What changed in Confluent, Inc.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of Confluent, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+241 added−393 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-28)
Top changes in Confluent, Inc.'s 2023 10-K
241 paragraphs added · 393 removed · 197 edited across 1 sections
- Item 1A. Risk Factors+241 / −393 · 197 edited
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
197 edited+44 added−196 removed382 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
197 edited+44 added−196 removed382 unchanged
2022 filing
2023 filing
Biggest changeFailure of our offering to satisfy customer demands or achieve continued market acceptance over competitors, including open source alternatives, would harm our business, results of operations, financial condition, and growth prospects. • We intend to continue investing significantly in Confluent Cloud, and if it fails to achieve further market adoption, our growth, business, results of operations, and financial condition could be harmed. • Failure to effectively develop and expand our sales and marketing capabilities or improve the productivity of our sales and marketing organization could harm our ability to expand our potential customer and sales pipeline, increase our customer base, and achieve broader market acceptance of our offering. • If we are unable to attract new customers or expand our potential customer and sales pipeline, our business, financial condition, and results of operations will be adversely affected. • Our business depends on our existing customers renewing their subscriptions and usage-based minimum commitments, purchasing additional subscriptions and usage-based minimum commitments, and expanding their use of our offering. • If we fail to maintain and enhance our brand, including among developers, our ability to expand our customer base will be impaired and our business, financial condition, and results of operations may suffer. • The markets in which we participate are competitive, and if we do not compete effectively, our business, financial condition, and results of operations could be harmed. 18 Table of Contents • If we or third parties with whom we work experience a security breach, or if the confidentiality, integrity, or availability of our information technology, software, services, communications, or data is compromised, our offering may be perceived as not being secure, our reputation may be harmed, demand for our offering may be reduced, proprietary data and information, including source code, could be, and has in the past been, exfiltrated, and we may incur significant liabilities. • We rely on third-party providers of cloud-based infrastructure to host Confluent Cloud.
Biggest changeIn particular, any challenges in connection with our shift to a consumption-oriented sales model for Confluent Cloud may adversely impact our ability to meet our sales forecasts, cause delays in our sales cycle, result in attrition among our sales personnel, and result in increased costs, any of which would harm our growth, business, results of operations, and financial condition. • If we are unable to attract new customers or expand our potential customer and sales pipeline, our business, financial condition, and results of operations will be adversely affected. 18 Table of Contents • Our business depends on our existing customers renewing their subscriptions and usage-based commitments, purchasing additional subscriptions and usage-based commitments, and expanding their use of our offering. • If we fail to maintain and enhance our brand, including among developers, our ability to expand our customer base will be impaired and our business, financial condition, and results of operations may suffer. • The markets in which we participate are competitive, and if we do not compete effectively, our business, financial condition, and results of operations could be harmed. • We expect fluctuations in our financial results and key metrics, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price and the value of your investment could decline. • If we, or third parties upon which we rely, experience a security incident compromising the confidentiality, integrity, or availability of our information technology, software, services, communications, or data, we could experience adverse consequences resulting from such compromise, including but not limited to, reputational harm, a reduction in the demand for our offering, regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, or other adverse consequences. • We rely on third-party providers of cloud-based infrastructure to host Confluent Cloud.
While we have experienced significant revenue growth in recent periods, we are not certain whether or when we will obtain or maintain a high enough volume of sales or level of market acceptance to achieve or maintain profitability in the future.
While we have experienced significant revenue growth in certain recent periods, we are not certain whether or when we will obtain or maintain a high enough volume of sales or level of market acceptance to achieve or maintain profitability in the future.
Under the EU GDPR, noncompliant companies face fines of up to the greater of 20 million Euros or 4% of their global annual revenues for major violations and up to the greater of £17.5m or up to 4% of annual global revenues in respect of the UK GDPR.
