated forfeitures, related to stock options and non-vested RSUs was approximately $469.6 million which is expected to be recognized over a period of 2.8 years.
The summary of shares available for issuance of equity based awards (including stock options and RSUs) during the nine months ended September 30, 2016 is as follows:
 
 
Shares Available for Grant
 
 
2013 Plan
 
2013 ESPP
Balances at December 31, 2015
 
6,361,749

 
3,320,668

Authorized
 
3,660,223

 
732,044

Granted
 
(4,282,257
)
 
(262,668
)
Canceled
 
287

 

Forfeited
 
587,189

 

Balances at September 30, 2016
 
6,327,191

 
3,790,044

Note 6. Income Taxes
The income tax provision for interim periods is generally determined using an estimate of our annual effective tax rate, excluding jurisdictions for which no benefit can be recognized due to valuation allowance, and adjusted for discrete items, if any, in the relevant period. However, given current and expected operating activities during the year, estimating a reliable annual effective tax rate has become increasingly difficult. Even small changes in forecasted results can produce significant changes to our annual effective tax rate. Therefore, we have determined that the actual year to date effective tax rate is the best estimate for the reporting period ended September 30, 2016. We will continue to utilize this methodology until reliable estimates of the annual effective tax rate can be made.
Our effective tax rate is impacted by and differs from the federal statutory rate primarily due to non-deductible stock-based compensation and the adverse effect of losses incurred in certain jurisdictions for which we do not realize a tax benefit. Our effective tax rate may also be adversely impacted by the amount of our income (loss) before income tax expense (benefit) relative to our income tax expense, non-deductible expenses and changes in tax law.
Our effective tax rate was (6.0)% and (3.2)% for the three months ended September 30, 2016 and 2015, respectively, and (3.6)% and 2.7% for the nine months ended September 30, 2016 and 2015, respectively. The difference in the effective tax rates is attributable to the U.S. federal and state deferred tax asset valuation allowance that was established in the fourth quarter of 2015 and period specific items that impacted the September 30, 2015 effective tax rate, related primarily to disqualifying dispositions on incentive stock options.
During the nine months ended September 30, 2016, we recognized income tax expense of $4.2 million primarily attributable to taxes in foreign jurisdictions. There was no domestic income tax benefit recorded in the current period due to our U.S. federal and state deferred tax asset valuation allowance. During the nine months ended September 30, 2015, we recognized an income tax benefit of $1.2 million, which included $1.7 million of discrete tax benefits relating to disqualifying dispositions of incentive stock options.

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On July 27, 2015, the U.S. Tax Court issued an opinion related to litigation in Altera Corp v. Commissioner. This litigation relates to the treatment of stock-based compensation expense in an intercompany cost sharing arrangement with one of Altera's foreign subsidiaries. In its opinion, the U.S. Tax Court invalidated the portion of the Treasury regulations requiring the inclusion of stock-based compensation expense in such intercompany cost-sharing arrangements. On February 19, 2016, the IRS appealed the U.S. Tax Court's decision. As the final resolution of this litigation remains uncertain we have not recorded potentially favorable benefits related to the current or prior periods. We will continue to monitor developments related to this case and the potential impact of those developments on our current and future financial statements.
Note 7. Commitments and Contingencies
Operating Lease Commitments    
As of September 30, 2016, our principal obligations consisted of obligations outstanding under non-cancellable operating leases that expire at various dates through 2029. There have been no material changes in our principal lease commitments compared to those discussed in Note 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Contractual Commitments
Our contractual commitments are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the transaction. Obligations under contracts that we can cancel without a significant penalty are not included. There have been no material changes in our contractual commitments compared to those discussed in Note 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Legal Proceedings
We are subject to certain routine legal proceedings, as well as demands and claims that arise in the normal course of our business. We make a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter.
We are not aware of any pending legal proceedings that we believe, individually or in the aggregate, would be expected to have a material adverse effect on our business, operating results, or financial condition. We may, in the future, be party to litigation arising in the ordinary course of business, including claims that we allegedly infringe upon third party intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of significant financial and management resources.
Note 8. Segments and Information about Revenues by Geographic Area
The following table presents our revenues by geographic region of end users who purchased products or services for the periods presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
United States and Canada
$
147,820

 
$
128,667

 
$
412,946

 
$
340,229

International
58,237

 
42,165

 
163,344

 
110,608

Total revenues
$
206,057

 
$
170,832

 
$
576,290

 
$
450,837


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Note 9. Net Loss Per Share
The following table presents the computation of basic and diluted net loss per share:    
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands, except per share amounts)
Net loss per share - basic and diluted
 
 
 
 
 
 
 
Net loss
$
(30,261
)
 
$
(13,373
)
 
$
(123,361
)
 
$
(42,379
)
Weighted average shares outstanding used to compute basic and diluted net loss per share
75,647

 
72,089

 
74,743

 
71,341

Net loss per share - basic and diluted
$
(0.40
)
 
$
(0.19
)
 
$
(1.65
)
 
$
(0.59
)

The following shares subject to outstanding awards were excluded from the computation of diluted net loss per share for the periods presented as their effect would have been antidilutive:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Shares subject to outstanding common stock awards
12,717

 
11,431

 
12,717

 
11,431

Note 10. Fair Value Measurements
We categorize assets and liabilities recorded at fair value based upon the level of judgment associated with inputs used to measure their fair value. The levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3—Inputs are unobservable inputs based on our own assumptions and valuation techniques used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.
Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
The following table presents the fair value of our financial assets using the fair value hierarchy:
 
 
September 30, 2016
Description
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in thousands)
Money market funds
 
$
826,173

 
$

 
$

 
$
826,173

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
Description
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in thousands)
Money market funds
 
$
736,806

 
$

 
$

 
$
736,806

We did not have any investments in prime money market funds as of September 30, 2016. We have no material financial assets or liabilities measured using Level 2 or Level 3 inputs.


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Note 11. Subsequent Events
On October 27, 2016, our board of directors authorized a stock repurchase program whereby we can repurchase up to $200 million of our outstanding Class A common stock.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC"), on February 25, 2016.
Special Note Regarding Forward-Looking Statements
This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "seek," "should," "strategy," "target," "will," "would" and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included under Part II, Item 1A of this report. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Tableau and Tableau Software are trademarks of Tableau Software, Inc. All other company and product names may be trademarks of the respective companies with which they are associated.
Overview
Our mission is to help people see and understand data. Our software products put the power of data into the hands of everyday people, allowing a broad population of business users to engage with their data, ask questions, solve problems and create value. Based on innovative core technologies originally developed at Stanford University, our products dramatically reduce the complexity, inflexibility and expense associated with traditional business intelligence applications. We currently offer five key products: Tableau Desktop, a self-service powerful analytics product for anyone with data; Tableau Server, a business intelligence platform for organizations; Tableau Online, a hosted software-as-a-service ("SaaS") version of Tableau Server; Tableau Public, a free cloud-based platform for analyzing and sharing public data; and Vizable, a free application used to easily analyze data on a tablet.
We have sought to rapidly improve the capabilities of our products over time and intend to continue to invest in product innovation and leadership. We were founded in January 2003 and we introduced Tableau Desktop in December 2003, our first version of Tableau Server in March 2007, our first version of Tableau Public in February 2010, our first version of Tableau Online in July 2013 and our first version of Vizable in October 2015. Building on our foundational technology innovations, we have released ten major versions of our software, each expanding and improving our products' capabilities. Our most recent major release, Tableau 10, delivers new design and analytical innovations that make interacting with data on the web, mobile or in the enterprise faster and easier. Additional capabilities include cross-database joins to bring together disparate data sources, advanced analytics improvements like drag and drop clustering, a device designer for mobile responsive dashboards design and support for additional data sources.
Our products are used by people of diverse skill levels across all kinds of organizations, including Fortune 500 corporations, small and medium-sized businesses, government agencies, universities, research institutions and non-profits. As of September 30, 2016, we had over 50,000 customer accounts. We define a customer account as a single purchaser of our products. Customer accounts are typically organizations. In some cases, organizations will have multiple groups purchasing our software, which we count as discrete customer accounts.
Our distribution strategy is based on a land and expand business model and is designed to capitalize on the ease of use, low up-front cost and collaborative capabilities of our software. To facilitate rapid adoption of our products, we provide fully-functional free trial versions of our products on our website and have created a simple pricing model. After an initial trial or purchase, which is often made to target a specific business need at a

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grassroots level within an organization, the use of our products often spreads across departments, divisions and geographies via word-of-mouth, discovery of new use cases and our sales efforts.
We generate revenues primarily in the form of license fees and related maintenance and services fees. License revenues consist of the revenues recognized from sales of licenses to new customers and additional licenses to existing customers and include perpetual, term and subscription licensing arrangements. Fees from perpetual licenses comprised over 85% of our license revenues for the three months ended September 30, 2016 and over 90% for the nine months ended September 30, 2016. Fees from term and subscription licenses have increased as a percentage of total revenues in recent periods and include license revenues from Tableau Online, enterprise license agreements, term license sales and OEM arrangements which are all recognized on a ratable basis. We expect revenues from term and subscription licenses to continue to become a larger percentage of our total revenues as demand from our customer base shifts to cloud-based and subscription products and as our customers enter into additional enterprise license agreements. Due to the differences in revenue recognition principles, applied to perpetual versus term or subscription license sales, shifts in the mix of term and subscription licenses could produce significant variation in the revenue we recognize in a given period. Maintenance and services revenues reflect the revenues recognized from fees paid for maintenance services (including support and unspecified upgrades and enhancements when and if they are available) and, to a lesser extent, for training and professional services that help our customers maximize the benefits from using our products. A substantial majority of our maintenance and services revenues to date have been attributable to revenues from maintenance agreements which are recognized ratably. When purchasing a perpetual license, a customer typically also purchases one year of maintenance service and has the opportunity to renew maintenance service annually thereafter. We expect that maintenance and services revenues will continue to become a larger percentage of our total revenues as our customer base grows. In combination with the shifts in term and subscription license sales, we expect that a larger proportion of our total revenues in the future will be recognized from ratable sources, resulting in revenues that are more recurring and predictable.
Our direct sales approach includes inside sales teams and field sales teams. We also sell our products through indirect sales channels including technology vendors, resellers, original equipment manufacturers and independent software vendors. We view these partners as an extension of our team, playing an integral role in our growth. We plan to continue to invest in our partner programs to help us enter and grow in new markets while complementing our direct sales efforts.
With approximately 28% of our total revenues from customers located outside the United States and Canada for each of the three and nine months ended September 30, 2016, we believe there is significant opportunity to expand our international business. Our products currently support eight languages, and we are expanding our direct sales force and indirect sales channels internationally.
Our quarterly results reflect seasonality in the sale of our products and services. Historically, we believe a pattern of increased license sales in the fourth fiscal quarter as a result of industry buying patterns has positively impacted total revenues in that period, which has resulted in low or negative sequential revenue growth in the first quarter compared to the prior quarter.
We continue to expand our customer base. As of September 30, 2016, we had over 50,000 customer accounts as compared to over 35,000 customer accounts as of September 30, 2015.
During the three and nine months ended September 30, 2016, we closed 360 and 960 sales transactions greater than $100,000, respectively, compared to 296 and 778 during the three and nine months ended September 30, 2015, respectively. We anticipate that the quantity of sales transactions greater than $100,000 will fluctuate on a quarter by quarter basis.
During the three and nine months ended September 30, 2016, we continued to increase the size of our workforce, particularly in our sales and marketing and research and development ("R&D") organizations. We continued to grow internationally and invest in our operational infrastructure to support our growth. We incurred net losses in the three and nine months ended September 30, 2016. Our net losses for the three and nine months ended September 30, 2016 were $30.3 million and $123.4 million, respectively, compared to net losses of $13.4 million and $42.4 million for the three and nine months ended September 30, 2015, respectively.
On November 1, 2016, we announced that our board of directors approved a stock repurchase program, under which we may repurchase up to $200 million of our outstanding Class A common stock. We expect to fund the stock repurchase program with cash on hand and future cash from operations.

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Factors Affecting Our Performance
We believe that our performance and future success are dependent upon a number of factors, including our ability to continue to expand and further penetrate our customer base, innovate and enhance our products and invest in our infrastructure. While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must successfully address. See the section of this report titled "Item 1A. Risk Factors."
Investment in Expansion and Further Penetration of Our Customer Base
Our performance depends on our ability to continue to attract new customers and to increase adoption of our products within our existing customer base, both domestically and internationally. Our ability to increase adoption among existing customers is particularly important to our land and expand business model. We believe that the existing market for analytics software is underserved and that we have an addressable market that is substantially larger than the market for traditional business analytics software. As a result, we believe we have the opportunity to expand our customer base and to increase adoption of our products within and across our existing customers.
In order to expand and further penetrate our customer base, we have made and plan to continue to make investments in expanding our direct sales teams and indirect sales channels and increasing our brand awareness. We plan to continue to increase the size of our sales and marketing team domestically and internationally. We also intend to continue to expand our online and offline marketing efforts to increase our brand awareness.
Investment in Innovation and Advancement of Our Products
Our performance is also dependent on the investments we make in our R&D efforts and in our ability to continue to innovate, improve functionality, adapt to new technologies or changes to existing technologies and allow our customers to analyze data from a large and expanding range of data stores. We intend to continue to invest in product innovation and leadership, including hiring top technical talent, focusing on core technology innovation and maintaining an agile organization that supports rapid release cycles.
Investment in Infrastructure
We have made and expect to continue to make investments in our infrastructure in connection with enhancing and expanding our operations domestically and internationally. We expect to continue to open new offices internationally and domestically. Our international expansion efforts have resulted and will result in increased costs and are subject to a variety of risks including those associated with communication and integration problems resulting from geographic dispersion and language and cultural differences as well as those associated with compliance with laws of multiple countries. Moreover, the investments we have made and will make in our international organization may not result in our expected benefits. We expect to rely on our current cash on hand and cash generated from our operations to fund these investments. These costs could adversely affect our operating results.
Mix and Timing of Sales
Our land and expand business model results in a wide variety of sales transaction sizes, ranging from a single Tableau Online order of $500 to a Tableau Desktop order of $1,000 - $2,000 to Tableau Desktop and Tableau Server orders of over $1.0 million. The time it takes to close a transaction, defined as the time between when a sales opportunity is entered in our customer relationship management system until when a related license agreement is signed with the customer, generally varies with the size of the transaction. Our enterprise license agreements generally have more extended sales cycles and take longer to close.
Components of Operating Results
Revenues
License revenues.  License revenues consist of the revenues recognized from sales of licenses to new customers and additional licenses to existing customers. Over 85% of our license revenues for the three months ended September 30, 2016 and over 90% for the nine months ended September 30, 2016 resulted from perpetual licenses, under which we generally recognize the license fee portion of the arrangement upfront, assuming all revenue recognition criteria are satisfied and we have vendor specific objective evidence of all undelivered elements. Term and subscription licenses, which include Tableau Online, enterprise license agreements, term license sales and OEM arrangements, are recognized ratably, on a straight-line basis, over the term of the license. We expect revenues from term and subscription licenses to continue to become a larger percentage of our total revenues. Due to the differences in revenue recognition principles, applied to perpetual versus term or subscription

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license sales, shifts in the mix of term and subscription licenses could produce significant variation in the revenue we recognize in a given period.
Maintenance and services revenues.  Maintenance and services revenues consist of revenues from maintenance agreements and, to a lesser extent, professional services and training. A substantial majority of our maintenance and services revenues to date has been attributable to revenues from maintenance agreements which are recognized ratably. When purchasing a perpetual license, a customer typically also purchases one year of maintenance service and has the opportunity to renew maintenance service annually thereafter. We currently charge approximately 25% of the price of the perpetual license for each year of maintenance service, although this price may vary with regard to large enterprise sales. We measure the aggregate perpetual license maintenance renewal rate for our customers over a 12-month period of time, based on a dollar renewal rate for contracts expiring during that time period. Our maintenance renewal rate is measured three months after the 12-month period ends to account for late renewals. Our aggregate maintenance renewal rate for the 12-month period ended June 30, 2016 was over 90%.
Customers with maintenance agreements are entitled to receive support and unspecified upgrades and enhancements if and when they become available during the maintenance term. We recognize the revenues associated with maintenance agreements ratably, on a straight-line basis, over the associated maintenance term.
When a term or subscription license is purchased, maintenance service is bundled with the license for the term of the license period. In arrangements involving a term or subscription license, we recognize both the license and maintenance revenues ratably, on a straight-line basis, over the contract term. Term and subscription license revenues are included in license revenues.
We also have a professional services organization focused on both training and assisting our customers to fully leverage the use of our products. We recognize the revenues associated with these professional services on a time and materials basis as we deliver the services or provide the training.
We expect that maintenance and services revenues will continue to become a larger percentage of our total revenues as our customer base grows.
Cost of Revenues
Cost of license revenues.  Cost of license revenues primarily consists of referral fees paid to third parties, expenses related to hosting our SaaS-based Tableau Online service, amortization of acquired intangible assets and other costs including providing support and allocated overhead. Allocated overhead includes overhead costs for depreciation of equipment, facilities (consisting of leasehold improvements amortization and rent) and technical operations (including costs for compensation of our personnel and costs associated with our infrastructure). We expect that the cost of license revenues will increase as a percentage of license revenues as we continue to invest in our Tableau Online infrastructure.
Cost of maintenance and services revenues.  Cost of maintenance and services revenues includes salaries, benefits and stock-based compensation expense associated with our technical support and services organization, as well as allocated overhead, which includes facilities related costs. We recognize expenses related to our technical support and services organization as they are incurred.
Gross Profit and Gross Margin
Gross profit is total revenues less total cost of revenues. Total gross margin is gross profit expressed as a percentage of total revenues. We expect that our total gross margin will decrease as we continue to invest in our Tableau Online infrastructure.
Operating Expenses
Our operating expenses are classified into three categories: sales and marketing, research and development, and general and administrative. For each category, the largest component is personnel costs, which include salaries, payroll taxes, employee benefit costs, bonuses, commissions, as applicable and stock-based compensation expense.
Sales and marketing.  Sales and marketing expenses primarily consist of personnel-related costs attributable to our sales and marketing personnel, commissions earned by our sales personnel, marketing, travel and allocated overhead, which includes facilities related costs. We expect sales and marketing expenses to continue to increase, in absolute dollars, for the remainder of 2016 compared to 2015 primarily due to growth in our sales and marketing organization, both domestically and internationally. We expect sales and marketing expenses to be our largest category of operating expenses as we continue to expand our business.

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Research and development.  R&D expenses primarily consist of personnel-related costs attributable to our R&D personnel and contractors, as well as allocated overhead, which includes facilities related costs. We have devoted our product development efforts primarily to incorporate additional features, improve functionality, support additional languages, develop new products and adapt to new technologies or changes to existing technologies. We expect that our R&D expenses will continue to increase, in absolute dollars, for the remainder of 2016 compared to 2015 as we increase our R&D headcount to further enhance and develop our products.
General and administrative.  General and administrative expenses primarily consist of personnel-related costs attributable to our executive, finance, legal, human resources and administrative personnel, as well as outsourced legal, accounting and other professional services fees and allocated overhead, which includes facilities related costs. We expect that general and administrative expenses will continue to increase, in absolute dollars, for the remainder of 2016 compared to 2015 as we further expand our operations both domestically and internationally.
Other Income (Expense), Net
Other income (expense), net consists primarily of gains and losses on foreign currency transactions and interest income on our cash and cash equivalents balances.
Income Tax Expense (Benefit)
Our income taxes are based on the amount of our taxable income and enacted federal, state and foreign tax rates, as adjusted for allowable credits and deductions. Our provision for income taxes consists of federal, state and foreign taxes.
We generally conduct our international operations through wholly-owned subsidiaries, branches and representative offices and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our corporate structure and intercompany arrangements align with the international expansion of our business activities. The application of the tax laws of various jurisdictions, including the United States, to our international business activities is subject to interpretation. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing, or determine 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 lower overall profitability of our operations. Additionally, our future worldwide tax rate and financial position may be affected by changes in the relevant tax laws, interpretation of such tax laws or the influence of certain tax policy efforts of the European Union and the Organization for Economic Co-operation and Development (OECD).
Our income tax provision may be significantly affected by changes to our estimates for taxes in jurisdictions in which we operate and other estimates utilized in determining our global effective tax rate. Actual results may also differ from our estimates based on changes in tax laws and economic conditions. Such changes could have a substantial impact on the income tax provision and effective income tax rate.
We are subject to the continuous examinations of our income tax returns by the taxing authorities in various tax jurisdictions, which authorities may assess additional income tax liabilities against us. Although we believe our tax estimates are reasonable, the final outcome of tax audits and any related litigation could be materially different from our historical income tax provisions. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows could be affected.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K, filed with the SEC on February 25, 2016.

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Recent Accounting Pronouncements
The anticipated impact of recent accounting pronouncements is discussed in Note 2 to the accompanying notes to the condensed consolidated financial statements of this Quarterly Report on Form 10-Q.