For major violations, noncompliant companies face fines of up to the greater of 20 million Euros or 4% of their global annual revenues under the EU GDPR and up to the greater of £17.5m or up to 4% of annual global revenues in respect of the UK GDPR.
Any patents, trademarks or other intellectual property rights that we have or may obtain may be challenged or circumvented by others or invalidated or held unenforceable through administrative process, including re-examination, inter partes review, interference and derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings), or litigation. We have a limited patent portfolio.
Any patents, trademarks or other intellectual property rights that we have or may obtain may be challenged or circumvented by others or invalidated or held unenforceable through administrative process, including re-examination, inter partes review, interference and derivation proceedings, equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings), or litigation. We have a limited patent portfolio.
In addition, we expect to continue to expend substantial financial and other resources on: • expansion and enablement of our sales, services, and marketing organization to increase brand awareness and drive adoption of our offering; • product development, including investments in our product development team and the development of new products and new features and functionality for our offering to expand use cases and provide feature parity across third-party public cloud platforms, as well as investments in further differentiating our existing offering; • our cloud infrastructure technology, including systems architecture, scalability, availability, performance, and security; • technology and sales channel partnerships, including cloud marketplaces; • international expansion; • acquisitions or strategic investments; and • general administration, including increased legal and accounting expenses associated with being a public company.
In addition, we expect to continue to expend substantial financial and other resources on: • expansion and enablement of our sales, services, and marketing organization to increase brand awareness and drive adoption and consumption of our offering; • product development, including investments in our product development team and the development of new products and new features and functionality for our offering to expand use cases and provide feature parity across third-party public cloud platforms, as well as investments in further differentiating our existing offering; • our cloud infrastructure technology, including systems architecture, scalability, availability, performance, and security; • technology and sales channel partnerships, including cloud marketplaces; • international expansion; • acquisitions or strategic investments; and • general administration, including increased legal and accounting expenses associated with being a public company.
Further, we have experienced, and in future periods, may continue to experience, slower revenue growth or our revenue could decline for a number of reasons, including shifts in our offering and revenue mix, slowing demand for our offering, increasing competition, decreased productivity of our sales and marketing organization and effectiveness of our sales and marketing efforts to acquire new customers, retain existing customers or expand existing subscriptions and usage-based minimum commitments, strategic focus on operating efficiencies and margin improvements, changing technology, a decrease in the growth of our overall market, our failure, for any reason, to continue to take advantage of growth opportunities, or our failure to adapt and respond to inflationary factors affecting our business or future economic recessions.
Further, we have experienced, and in future periods, may continue to experience, slower revenue growth, and our revenue could decline for a number of reasons, including shifts in our offering and revenue mix, slowing demand for our offering, increasing competition, decreased productivity of our sales and marketing organization and effectiveness of our sales and marketing efforts to acquire new customers, retain existing customers or expand existing subscriptions and usage-based commitments, strategic focus on operating efficiencies and margin improvements, changing technology, a decrease in the growth of our overall market, our failure, for any reason, to continue to take advantage of growth opportunities, or our failure to adapt and respond to inflationary factors affecting our business or future economic recessions.
The market price of our Class A common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including: • actual or anticipated fluctuations in our financial condition or results of operations, including due to fluctuations in usage of Confluent Cloud and strategic shifts in our focus on growth versus operating efficiency, margin improvement, and profitability; • variance in our financial performance, including sales growth and operating margins, from our forecasts or the expectations of securities analysts; • changes in our revenue mix; • changes in the pricing of our offering; • changes in our projected operating and financial results; • changes in laws or regulations applicable to our offering; • seasonality in sales, customer implementations, results of operations, and RPO; • announcements by us or our competitors of significant business developments, acquisitions, or new offerings; • significant data breaches, disruptions to or other incidents involving our offering; • our involvement in litigation or regulatory actions; • future sales of our Class A common stock and Class B common stock by us or our stockholders; • changes in senior management or key personnel; • the trading volume of our Class A common stock; • financial results, changes in operating performance and stock market valuations of technology companies in our industry segment, including our partners and competitors; • changes in the anticipated future size and growth rate of our market; and • general political, social, economic and market conditions, in both domestic and our foreign markets, including effects of increased interest rates, inflationary pressures, and macroeconomic uncertainty and challenges; and • actual or perceived risk of economic recession.