20

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Results of Operations
The following tables set forth our results of operations for the periods presented and as a percentage of our total revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Condensed Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
License
$
116,655

 
$
109,468

 
$
329,419

 
$
290,629

Maintenance and services
89,402

 
61,364

 
246,871

 
160,208

Total revenues
206,057

 
170,832

 
576,290

 
450,837

Cost of revenues
 
 
 
 
 
 
 
License
1,760

 
988

 
4,393

 
2,337

Maintenance and services
22,270

 
18,888

 
66,994

 
49,713

Total cost of revenues (1)
24,030

 
19,876

 
71,387

 
52,050

Gross profit
182,027

 
150,956

 
504,903

 
398,787

Operating expenses
 
 
 
 
 
 
 
Sales and marketing (1)
114,530

 
91,589

 
340,583

 
248,840

Research and development (1)
75,348

 
54,960

 
223,757

 
144,143

General and administrative (1)
21,505

 
17,584

 
63,178

 
50,753

Total operating expenses
211,383

 
164,133

 
627,518

 
443,736

Operating loss
(29,356
)
 
(13,177
)
 
(122,615
)
 
(44,949
)
Other income, net
814

 
217

 
3,496

 
1,404

Loss before income tax expense (benefit)
(28,542
)
 
(12,960
)
 
(119,119
)
 
(43,545
)
Income tax expense (benefit)
1,719

 
413

 
4,242

 
(1,166
)
Net loss
$
(30,261
)
 
$
(13,373
)
 
$
(123,361
)
 
$
(42,379
)

(1) Includes stock-based compensation expense as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Cost of revenues
$
2,614

 
$
1,856

 
$
8,060

 
$
4,804

Sales and marketing
17,487

 
11,966

 
51,037

 
31,265

Research and development
23,372

 
14,826

 
67,880

 
37,374

General and administrative
3,910

 
2,925

 
10,977

 
8,834




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Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(as a percentage of total revenues)
Condensed Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
License
56.6
 %
 
64.1
 %
 
57.2
 %
 
64.5
 %
Maintenance and services
43.4
 %
 
35.9
 %
 
42.8
 %
 
35.5
 %
Total revenues
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of revenues
 
 
 
 
 
 
 
License
0.9
 %
 
0.6
 %
 
0.8
 %
 
0.5
 %
Maintenance and services
10.8
 %
 
11.1
 %
 
11.6
 %
 
11.0
 %
Total cost of revenues
11.7
 %
 
11.6
 %
 
12.4
 %
 
11.5
 %
Gross profit
88.3
 %
 
88.4
 %
 
87.6
 %
 
88.5
 %
Operating expenses
 
 
 
 
 
 
 
Sales and marketing
55.6
 %
 
53.6
 %
 
59.1
 %
 
55.2
 %
Research and development
36.6
 %
 
32.2
 %
 
38.8
 %
 
32.0
 %
General and administrative
10.4
 %
 
10.3
 %
 
11.0
 %
 
11.3
 %
Total operating expenses
102.6
 %
 
96.1
 %
 
108.9
 %
 
98.4
 %
Operating loss
(14.2
)%
 
(7.7
)%
 
(21.3
)%
 
(10.0
)%
Other income, net
0.4
 %
 
0.1
 %
 
0.6
 %
 
0.3
 %
Loss before income tax expense (benefit)
(13.9
)%
 
(7.6
)%
 
(20.7
)%
 
(9.7
)%
Income tax expense (benefit)
0.8
 %
 
0.2
 %
 
0.7
 %
 
(0.3
)%
Net loss
(14.7
)%
 
(7.8
)%
 
(21.4
)%
 
(9.4
)%



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Comparison of Three and Nine Months Ended September 30, 2016 and 2015
Revenues
 
Three Months Ended September 30,
 

 
Nine Months Ended September 30,
 
 
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Revenues
(dollars in thousands)
License
$
116,655

 
$
109,468

 
6.6
%
 
$
329,419

 
$
290,629

 
13.3
%
Maintenance and services
89,402

 
61,364

 
45.7
%
 
246,871

 
160,208

 
54.1
%
Total revenues
$
206,057

 
$
170,832

 
20.6
%
 
$
576,290

 
$
450,837

 
27.8
%
Total revenues were $206.1 million for the three months ended September 30, 2016 compared to $170.8 million for the three months ended September 30, 2015, an increase of $35.2 million. Growth in total revenues was attributable to increased demand for our products and services from new and existing customers both domestically and internationally. We added over 3,600 new customer accounts in the three months ended September 30, 2016. License revenues increased $7.2 million from the three months ended September 30, 2015 compared to the three months ended September 30, 2016 as a direct result of our investment in our products and in our sales and marketing efforts. Over 85% of our license revenues for the three months ended September 30, 2016 was attributable to sales of perpetual licenses. Maintenance and services revenues increased $28.0 million from the three months ended September 30, 2015 compared to the three months ended September 30, 2016. The increase in maintenance and services revenues was primarily due to increases in sales of maintenance agreements resulting from the growth of our customer base. Total revenues derived from our customer accounts outside of the United States and Canada increased, as a percentage of total revenues, to 28% for the three months ended September 30, 2016 from 25% for the three months ended September 30, 2015.
Total revenues were $576.3 million for the nine months ended September 30, 2016 compared to $450.8 million for the nine months ended September 30, 2015, an increase of $125.5 million. Growth in total revenues was attributable to increased demand for our products and services from new and existing customers both domestically and internationally. We added over 11,000 new customer accounts in the nine months ended September 30, 2016. License revenues increased $38.8 million from the nine months ended September 30, 2015 compared to the nine months ended September 30, 2016 as a direct result of our investment in our products and in our sales and marketing efforts. Over 90% of our license revenues for the nine months ended September 30, 2016 was attributable to sales of perpetual licenses. Maintenance and services revenues increased $86.7 million from the nine months ended September 30, 2015 compared to the nine months ended September 30, 2016. The increase in maintenance and services revenues was primarily due to increases in sales of maintenance agreements resulting from the growth of our customer base. Total revenues derived from our customer accounts outside of the United States and Canada increased, as a percentage of total revenues, to 28% for the nine months ended September 30, 2016 from 25% for the nine months ended September 30, 2015.
Cost of Revenues and Gross Margin
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Cost of revenues
(dollars in thousands)
License
$
1,760

 
$
988

 
78.1
%
 
$
4,393

 
$
2,337

 
88.0
%
Maintenance and services
22,270

 
18,888

 
17.9
%
 
66,994

 
49,713

 
34.8
%
Total cost of revenues
$
24,030

 
$
19,876

 
20.9
%
 
$
71,387

 
$
52,050

 
37.2
%


23

Table of Contents

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Gross Margin
 
 
 
 
 
License
98.5
%
 
99.1
%
 
98.7
%
 
99.2
%
Maintenance and services
75.1
%
 
69.2
%
 
72.9
%
 
69.0
%
Total gross margin
88.3
%
 
88.4
%
 
87.6
%
 
88.5
%
 
 
 
 
 
 
 
 
Total cost of revenues was $24.0 million for the three months ended September 30, 2016 compared to $19.9 million for the three months ended September 30, 2015. The increase of $4.2 million was largely related to an increase in compensation expense of $1.9 million, which includes a $0.8 million increase in stock-based compensation, primarily resulting from headcount growth to support maintenance and services provided to our expanding customer base. The remainder of the increase was primarily attributable to a $1.9 million increase in allocated overhead, which includes facilities related costs. The slight decrease in total gross margin for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 was primarily due to continued investment in hosting Tableau Online.
Total cost of revenues was $71.4 million for the nine months ended September 30, 2016 compared to $52.1 million for the nine months ended September 30, 2015. The increase of $19.3 million was largely related to an increase in compensation expense of $10.9 million, which includes a $3.3 million increase in stock-based compensation, primarily resulting from headcount growth to support maintenance and services provided to our expanding customer base. The remainder of the increase was primarily attributable to a $6.4 million increase in allocated overhead, which includes facilities related costs. The decrease in total gross margin for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was primarily due to continued investment in hosting Tableau Online.
Operating Expenses
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Operating expenses
(dollars in thousands)
Sales and marketing
$
114,530

 
$
91,589

 
25.0
%
 
$
340,583

 
$
248,840

 
36.9
%
Research and development
75,348

 
54,960

 
37.1
%
 
223,757

 
144,143

 
55.2
%
General and administrative
21,505

 
17,584

 
22.3
%
 
63,178

 
50,753

 
24.5
%
Total operating expenses
$
211,383

 
$
164,133

 
28.8
%
 
$
627,518

 
$
443,736

 
41.4
%
Sales and Marketing
Sales and marketing expenses were $114.5 million for the three months ended September 30, 2016 compared to $91.6 million for the three months ended September 30, 2015. The increase of $22.9 million was largely related to an increase in compensation expense of $17.9 million, which includes a $5.5 million increase in stock-based compensation, primarily resulting from headcount growth as we expanded our sales organization both domestically and internationally. The remainder of the increase was primarily attributable to a $4.8 million increase in allocated overhead, which includes facilities related costs.
Sales and marketing expenses were $340.6 million for the nine months ended September 30, 2016 compared to $248.8 million for the nine months ended September 30, 2015. The increase of $91.7 million was largely related to an increase in compensation expense of $69.8 million, which includes a $19.8 million increase in stock-based compensation, primarily resulting from headcount growth as we expanded our sales organization both domestically and internationally. The remainder of the increase was primarily attributable to a $14.6 million increase in allocated overhead, which includes facilities related costs, and a $5.6 million increase in additional marketing and travel costs for marketing promotions, customer events and advertising that promoted our brand and created market awareness for our technology offerings both domestically and internationally.

24

Table of Contents

Research and Development
R&D expenses were $75.3 million for the three months ended September 30, 2016 compared to $55.0 million for the three months ended September 30, 2015. The increase of $20.4 million was largely related to an increase in compensation expense of $16.9 million, which includes a $8.5 million increase in stock-based compensation, primarily resulting from headcount growth as part of our focus on further developing and enhancing our products. The remainder of the increase was primarily attributable to a $3.5 million increase in allocated overhead, which includes facilities related costs.
R&D expenses were $223.8 million for the nine months ended September 30, 2016 compared to $144.1 million for the nine months ended September 30, 2015. The increase of $79.6 million was largely related to an increase in compensation expense of $68.3 million, which includes a $30.5 million increase in stock-based compensation, primarily resulting from headcount growth as part of our focus on further developing and enhancing our products. The remainder of the increase was primarily attributable to a $10.9 million increase in allocated overhead, which includes facilities related costs.
General and Administrative
General and administrative expenses were $21.5 million for the three months ended September 30, 2016 compared to $17.6 million for the three months ended September 30, 2015. The increase of $3.9 million was largely related to an increase in compensation expense of $3.2 million, which includes a $1.0 million increase in stock-based compensation, primarily resulting from headcount growth to support our expansion both domestically and internationally. The remainder of the increase was primarily attributable to a $0.8 million increase in allocated overhead, which includes facilities related costs.
General and administrative expenses were $63.2 million for the nine months ended September 30, 2016 compared to $50.8 million for the nine months ended September 30, 2015. The increase of $12.4 million was largely related to an increase in compensation expense of $8.9 million, which includes a $2.1 million increase in stock-based compensation, primarily resulting from headcount growth to support our expansion both domestically and internationally. The remainder of the increase was primarily attributable to a $2.7 million increase in allocated overhead, which includes facilities related costs.
Other Income, Net
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Other income, net
$
814

 
$
217

 
$
3,496

 
$
1,404

Other income, net for the three and nine months ended September 30, 2016 increased primarily due to an increase in interest income as well as an increase in gains associated with foreign currency transactions.
Income Tax Expense (Benefit)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(dollars in thousands)
Income tax expense (benefit)
$
1,719

 
$
413

 
$
4,242

 
$
(1,166
)
Effective tax rate
(6.0
)%
 
(3.2
)%
 
(3.6
)%
 
2.7
%
Period specific items
$

 
$
(560
)
 
$

 
$
(1,994
)
Our effective tax rate was (6.0)% and (3.2)% for the three months ended September 30, 2016 and 2015, respectively, and (3.6)% and 2.7% for the nine months ended September 30, 2016 and 2015, respectively. The difference in the effective tax rates is attributable to the U.S. federal and state deferred tax asset valuation allowance that was established in the fourth quarter of 2015 and period specific items that impacted the September 30, 2015 effective tax rate, related primarily to disqualifying dispositions on incentive stock options.

25

Table of Contents

Non-GAAP Financial Measures
We believe that the use of non-GAAP gross profit and gross margin, non-GAAP operating income (loss) and operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per basic and diluted common share and free cash flow is helpful to our investors. These measures, which we refer to as our non-GAAP financial measures, are not prepared in accordance with GAAP. Non-GAAP gross profit is calculated by excluding stock-based compensation expense and expense related to amortization of acquired intangible assets, each to the extent attributable to the cost of revenues, from gross profit. Non-GAAP gross margin is the ratio calculated by dividing non-GAAP gross profit by total revenues. Non-GAAP operating income (loss) is calculated by excluding stock-based compensation expense and expense related to amortization of acquired intangible assets from operating income (loss). Non-GAAP operating margin is the ratio calculated by dividing non-GAAP operating income (loss) by total revenues. Non-GAAP net income (loss) is calculated by excluding stock-based compensation expense, expense related to amortization of acquired intangible assets and non-GAAP income tax adjustments from net income (loss). Non-GAAP net income (loss) per basic and diluted common share is calculated by dividing non-GAAP net income (loss) by the basic and diluted weighted average shares outstanding. Non-GAAP diluted weighted average shares outstanding includes the effect of dilutive shares in periods of non-GAAP net income.
Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our estimated tax rate on non-GAAP income over a three-year financial projection. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures. To determine this long-term non-GAAP tax rate, we evaluate a three-year financial projection that excludes the impact of non-cash stock-based compensation expense and expense related to amortization of acquired intangible assets. The long-term non-GAAP tax rate takes into account other factors including our current operating structure, our existing tax positions in various jurisdictions and key legislation in major jurisdictions where we operate. The long-term non-GAAP tax rate applied to the three and nine months ended September 30, 2015 was 43% and did not assume the U.S. federal R&D tax credit would be extended. In December 2015, the federal R&D tax credit was permanently extended. Accordingly, we revised our long-term non-GAAP tax rate to 30% and applied this rate to the three and nine months ended September 30, 2016. The long-term non-GAAP tax rate assumes our deferred income tax assets will be realized based upon projected future taxable income excluding stock-based compensation expense. We anticipate using this long-term non-GAAP tax rate in future periods and may provide updates to this rate on an annual basis upon the completion of each fiscal year, or more frequently if material changes occur.
Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company's non-cash expenses, we believe that providing non-GAAP financial measures that exclude stock-based compensation expense allows for more meaningful comparisons between our operating results from period to period. The expense related to amortization of acquired intangible assets is dependent upon estimates and assumptions, which can vary significantly and are unique to each asset acquired; therefore, we believe non-GAAP measures that adjust for the amortization of acquired intangible assets provides investors a consistent basis for comparison across accounting periods. All of these non-GAAP financial measures are important tools for financial and operational decision making and for evaluating our operating results over different periods of time.
We calculate free cash flow as net cash provided by operating activities less net cash used in investing activities for purchases of property and equipment. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business, making strategic acquisitions and strengthening our balance sheet. All of our non-GAAP financial measures are important tools for financial and operational decision-making and for evaluating our own operating results over different periods of time.
Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact on our reported financial results. Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge our investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below and not to rely on any single financial measure to evaluate our business.

26

Table of Contents

The following table summarizes our non-GAAP financial measures:    
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(dollars in thousands)
Non-GAAP gross profit
$
184,736

 
$
152,812

 
$
513,190

 
$
403,591

Non-GAAP gross margin
89.7
%
 
89.5
%
 
89.1
%
 
89.5
%
Non-GAAP operating income
$
18,122

 
$
18,396

 
$
15,566

 
$
37,328

Non-GAAP operating margin
8.8
%
 
10.8
%
 
2.7
%
 
8.3
%
Non-GAAP net income
$
13,255

 
$
10,609

 
$
13,343

 
$
22,077

Free cash flow (1)
 
 
 
 
$
63,800

 
$
50,429

(1) Free cash flow presented on a nine month basis only.    
The following table presents the reconciliation of gross profit to non-GAAP gross profit:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Gross profit
$
182,027

 
$
150,956

 
$
504,903

 
$
398,787

Excluding: Stock-based compensation expense attributable to cost of revenues
2,614

 
1,856

 
8,060

 
4,804

Excluding: Amortization of acquired intangible assets
95

 

 
227

 

Non-GAAP gross profit
$
184,736

 
$
152,812

 
$
513,190

 
$
403,591

The following table presents the reconciliation of gross margin to non-GAAP gross margin:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
Gross margin
88.3
%
 
88.4
%
 
87.6
%
 
88.5
%
Excluding: Stock-based compensation expense attributable to cost of revenues
1.3
%
 
1.1
%
 
1.4
%
 
1.1
%
Excluding: Amortization of acquired intangible assets
0.0
%
 
%
 
0.0
%
 
%
Non-GAAP gross margin
89.7
%
 
89.5
%
 
89.1
%
 
89.5
%
The following table presents the reconciliation of operating loss to non-GAAP operating income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Operating loss
$
(29,356
)
 
$
(13,177
)
 
$
(122,615
)
 
$
(44,949
)
Excluding: Stock-based compensation expense
47,383

 
31,573

 
137,954

 
82,277

Excluding: Amortization of acquired intangible assets
95

 

 
227

 

Non-GAAP operating income
$
18,122

 
$
18,396

 
$
15,566

 
$
37,328


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Table of Contents

The following table presents the reconciliation of operating margin to non-GAAP operating margin:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
Operating margin
(14.2
)%
 
(7.7
)%
 
(21.3
)%
 
(10.0
)%
Excluding: Stock-based compensation expense
23.0
 %
 
18.5
 %
 
23.9
 %
 
18.2
 %
Excluding: Amortization of acquired intangible assets
0.0
 %
 
 %
 
0.0
 %
 
 %
Non-GAAP operating margin
8.8
 %
 
10.8
 %
 
2.7
 %
 
8.3
 %
The following table presents the reconciliation of net loss to non-GAAP net income and non-GAAP net income per basic and diluted common share:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands, except per share amounts)
Net loss
$
(30,261
)
 
$
(13,373
)
 
$
(123,361
)
 
$
(42,379
)
Excluding: Stock-based compensation expense
47,383

 
31,573

 
137,954

 
82,277

Excluding: Amortization of acquired intangible assets
95

 

 
227

 

Income tax adjustment
(3,962
)
 
(7,591
)
 
(1,477
)
 
(17,821
)
Non-GAAP net income
$
13,255

 
$
10,609

 
$
13,343

 
$
22,077

 
 
 
 
 
 
 
 
Weighted average shares used to compute non-GAAP basic net income per share
75,647

 
72,089

 
74,743

 
71,341

Effect of potentially dilutive shares: stock awards
4,917

 
5,825

 
4,933

 
6,051

Weighted average shares used to compute non-GAAP diluted net income per share
80,564

 
77,914

 
79,676

 
77,392

 
 
 
 
 
 
 
 
Non-GAAP net income per share:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.15

 
$
0.18

 
$
0.31

Diluted
$
0.16

 
$
0.14

 
$
0.17

 
$
0.29

The following table presents the reconciliation of net cash provided by operating activities to free cash flow:
 
Nine Months Ended September 30,
 
2016
 
2015
 
(in thousands)
Net cash provided by operating activities
$
106,134

 
$
83,221

Less: Purchases of property and equipment
42,334

 
32,792

Free cash flow
$
63,800

 
$
50,429

Net cash used in investing activities
$
(58,733
)
 
$
(33,792
)
Net cash provided by financing activities
$
22,030

 
$
20,798


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Table of Contents

Non-GAAP Operating Income
Non-GAAP operating income for the three months ended September 30, 2016 was $18.1 million compared to a non-GAAP operating income of $18.4 million for the three months ended September 30, 2015. The decrease was primarily the result of increased operating expenses attributable to additional headcount.
Non-GAAP operating income for the nine months ended September 30, 2016 was $15.6 million compared to a non-GAAP operating income of $37.3 million for the nine months ended September 30, 2015. The decrease was primarily the result of increased operating expenses attributable to additional headcount.
Non-GAAP Net Income
Non-GAAP net income for the three months ended September 30, 2016 was $13.3 million compared to a non-GAAP net income of $10.6 million for the three months ended September 30, 2015. The increase was primarily the result of the difference in the income tax adjustment applied to each respective period. We applied a long-term non-GAAP tax rate of 43% to the three months ended September 30, 2015. However, in December 2015, the U.S. federal R&D tax credit was permanently extended, and we revised our rate. Accordingly, the revised long-term non-GAAP tax rate of 30% was applied to the three months ended September 30, 2016.
Non-GAAP net income for the nine months ended September 30, 2016 was $13.3 million compared to a non-GAAP net income of $22.1 million for the nine months ended September 30, 2015. The decrease was primarily the result of increased operating expenses attributable to additional headcount.
Free Cash Flow
Free cash flow for the nine months ended September 30, 2016 was $63.8 million compared to free cash flow of $50.4 million for the nine months ended September 30, 2015. The increase was primarily the result of an increase in net cash provided by operating activities partially offset by an increase in cash used to purchase property and equipment.
Liquidity and Capital Resources
As of September 30, 2016, we had cash and cash equivalents totaling $864.6 million, accounts receivable, net of $136.9 million and $687.4 million of working capital.
The following tables show our cash and cash equivalents and our cash flows from operating activities, investing activities and financing activities for the stated periods:
 