The market price of our Class A common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including: • actual or anticipated fluctuations in our financial condition or results of operations, including due to fluctuations in usage of Confluent Cloud and strategic shifts in our focus on growth versus operating efficiency, margin improvement, and profitability; • variance in our financial performance, including sales growth and operating margins, from our forecasts or the expectations of securities analysts; • changes in our revenue mix; • changes in the pricing of our offering; • changes in our projected operating and financial results; • changes in laws or regulations applicable to our offering; • seasonality in sales, customer implementations, results of operations, and RPO; • announcements by us or our competitors of significant business developments, acquisitions, or new offerings; • significant data breaches, disruptions to or other incidents involving our offering; • our involvement in litigation or regulatory actions; • future sales of our Class A common stock and Class B common stock by us or our stockholders; • changes in senior management or key personnel; • the trading volume of our Class A common stock; • financial results, changes in operating performance and stock market valuations of technology companies in our industry segment, including our partners and competitors; • changes in the anticipated future size and growth rate of our market; • general political, social, economic and market conditions, in both domestic and our foreign markets, including effects of increased interest rates, inflationary pressures, bank failures and macroeconomic uncertainty and challenges; and • actual or perceived risk of economic recession.
The remainder, constituting post-contract customer support, maintenance, and upgrades, referred to together as PCS, comprises the substantial majority of the revenue and is recognized ratably over the subscription term. Customers may use Confluent Cloud either without a minimum commitment contract, which we refer to as pay-as-you-go, or on a usage-based minimum commitment contract of at least one year in duration.
The remainder, constituting post-contract customer support, maintenance, and upgrades, referred to together as PCS, comprises the substantial majority of the revenue and is recognized ratably over the subscription term. Customers may use Confluent Cloud either without a commitment contract, which we refer to as pay-as-you-go, or on a usage-based commitment contract of at least one year in duration.
Our current and future international business and operations involve a variety of risks, including: • slower than anticipated availability and adoption of cloud infrastructure or cloud-native products by international businesses; • changes in a specific country’s or region’s political or economic conditions, including in the UK as a result of Brexit; • the need to adapt and localize our offering for specific countries; • greater difficulty collecting accounts receivable and longer payment cycles; • potential changes in trade relations, regulations, or laws; • unexpected changes in laws, regulatory requirements, or tax laws; • interest rates, as well as changes in existing and expected interest rates, which may vary across the jurisdictions in which we do business; • more stringent regulations relating to data privacy, security, and data localization requirements and the unauthorized use of, or access to, commercial and personal information; • differing and potentially more onerous labor regulations, especially in Europe, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs that are specific to each jurisdiction; • potential changes in laws, regulations, and costs affecting our UK operations and local employees due to Brexit; • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems; 51 Table of Contents • increased travel, real estate, infrastructure, and legal compliance costs associated with international operations; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and challenges to international customers due to a rise in the value of the U.S. dollar; • the cost and risk of entering into hedging transactions; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • laws and business practices favoring local competitors or general market preferences for local vendors; • limited or insufficient intellectual property protection or difficulties obtaining, maintaining, protecting, or enforcing our intellectual property rights, including our trademarks and patents; • political instability, economic sanctions, terrorist activities, or international conflicts, including the ongoing conflict between Russia and Ukraine, which have impacted and may continue to impact the operations of our business or the businesses of our customers; • inflationary pressures, such as those the global market is currently experiencing, which have increased and may continue to increase costs for certain services; • health epidemics or pandemics, such as the COVID-19 pandemic; • actual or perceived risk of economic recession; • exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S.