September 30,
 
December 31,
 
2016
 
2015
 
(in thousands)
Cash and cash equivalents
$
864,593

 
$
795,900


 
Nine Months Ended September 30,
 
2016
 
2015
 
(in thousands)
Net cash provided by operating activities
$
106,134

 
$
83,221

Net cash used in investing activities
(58,733
)
 
(33,792
)
Net cash provided by financing activities
22,030

 
20,798

Effect of exchange rate changes on cash and cash equivalents
(738
)
 
(649
)
Net increase in cash and cash equivalents
$
68,693

 
$
69,578

Cash and Cash Equivalents
As of September 30, 2016, our cash and cash equivalents were held for working capital purposes, a majority of which was held in cash deposits and money market funds. We intend to continue our capital expenditures to support the growth in our business and operations. We believe that our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support R&D efforts, the continued expansion of sales and marketing activities,

29

Table of Contents

the introduction of new and enhanced product and services offerings and the continued market acceptance of our products.
Operating Activities
Net cash provided by operating activities was $106.1 million for the nine months ended September 30, 2016. The cash provided by operating activities was affected by a net loss of $123.4 million, adjusted for stock-based compensation expense of $138.0 million, non-cash depreciation and amortization expense of $25.1 million related to capital assets and to a lesser extent acquired intangible assets, a $49.9 million increase in deferred revenue, a $32.0 million increase in accounts payable and accrued liabilities and a $5.2 million increase in accounts receivable, net. The increase in deferred revenue was primarily due to increased sales of maintenance agreements and an increase in term and subscription license sales which have ratable revenue recognition. The increase in accounts payable and accrued liabilities was primarily due to an increase in expenditures based on growth in the business and employee contributions under our ESPP program. The increase in accounts receivable was primarily due to revenue growth.
Net cash provided by operating activities was $83.2 million for the nine months ended September 30, 2015. The cash provided by operating activities was affected by a net loss of $42.4 million, adjusted for stock-based compensation expense of $82.3 million, non-cash depreciation and amortization expense of $16.2 million related to capital assets, a $37.8 million increase in deferred revenue, a $26.6 million increase in accounts payable and accrued liabilities and a $16.5 million increase in accounts receivable, net. The increase in deferred revenue was primarily due to increased sales of maintenance agreements. The increase in accounts payable and accrued liabilities was primarily due to an increase in expenditures based on growth in the business. The increase in accounts receivable was primarily due to revenue growth.
Investing Activities
Cash used in investing activities was $58.7 million for the nine months ended September 30, 2016. The cash used for this period was primarily attributable to $16.4 million paid to acquire HyPer and $42.3 million in capital expenditures to support the growth of our business, including hardware, software, office equipment and leasehold improvements.
Cash used in investing activities was $33.8 million for the nine months ended September 30, 2015. The cash used for this period was primarily attributable to capital expenditures to support the growth of our business, including hardware, software, office equipment and leasehold improvements.
Financing Activities
Cash inflows from our financing activities for the nine months ended September 30, 2016 and 2015 were $22.0 million and $20.8 million, respectively. During the nine months ended September 30, 2016, cash provided by financing activities was primarily due to proceeds of $9.7 million from the exercise of stock options and $11.5 million from the purchases of stock under our employee stock purchase plan. During the nine months ended September 30, 2015, cash provided by financing activities was primarily due to proceeds of $16.1 million from the exercise of stock options.
Stock Repurchase Program
On November 1, 2016, we announced that our board of directors approved a stock repurchase program, under which we may repurchase up to $200 million of our outstanding Class A common stock. The repurchase program has no time limit and may be modified, suspended or discontinued at any time. The purpose of the program is to enhance long-term shareholder value. Repurchases under the program will be made from time to time on the open market at prevailing market prices, in privately negotiated transactions, in transactions structured through investment banking institutions or a combination of the foregoing, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, as determined by management at its discretion and subject to market conditions, applicable legal requirements and other relevant factors. We expect to fund the stock repurchase program with cash on hand and future cash from operations.
Obligations and Commitments
As of September 30, 2016, our principal obligations consisted of obligations outstanding under non-cancellable operating leases that expire at various dates though 2029. There have been no material changes in our principal lease commitments compared to those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

30


Our contractual commitments are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the transaction. Obligations under contracts that we can cancel without a significant penalty are not included. There have been no material changes in our contractual commitments compared to those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.


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Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes there have been no material changes to our quantitative and qualitative disclosures about market risks during the nine months ended September 30, 2016, compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 25, 2016.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer, our management 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.
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 officer 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 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, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this quarterly report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, we may be involved in various legal proceedings and claims related to intellectual property rights, commercial disputes, employment and wage and hour laws, alleged securities laws violations or other investor claims and other matters. For example, we have been, and may in the future be, put on notice and sued by third parties for alleged infringement of their proprietary rights, including patent infringement. We evaluate these claims and lawsuits with respect to their potential merits, our potential defenses and counter claims, and the expected effect on us of defending the claims and a potential adverse result. We are not presently a party to any legal proceedings that in the opinion of our management, if determined adversely to us, would have a material adverse effect on our business, financial condition or operating results.
The outcome of any litigation, regardless of its merits, is inherently uncertain. Any claims and lawsuits, and the disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert management attention from executing our business plan, lead to attempts on the part of other parties to make similar claims and require us to change our technology, change our business practices and pay monetary damages or enter into royalty or licensing agreements, which could materially adversely affect our financial condition or operating results.
We make a provision for a liability relating to a claim when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. When we make such provisions, they are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. In management's opinion, resolution of currently outstanding matters is not expected to have a material adverse impact on our consolidated results of operations, cash flows or financial position. However, depending on the nature and timing of any such dispute, an unfavorable resolution of the matter could materially affect our future results of operations or cash flows, or both, of a particular quarter.

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ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risk and uncertainties, including those described below. You should carefully consider the following risks and all of the other information contained in this report, including our condensed consolidated financial statements and related notes, before making an investment decision. While we believe that the risks and uncertainties described below are the material risks currently facing us, additional risks that we do not yet know of or that we currently think are immaterial may also arise and materially affect our business. If any of the following risks materialize, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our Class A common stock could decline, and you may lose some or all of your investment.
Risks Related to Our Business and Industry
Due to our growth, we have a limited operating history at our current scale, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
We have been growing in recent periods, and as a result have a relatively short history operating our business at its current scale. For example, we have increased the number of our employees and have expanded our operations worldwide. Furthermore, we operate in an industry that is characterized by rapid technological innovation, intense competition, changing customer needs and frequent introductions of new products, technologies and services. We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in evolving industries. If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change in reaction to changes in the market, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.
Our future success will depend in large part on our ability to, among other things:
hire, integrate, train and retain skilled talent, including members of our direct sales force and software engineers;
maintain and expand our business, including our operations and infrastructure to support our growth, both domestically and internationally;
compete with other companies, custom development efforts and open source initiatives that are currently in, or may in the future enter, the market for our software;
expand our customer base, both domestically and internationally;
renew maintenance agreements with, and sell additional products to, existing customers;
improve the performance and capabilities of our software;
maintain high customer satisfaction and ensure quality and timely releases of our products and product enhancements;
maintain, expand and support our indirect sales channels and strategic partner network;
maintain the quality of our website infrastructure to minimize latency when downloading or utilizing our software;
make our software available on public cloud service providers;
increase market awareness of our products and enhance our brand; and
maintain compliance with applicable governmental regulations and other legal obligations, including those related to intellectual property, international sales and taxation.
If we fail to address the risks and difficulties that we face, including those associated with the challenges listed above as well as those described elsewhere in this "Risk Factors" section, our business will be adversely affected and our results of operations will suffer.
We may not be able to sustain our revenue growth rate or achieve profitability in the future.
We incurred a net loss in each quarter of 2015, as well as the first three quarters of 2016. We expect expenses to continue to increase as we make investments in our sales and marketing and research and development organizations, expand our operations and infrastructure both domestically and internationally and develop new products and new features for and enhancements of our existing products.
Moreover, as we grow our business, we expect our revenue growth rates to continue to slow in future periods due to a number of reasons, which may include slowing demand for our products, shifts in customer demand and spending on licenses for our products, shifts in sales of subscription-based versus perpetual licenses, increasing competition, a decrease in the growth of our overall market, our failure, for any reason, to continue to capitalize on growth opportunities, the maturation of our business or the decline in the number of organizations into

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which we have not already expanded. Accordingly, our historical revenue growth should not be considered indicative of our future performance.
If we are unable to attract, integrate and retain additional qualified personnel, including executive, top sales and technical talent, our business could be adversely affected.
Our future success depends in part on our ability to identify, attract, integrate and retain highly skilled executive, technical, managerial, sales and other personnel. We recently appointed a new Chief Executive Officer and are currently recruiting an executive leader of global sales and field operations. If we do not successfully identify and integrate our new leader of global sales and field operations, this could impede or negatively impact our strategic planning and sales execution. We face intense competition for qualified individuals from numerous other companies, including other software and technology companies, many of whom have greater financial and other resources than we do. These companies also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than those we have to offer. In addition, new hires often require significant training and, in many cases, take significant time before they achieve full productivity. We may incur significant costs to attract and retain qualified personnel, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and we may lose new employees to our competitors or other companies before we realize the benefit of our investment in recruiting and training them. Moreover, new employees may not be or become as productive as we expect, as we may face challenges in adequately or appropriately integrating them into our workforce and culture. In addition, as we move into new geographies, we will need to attract and recruit skilled personnel in those areas. We have limited experience with recruiting in geographies outside of the United States, and may face additional challenges in attracting, integrating and retaining international employees. If we are unable to attract, integrate and retain suitably qualified individuals who are capable of meeting our growing technical, operational, sales and managerial requirements, as well as executive leadership requirements, on a timely basis or at all, our business will be adversely affected.
Volatility or lack of positive performance in our stock price may also affect our ability to attract and retain our key employees. Many of our senior management personnel and other key employees are vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their vested options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or, conversely, if the exercise prices of the options that they hold are significantly above the market price of our common stock or the market price of our common stock decreases significantly, impacting the value of their unvested restricted stock unit awards. If we are unable to appropriately incentivize and retain our employees through equity compensation, or if we need to increase our compensation expenses in order to appropriately incentivize and retain our employees, our business, results of operations, financial condition and cash flows would be adversely affected.
We have been growing and expect to continue to invest in our growth for the foreseeable future. If we fail to manage this growth effectively, our business and results of operations will be adversely affected.
We have grown significantly in a relatively short period of time. Our revenues grew to $576.3 million in the nine months ended September 30, 2016 from $450.8 million in the nine months ended September 30, 2015. Our number of full time employees increased to 3,280 as of September 30, 2016 from 2,830 as of September 30, 2015. During this period, we also expanded our operations within the United States and internationally.
We intend to continue to grow our business. For example, we plan to continue to hire new employees, particularly in our sales and engineering groups. If we cannot adequately train these new employees, including our direct sales force, our sales productivity could be impacted or our customers may lose confidence in the knowledge and capability of our employees. In addition, we are expanding internationally, establishing operations in additional countries outside the United States, and we intend to make direct and substantial investments to continue our international expansion efforts. We must successfully manage our growth to achieve our objectives. Although our business has experienced significant growth in the past, our growth has slowed in recent periods, and we cannot provide any assurance that our business will continue to grow at any particular rate, or at all.
Our ability to effectively manage the growth of our business will depend on a number of factors, including our ability to do the following:
effectively recruit, integrate, train and motivate a large number of new employees, including our direct sales force, while retaining existing employees, maintaining the beneficial aspects of our corporate culture and effectively executing our business plan;
satisfy existing customers and attract new customers;
successfully introduce new products and enhancements;

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continue to improve our operational, financial and management controls;
protect and further develop our strategic assets, including our intellectual property rights; and
make sound business decisions in light of the scrutiny associated with operating as a public company.
These activities will require significant capital expenditures and allocation of valuable management and employee resources, and our growth will continue to place significant demands on our management and our operational and financial infrastructure.
Our future financial performance and our ability to execute on our business plan will depend, in part, on our ability to effectively manage any future growth. There are no guarantees we will be able to do so in an efficient or timely manner, or at all. In particular, any failure to successfully implement systems enhancements and improvements will likely negatively impact our ability to manage our expected growth, ensure uninterrupted operation of key business systems and comply with the rules and regulations that are applicable to public reporting companies. Moreover, if we do not effectively manage the growth of our business and operations, the quality of our software could suffer, which could negatively affect our brand, results of operations and overall business.
We face intense competition, and we may not be able to compete effectively, which could reduce demand for our products and adversely affect our business, growth, revenues and market share.
The market for our products is intensely and increasingly competitive and subject to rapidly changing technology and evolving standards. In addition, many companies in our target market are offering, or may soon offer, products and services that may compete with our products.
Our current primary competitors generally fall into the following categories:
large technology companies, including suppliers of traditional business intelligence products and/or cloud-based offerings that provide one or more capabilities that are competitive with our products, such as Amazon.com, Inc., Google Inc., IBM, Microsoft Corporation, Oracle Corporation, Salesforce and SAP SE;
business analytics software companies, such as Qlik, MicroStrategy and TIBCO Spotfire (a subsidiary of TIBCO Software Inc.); and
SaaS-based products or cloud-based analytics providers.
In addition, we may compete with open source initiatives and custom development efforts. We expect competition to increase as other established and emerging companies enter the business analytics software market, as customer requirements evolve and as new products and technologies are introduced. We expect this to be particularly true with respect to our SaaS-based offering. This is a relatively new and evolving area of business analytics solutions, and we anticipate competition to increase based on customer demand for these types of products.
Many of our competitors, particularly the large software companies named above, have longer operating histories, significantly greater financial, technical, marketing, distribution, professional services or other resources and greater name recognition than we do. In addition, many of our competitors have strong relationships with current and potential customers and extensive knowledge of the business analytics industry. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, for example by offering a SaaS-based product that competes with our on-premise products or our SaaS product, Tableau Online, or devote greater resources to the development, promotion and sale of their products than we do. Moreover, many of these competitors are bundling their analytics products into larger deals or maintenance renewals, often at significant discounts. Increased competition may lead to price cuts, alternative pricing structures or the introduction of products available for free or a nominal price, fewer customer orders, reduced gross margins, longer sales cycles and loss of market share. We may not be able to compete successfully against current and future competitors, and our business, results of operations and financial condition will be harmed if we fail to meet these competitive pressures.
Our ability to compete successfully in our market depends on a number of factors, both within and outside of our control. Some of these factors include ease and speed of product deployment and use, discovery and visualization capabilities, analytical and statistical capabilities, performance and scalability, the quality and reliability of our customer service and support, total cost of ownership, return on investment and brand recognition. Any failure by us to compete successfully in any one of these or other areas may reduce the demand for our products, as well as adversely affect our business, results of operations and financial condition.
Moreover, current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others. By doing so, these competitors may increase their ability to meet

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the needs of our customers or potential customers. In addition, our current or prospective indirect sales channel partners may establish cooperative relationships with our current or future competitors. These relationships may limit our ability to sell or certify our products through specific distributors, technology providers, database companies and distribution channels and allow our competitors to rapidly gain significant market share. These developments could limit our ability to obtain revenues from existing and new customers and to maintain maintenance and support revenues from our existing and new customers. If we are unable to compete successfully against current and future competitors, our business, results of operations and financial condition would be harmed.
Our success is highly dependent on our ability to further penetrate the existing market for business analytics software as well as the growth and expansion of that market.
Although the overall market for business analytics software is well-established, the market for business analytics software like ours is relatively new, rapidly evolving and unproven. Our future success will depend in large part on our ability to further penetrate the existing market for business analytics software, as well as the continued growth and expansion of what we believe to be an emerging market for analytics solutions that are faster, easier to adopt, easier to use and more focused on self-service capabilities. It is difficult to predict customer adoption and renewal rates, customer demand for our products, the size, growth rate and expansion of these markets, the entry of competitive products or the success of existing competitive products. Our ability to further penetrate the existing market and any expansion of the emerging market depends on a number of factors, including the cost, performance and perceived value associated with our products, as well as customers' willingness to adopt a different approach to data analysis. Furthermore, many potential customers have made significant investments in legacy business analytics software systems and may be unwilling to invest in new software. If we are unable to further penetrate the existing market for business analytics software, the emerging market for self-service analytics solutions fails to grow or expand, or either of these markets decreases in size, our business, results of operations and financial condition would be adversely affected.
Our future quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict.
Our revenues and results of operations could vary significantly from quarter to quarter as a result of various factors, some of which are outside of our control, such as:
the timing of satisfying revenue recognition criteria, particularly with regard to large transactions, as well as the transition of large perpetual license transactions to subscription and term based enterprise license agreements;
the expansion of our customer base;
the renewal of maintenance agreements with, and sales of additional products to, existing customers;
seasonal variations in our sales, which have generally historically been highest in the fourth quarter of a calendar year and lowest in the first quarter;
the size, timing and terms of our perpetual license sales to both existing and new customers;
increasing customer demand and adoption of our term based and subscription license products and services with ratable revenue;
changes in the mix of term and subscription license sales versus perpetual license sales;
the mix of direct sales versus sales through our indirect sales channels;
the introduction of products and product enhancements by existing competitors or new entrants into our market and changes in pricing for products offered by us or our competitors;
customers delaying purchasing decisions in anticipation of new products or product enhancements by us or our competitors or otherwise;
changes in customers' budgets;
customer acceptance of and willingness to pay for new versions of our products;
seasonal variations related to sales and marketing and other activities, such as expenses related to our annual customer conferences; and
general economic and political conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers operate.
Additional factors include:
costs related to the hiring, training and maintenance of our direct sales force;
the timing and growth of our business, in particular through our hiring of new employees and international expansion;
our ability to control costs, including our operating expenses; and
fluctuations in our effective tax rate.

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Any one of these or other factors discussed elsewhere in this report may result in fluctuations in our revenues and operating results, meaning that quarter-to-quarter comparisons of our revenues, results of operations and cash flows may not necessarily be indicative of our future performance.
We may not be able to accurately predict our future revenues or results of operations. For example, a large percentage of the revenues we recognize each quarter has been attributable to sales made in the last month of that same quarter. Our license revenues, which are primarily attributable to perpetual licenses, in particular can be impacted by short-term shifts in customer demand and spending on licenses for our products. In addition, as demand from our customer base increasingly shifts to term based and subscription licenses, this can impact the timing for recognizing revenues in a given period and impact our results of operations. As a result, our ability to forecast revenues on a quarterly or longer-term basis is limited. In addition, we base our current and future expense levels on our operating plans and sales forecasts, and our operating expenses are expected to be relatively fixed in the short term. Accordingly, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenues, and even a small shortfall in revenues could disproportionately and adversely affect our financial results for that quarter. The variability and unpredictability of these and other factors could result in our failing to meet or exceed financial expectations for a given period.
If we are unable to attract new customers and expand sales to existing customers, both domestically and internationally, our growth could be slower than we expect and our business may be harmed.
Our future growth depends in part upon increasing our customer base. Our ability to achieve growth in revenues in the future will depend, in large part, upon the effectiveness of our marketing efforts, both domestically and internationally, and our ability to attract new customers. This may be particularly challenging where an organization has already invested substantial personnel and financial resources to integrate traditional business intelligence products into its business, as such organization may be reluctant or unwilling to invest in a new product. If we fail to attract new customers and maintain and expand those customer relationships, our revenues will grow more slowly than expected and our business will be harmed.
Our future growth also depends upon expanding sales of our products to and renewing license and maintenance agreements with existing customers and their organizations. If our customers do not purchase additional licenses or capabilities, our revenues may grow more slowly than expected, may not grow at all or may decline. Additionally, increasing incremental sales to our current customer base requires increasingly sophisticated and costly sales efforts that are targeted at senior management. There can be no assurance that our efforts would result in expansion sales to existing customers and additional revenues. If our expansion sales efforts to our customers are not successful, our business would suffer. Moreover, while most of our software is currently licensed and sold under perpetual license agreements, we also enter into term and subscription license agreements with our customers. Due to the differences in revenue recognition principles, applied to perpetual versus term or subscription license sales, shifts in the mix of term and subscription licenses could produce significant variation in the revenue we recognize in a given period. In addition, all of our maintenance and support agreements are sold on a term basis. In order for us to grow our revenues and increase profitability, it is important that our existing customers renew their maintenance and support agreements and their term licenses, if applicable, when the initial contract term expires. Our customers have no obligation to renew their term licenses or maintenance and support contracts with us after the initial terms have expired. Our customers' renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction or dissatisfaction with our software or professional services, our pricing or pricing structure, the pricing or capabilities of products or services offered by our competitors, the effects of economic conditions, or reductions in our customers' spending levels. If our customers do not renew their agreements with us, or renew on terms less favorable to us, our revenues may decline.
We derive substantially all of our revenues from a limited number of software products.
We currently derive and expect to continue to derive substantially all of our revenues from our Tableau Desktop, Tableau Server and Tableau Online software products. As such, the continued growth in market demand of these software products is critical to our continued success. Demand for our software is affected by a number of factors, including continued market acceptance of our products, the timing of development and release of new products by our competitors, price changes by us or by our competitors, technological change, growth or contraction in the traditional and expanding business analytics market and general economic conditions and trends. If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of our software, our business, results of operations, financial condition and growth prospects will be materially and adversely affected.

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Our success depends on increasing the number and value of enterprise sales transactions, which typically involve a longer sales cycle, greater deployment challenges and additional support and services than sales to individual purchasers of our products.
Growth in our revenues and profitability depends in part on our ability to complete more and larger enterprise sales transactions. During the nine months ended September 30, 2016, we closed 960 sales transactions greater than $100,000 compared to 778 sales transactions greater than $100,000 in the nine months ended September 30, 2015, representing a 23% increase in the number of transactions. These larger transactions may involve significant customer negotiation and are typically completed near the end of the quarter. Enterprise customers may undertake a significant evaluation process, which can last from several months to a year or longer. For example, in recent periods, excluding renewals, our transactions over $100,000 have generally taken over three months to close. Any individual transaction may take substantially longer than three months to close. If our sales cycle were to lengthen in this manner, events may occur during this period that affect the size or timing of a purchase or even cause cancellations, which may lead to greater unpredictability in our business and results of operations. We will spend substantial time, effort and money on enterprise sales efforts without any assurance that our efforts will produce any sales.
We may also face unexpected deployment challenges with enterprise customers or more complicated installations of our software platform. It may be difficult to deploy our software platform if the customer has unexpected database, hardware or software technology issues. Additional deployment complexities may occur if a customer hires a third party to deploy or implement our products or if one of our indirect sales channel partners leads the implementation of our products. In addition, enterprise customers may demand more configuration and integration services, which increase our upfront investment in sales and deployment efforts, with no guarantee that these customers will increase the scope of their use. As a result of these factors, we must devote a significant amount of sales support and professional services resources to individual customers, increasing the cost and time required to complete sales. Any difficulties or delays in the initial implementation, configuration or integration of our products could cause customers to reject our software or lead to the delay in or failure to obtain future orders which would harm our business, results of operations and financial condition.
If our new products and product enhancements do not achieve sufficient market acceptance, our results of operations and competitive position will suffer.
We spend substantial amounts of time and money to research and develop new software and enhanced versions of our existing software to incorporate additional features, improve functionality, function in concert with new technologies or changes to existing technologies and allow our customers to analyze a wide range of data sources. When we develop a new product or an enhanced version of an existing product, we typically incur expenses and expend resources upfront to market, promote and sell the new offering. Therefore, when we develop and introduce new or enhanced products, they must achieve high levels of market acceptance in order to justify the amount of our investment in developing and bringing them to market.
Further, we may make changes to our software that our customers do not find useful. We may also discontinue certain features, begin to charge for certain features that are currently free or increase fees for any of our features or usage of our software. We may also face unexpected problems or challenges in connection with new product or feature introductions.
Our new products or product enhancements and changes to our existing software could fail to attain sufficient market acceptance for many reasons, including:
failure to predict market demand accurately in terms of software functionality and capability or to supply software that meets this demand in a timely fashion;
inability to operate effectively with the technologies, systems or applications of our existing or potential customers;
defects, errors or failures;
negative publicity about their performance or effectiveness;
delays in releasing our new software or enhancements to our existing software to the market;
the introduction or anticipated introduction of competing products by our competitors;
an ineffective sales force;
poor business conditions for our end-customers, causing them to delay purchases; and
the reluctance of customers to purchase software incorporating open source software.
In addition, because our products are designed to operate on and with a variety of systems, we will need to continuously modify and enhance our products to keep pace with changes in technology. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely fashion.

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If our new software or enhancements and changes do not achieve adequate acceptance in the market, our competitive position will be impaired, and our revenues could decline. The adverse effect on our results of operations may be particularly acute because of the significant research, development, marketing, sales and other expenses we will have incurred in connection with the new software or enhancements.
We are dependent on the continued services and performance of our senior management and other key personnel, the loss of any of whom could adversely affect our business.
Our future success depends in large part on the continued contributions of our senior management and other key personnel. In particular, the leadership of key management personnel is critical to the successful management of our company, the development of our products and our strategic direction. Effective September 2016, we appointed a new Chief Executive Officer. We are also actively recruiting an executive leader of global sales and field operations. If we do not successfully identify and integrate our new leader of global sales and field operations, this could impede or negatively impact our strategic planning and sales execution. Our senior management and key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason and without notice. The loss of any of our key management personnel could significantly delay or prevent the achievement of our development and strategic objectives and adversely affect our business. We do not maintain "key person" insurance for any member of our senior management team or any of our other key employees.
Our growth depends on being able to expand our direct sales force successfully.
In order to increase our revenues and profitability, we must increase the size of our direct sales force, both in the United States and internationally, to generate additional revenues from new and existing customers. We intend to further increase our number of direct sales professionals.
We believe that there is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of direct sales personnel to support our growth. New hires require significant training and may take significant time before they achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, as we continue to grow, a large percentage of our sales force will be new to our company and our products, which may adversely affect our sales if we cannot train our sales force quickly or effectively. Attrition rates may increase and we may face integration challenges as we continue to seek to aggressively expand our sales force. If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, our business will be adversely affected.
If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success, and our business may be harmed.
We believe that our corporate culture has been a critical component to our success. We have invested substantial time and resources in building our team. As we grow and mature as a public company, we may find it difficult to maintain our corporate culture. Any failure to preserve our culture could negatively affect our future success, including our ability to recruit and retain personnel and effectively focus on and pursue our corporate objectives.
Real or perceived errors, failures or bugs in our software could adversely affect our results of operations and growth prospects.
Because our software is complex, undetected errors, failures or bugs may occur, especially when new versions or updates are released. Our software is often installed and used in large-scale computing environments with different operating systems, system management software and equipment and networking configurations, which may cause errors or failures of our software or other aspects of the computing environment into which it is deployed. In addition, deployment of our software into computing environments may expose undetected errors, compatibility issues, failures or bugs in our software. Despite testing by us, errors, failures or bugs may not be found in our software until it is released to our customers. Moreover, our customers could incorrectly implement or inadvertently misuse our software, which could result in customer dissatisfaction and adversely impact the perceived utility of our products as well as our brand. Any of these real or perceived errors, compatibility issues, failures or bugs in our software could result in negative publicity, reputational harm, loss of or delay in market acceptance of our software, loss of competitive position or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. Alleviating any of these problems could require significant

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expenditures of our capital and other resources and could cause interruptions, delays or cessation of our licensing, which could cause us to lose existing or potential customers and could adversely affect our results of operations and growth prospects.
Interruptions or performance problems, including any caused by cyber-attacks or associated with our technology and infrastructure, may adversely affect our business and results of operations.
We have in the past experienced, and may in the future experience, performance issues due to a variety of factors, including infrastructure changes, human or software errors, website or third-party hosting disruptions or capacity constraints due to a number of potential causes including technical failures, cyber-attacks, security vulnerabilities, natural disasters or fraud. If our security is compromised, our website is unavailable or our users are unable to download our software within a reasonable amount of time or at all, our business could be negatively affected. Moreover, if our security measures, products or services are subject to cyber-attacks that degrade or deny the ability of users to access our website, Tableau Online, or other products or services, our products or services may be perceived as unsecure and we may incur significant legal and financial exposure. In particular, our cloud-based products, Tableau Online and Tableau Public, may be especially vulnerable to interruptions, performance problems or cyber-attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. These cloud-based products are hosted at third-party data centers that are not under our direct control. If these data centers were to be damaged or suffer disruption, our ability to provide these products to our customers could be impaired and our reputation could be harmed.
In addition, it may become increasingly difficult to maintain and improve our website performance, especially during peak usage times and as our software becomes more complex and our user traffic increases. Adverse consequences could include unanticipated system disruptions, slower response times, degradation in level of customer support, and impaired quality of users' experiences, and could result in customer dissatisfaction and the loss of existing customers. We expect to continue to make significant investments to maintain and improve website performance and security and to enable rapid and secure releases of new features and applications for our software. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and results of operations may be adversely affected.
We also rely on SaaS technologies from third parties in order to operate critical functions of our business, including financial management services from NetSuite Inc. and customer relationship management services from Salesforce. If these services become unavailable due to extended outages or interruptions, security vulnerabilities or cyber-attacks, or because they are no longer available on commercially reasonably terms or prices, our expenses could increase, our ability to manage these critical functions could be interrupted and our processes for managing sales of our software and supporting our customers could be impaired until equivalent services, if available, are identified, obtained and implemented, all of which could adversely affect our business.
Breaches in our security, cyber-attacks or other cyber-risks could expose us to significant liability and cause our business and reputation to suffer.
Our operations involve transmission and processing of our customers' confidential, proprietary and sensitive information including, in some cases, personally identifiable information and credit card information. We have legal and contractual obligations to protect the confidentiality and appropriate use of customer data. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks as a result of third party action, employee error or misconduct. Security risks, including but not limited to, unauthorized use or disclosure of customer data, theft of proprietary information, denial of service attacks, loss or corruption of customer data, and computer hacking attacks or other cyber-attacks, could expose us to substantial litigation expenses and damages, indemnity and other contractual obligations, government fines and penalties, mitigation expenses and other liabilities. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until successfully launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose potential sales and existing customers, our ability to operate our business could be impaired, and we may incur significant liabilities.
Our failure to adequately protect personal information could have a material adverse effect on our business.
A wide variety of local, state, national and international laws, directives and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These data protection and privacy-related laws and regulations continue to evolve and may result in ever-increasing regulatory

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and public scrutiny and escalating levels of enforcement and sanctions and increased costs of compliance. Our failure to comply with applicable laws and regulations, or to protect such data, could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by end-customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing end-customers and prospective end-customers), any of which could have a material adverse effect on our operations, financial performance and business. Changing definitions of personal data and personal information, within the European Union, the United States and elsewhere, especially relating to classification of IP addresses, machine identification, location data, and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data.
Our products use third-party software and services that may be difficult to replace or cause errors or failures of our products that could lead to a loss of customers or harm to our reputation and our operating results.
We license third-party software and depend on services from various third parties for use in our products. In the future, this software or these services may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of the software or services could result in decreased functionality of our products until equivalent technology is either developed by us or, if available from another provider, is identified, obtained and integrated, which could harm our business. In addition, any errors or defects in or failures of the third-party software or services could result in errors or defects in our products or cause our products to fail, which could harm our business and be costly to correct. Many of these providers attempt to impose limitations on their liability for such errors, defects or failures, and if enforceable, we may have additional liability to our customers or third-party providers that could harm our reputation and increase our operating costs.
We will need to maintain our relationships with third-party software and service providers and to obtain software and services from such providers that do not contain any errors or defects. Any failure to do so could adversely impact our ability to deliver effective products to our customers and could harm our operating results.
If customers demand products that provide business analytics via a SaaS business model, our business could be adversely affected.
We believe that companies have begun to expect that key software be provided through a SaaS model. We anticipate using our current cash or future cash flows to fund further development of our Tableau Online product, and we may encounter difficulties that cause our costs to exceed our current expectations. Moreover, as demand increases, we will need to make additional investments in related infrastructure such as server farms, data centers, network bandwidth and technical operations personnel. All of these investments could negatively affect our operating results. Even if we make these investments, we may be unsuccessful in achieving significant market acceptance of this product. Moreover, sales of a potential future SaaS offering by our competitors could adversely affect sales of all of our existing products. In addition, increasing sales of our SaaS offering could cannibalize license sales of our on-premise desktop and server products to our existing and prospective customers, which could negatively impact our overall sales growth. The migration of our customers to a SaaS model would also change the manner in which we recognize revenue, which could adversely affect our operating results and business operations.
Our success depends on our ability to maintain and expand our indirect sales channels.
Historically, we have used indirect sales channel partners, such as original equipment manufacturers, technology partners, systems integrators and resellers, to a limited degree. Indirect sales channel partners are becoming an increasingly important aspect of our business, particularly with regard to enterprise and international sales. Our future growth in revenues and profitability depends in part on our ability to identify, establish and retain successful channel partner relationships in the United States and internationally, which will take significant time and resources and involve significant risk.
We cannot be certain that we will be able to identify suitable indirect sales channel partners. To the extent we do identify such partners, we will need to negotiate the terms of a commercial agreement with them under which the partner would distribute our products. We cannot be certain that we will be able to negotiate commercially-attractive terms with any channel partner, if at all. In addition, all channel partners must be trained to distribute our products. In order to develop and expand our distribution channel, we must develop and improve our processes for channel partner introduction and training.
We also cannot be certain that we will be able to maintain successful relationships with any channel partners. These channel partners may not have an exclusive relationship with us and may offer customers the products of several different companies, including products that compete with ours. With or without an exclusive relationship, we cannot be certain that they will prioritize or provide adequate resources for selling our products. A

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lack of support by any of our channel partners may harm our ability to develop, market, sell or support our products, as well as harm our brand. There can be no assurance that our channel partners will comply with the terms of our commercial agreements with them or will continue to work with us when our commercial agreements with them expire or are up for renewal. If we are unable to maintain our relationships with these channel partners, or these channel partners fail to live up to their contractual obligations, our business, results of operations and financial condition could be harmed.
Our long-term growth depends in part on being able to expand internationally on a profitable basis.
Historically, we have generated a substantial majority of our revenues from customers inside the United States and Canada. For example, approximately 72% of our total revenues in the nine months ended September 30, 2016 was derived from sales within the United States and Canada. We plan to continue to expand our international operations as part of our growth strategy. Our international operations subject us to a variety of risks and challenges, including:
increased management, travel, infrastructure, legal compliance and regulation costs associated with having multiple international operations;
management communication and integration problems resulting from geographic dispersion and language and cultural differences;
sales and customer service challenges associated with operating in different countries;
increased reliance on indirect sales channel partners outside the United States;
longer payment cycles and difficulties in collecting accounts receivable or satisfying revenue recognition criteria, especially in emerging markets;
increased financial accounting and reporting burdens and complexities;
general economic or political conditions in each country or region;
economic uncertainty around the world and adverse effects arising from economic interdependencies across countries and regions;
uncertainty around how the United Kingdom’s vote to exit the European Union, commonly referred to as "Brexit," will impact the United Kingdom’s access to the European Union Single Market, the related regulatory environment, the global economy and the resulting impact on our business;
compliance with foreign laws and regulations and the risks and costs of non-compliance with such laws and regulations;
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 software in certain foreign markets and the risks and costs of non-compliance;
heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of financial statements and irregularities in financial statements;
fluctuations in currency exchange rates and related effects on our results of operations;
difficulties in transferring or, if we determine to do so, repatriating funds from or converting currencies in certain countries;
the need for localized software and licensing programs;
reduced protection for intellectual property rights in certain countries and practical difficulties and costs of enforcing rights abroad; and
compliance with the laws of numerous foreign taxing jurisdictions and overlapping of different tax regimes.
Any of these risks could adversely affect our international operations, reduce our international revenues or increase our operating costs, adversely affecting our business, results of operations and financial condition and growth prospects.
For example, compliance with laws and regulations applicable to our international operations increases our cost of doing business in foreign jurisdictions. We may be unable to keep current with changes in government requirements as they change from time to time. Failure to comply with these regulations could have adverse effects on our business. In addition, in many foreign countries it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. laws and regulations applicable to us. As we grow, we continue to implement compliance procedures designed to prevent violations of these laws and regulations. There can be no assurance that all of our employees, contractors, indirect sales channel partners and agents will comply with the formal policies we will implement, or applicable laws and regulations. Violations of laws or key control policies by our employees, contractors, channel partners or agents could result in delays in revenue recognition,

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financial reporting misstatements, fines, penalties, or the prohibition of the importation or exportation of our software and services and could have a material adverse effect on our business and results of operations.
We are obligated to develop and maintain proper and effective internal control over financial reporting. These internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting on an annual basis. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We are also required to have our independent registered public accounting firm issue an opinion on the effectiveness of our internal control over financial reporting on an annual basis. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.
If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the Securities and Exchange Commission ("SEC").
Our business is highly dependent upon our brand recognition and reputation, and the failure to maintain or enhance our brand recognition or reputation would likely adversely affect our business and results of operations.
We believe that maintaining and enhancing the Tableau brand identity and our reputation are critical to our relationships with our customers and channel partners and to our ability to attract new customers and channel partners. We also believe that the importance of our brand recognition and reputation will continue to increase as competition in our market continues to develop. Our success in this area will depend on a wide range of factors, some of which are beyond our control, including the following:
the efficacy of our marketing efforts;
our ability to continue to offer high-quality, innovative and error- and bug-free products;
our ability to retain existing customers and obtain new customers;
our ability to maintain high customer satisfaction;
the quality and perceived value of our products;
our ability to successfully differentiate our products from those of our competitors;
actions of our competitors and other third parties;
our ability to provide customer support and professional services;
any misuse or perceived misuse of our products;
positive or negative publicity;
interruptions, delays or attacks on our website; and
litigation- or regulatory-related developments.
Our brand promotion activities may not be successful or yield increased revenues.
Independent industry analysts often provide reviews of our products, as well as those of our competitors, and perception of our products in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to those of our competitors' products and services, our brand may be adversely affected.
Furthermore, negative publicity, whether or not justified, relating to events or activities attributed to us, our employees, our partners or others associated with any of these parties, may tarnish our reputation and reduce the value of our brand. Damage to our reputation and loss of brand equity may reduce demand for our products and have an adverse effect on our business, operating results and financial condition. Moreover, any attempts to rebuild our reputation and restore the value of our brand may be costly and time consuming, and such efforts may not ultimately be successful.
Economic uncertainties or downturns could materially adversely affect our business.
Current or future economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, the continued sovereign debt crisis, potential future government shutdowns, the federal government's failure to raise the debt ceiling, financial and credit market fluctuations, political deadlock, natural catastrophes, warfare and terrorist attacks on the United States, Europe, the

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Asia Pacific region or elsewhere, could cause a decrease in business investments, including corporate spending on business analytics software in general and negatively affect the rate of growth of our business.
The inability of legislators to pass additional short- or longer-term spending bills could lead to additional shutdowns or other disruptions. In addition, general worldwide economic conditions have experienced a significant downturn and continue to remain unstable, particularly in light of the Brexit referendum. These conditions make it extremely difficult for our customers and us to forecast and plan future business activities accurately, and they could cause our customers to reevaluate their decisions to purchase our products, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times our customers may tighten their budgets and face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. In turn, we may be required to increase our allowance for doubtful accounts, which would adversely affect our financial results.
To the extent purchases of our software are perceived by customers and potential customers to be discretionary, our revenues may be disproportionately affected by delays or reductions in general information technology spending. Also, customers may choose to develop in-house software as an alternative to using our products. Moreover, competitors may respond to market conditions by lowering prices and attempting to lure away our customers. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our software.
We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or industries in which we operate do not improve, or worsen from present levels, our business, results of operations, financial condition and cash flows could be adversely affected.
If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.
As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. Although we expect an increasing number of sales contracts to be denominated in currencies other than the U.S. dollar in the future, the majority of our sales contracts have historically been denominated in U.S. dollars, and therefore most of our revenues have not been subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our software to our customers outside of the United States, which could adversely affect our business, results of operations, financial condition and cash flows. For example, the Brexit referendum has caused significant volatility in global stock markets and currency exchange rate fluctuations, resulting in the strengthening of the U.S. dollar against many foreign currencies. In addition, we incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency. Fluctuations in the exchange rates between the U.S. dollar and other currencies could result in the dollar equivalent of such expenses being higher. This could have a negative impact on our reported results of operations. Although we may in the future decide to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge our exposure to foreign currency exchange risks.
Failure to protect our intellectual property rights could adversely affect our business.
Our success depends, in part, on our ability to protect proprietary methods and technologies that we develop or license under patent and other intellectual property laws of the United States, so that we can prevent others from using our inventions and proprietary information. If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology, and our business might be adversely affected. However, defending our intellectual property rights might entail significant expenses. Any of our patent rights, copyrights, trademarks or other intellectual property rights may be challenged by others, weakened or invalidated through administrative process or litigation.
As of September 30, 2016, we had 19 issued U.S. patents covering our technology and 37 patent applications pending for examination in the United States. The patents that we own or license from others (including those that have issued or may issue in the future) may not provide us with any competitive advantages or may be challenged by third parties, and our patent applications may never be granted.
Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these patents will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain.

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Any patents that are issued may subsequently be invalidated or otherwise limited, allowing other companies to develop offerings that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition. In addition, issuance of a patent does not guarantee that we have a right to practice the patented invention. Patent applications in the United States are typically not published until 18 months after filing or, in some cases, not at all, and publications of discoveries in industry-related literature lag behind actual discoveries. We cannot be certain that third parties do not have blocking patents that could be used to prevent us from marketing or practicing our patented software or technology.
Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our software is available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States (in particular, some foreign jurisdictions do not permit patent protection for software), and mechanisms for enforcement of intellectual property rights may be inadequate. Additional uncertainty may result from changes to intellectual property legislation enacted in the United States, including the recent America Invents Act, and other national governments and from interpretations of the intellectual property laws of the United States and other countries by applicable courts and agencies. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.
We rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. Although we endeavor to enter into non-disclosure agreements with our employees, licensees and others who may have access to this information, we cannot assure you that these agreements or other steps we have taken will prevent unauthorized use, disclosure or reverse engineering of our technology. Moreover, third parties may independently develop technologies or products that compete with ours, and we may be unable to prevent this competition.
We might be requi