Our current and future international business and operations involve a variety of risks, including: • slower than anticipated availability and adoption of cloud infrastructure or cloud-native products by international businesses; • changes in a specific country’s or region’s political or economic conditions, including in the UK as a result of Brexit; • the need to adapt and localize our offering for specific countries; • greater difficulty collecting accounts receivable and longer payment cycles; • potential changes in trade relations, regulations, or laws; • unexpected changes in laws, regulatory requirements, or tax laws; • interest rates, as well as changes in existing and expected interest rates, which may vary across the jurisdictions in which we do business; • more stringent regulations relating to data privacy, security, and data localization requirements and the unauthorized use of, or access to, commercial and personal information; • differing and potentially more onerous labor regulations, especially in Europe, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs that are specific to each jurisdiction; • potential changes in laws, regulations, and costs affecting our UK operations and local employees due to Brexit; • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems; 55 Table of Contents • increased travel, real estate, infrastructure, and legal compliance costs associated with international operations; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and challenges to international customers due to a rise in the value of the U.S. dollar; • the cost and risk of entering into hedging transactions; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • laws and business practices favoring local competitors or general market preferences for local vendors; • limited or insufficient intellectual property protection or difficulties obtaining, maintaining, protecting, or enforcing our intellectual property rights, including our trademarks and patents; • political instability, economic sanctions, terrorist activities, or international conflicts, including the ongoing conflicts between Russia and Ukraine and in the Middle East, which have impacted and may continue to impact the operations of our business or the businesses of our customers; • inflationary pressures, such as those the global market is currently experiencing, which have increased and may continue to increase costs for certain services; • health epidemics or pandemics, such as the COVID-19 pandemic; • actual or perceived risk of economic recession; • exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S.
Our customers also include certain non-U.S. governments, to which government procurement law risks similar to those present in U.S. government contracting also apply, particularly in certain emerging markets where our customer base is less established. In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources.
Our customers also include certain non-U.S. governments, to which government procurement law risks similar to those present in U.S. government contracting also apply, particularly in certain emerging markets where our customer base is less established. Compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources.
Because the source code for any software we contribute to open source projects, including Apache Kafka, or distribute under open source or source-available licenses is publicly available, our ability to protect our intellectual property rights with respect to such source code may be limited or lost entirely, and we may be limited in our ability to prevent our competitors or others from using such contributed source code.
Because the source code for any software we contribute to open source projects, including Apache Kafka and Apache Flink, or distribute under open source or source-available licenses is publicly available, our ability to protect our intellectual property rights with respect to such source code may be limited or lost entirely, and we may be limited in our ability to prevent our competitors or others from using such contributed source code.
Our competitors or members of the open source community may also develop a new open source project or a closed-source proprietary product that is similar to and superior to Apache Kafka in terms of features or performance, in turn gaining popularity or replacing Apache Kafka as the new standard for data-in-motion technology among developers and other users.
Our competitors or members of the open source community may also develop a new open source project or a closed-source proprietary product that is similar to or superior to Apache Kafka or Apache Flink in terms of features or performance, in turn gaining popularity or replacing Apache Kafka as the new standard for data-in-motion technology among developers and other users.
Additionally, in order to retain our existing employees and manage potential attrition, including as a result of recent stock price decreases and continued market volatility that impact the actual or perceived value of our equity awards, we have issued and may in the future issue additional equity awards, which could negatively impact our results of operations.
Additionally, in order to retain our existing employees and manage potential attrition, including as a result of stock price decreases and continued market volatility that impact the actual or perceived value of our equity awards, we have issued and may in the future issue additional equity awards, which could negatively impact our results of operations.
With open source software, competitors can also develop competing products without the amount of overhead and lead time required for traditional proprietary software development. In addition, if competing products are also based on or compatible with Apache Kafka, existing customers may also be able to easily transfer their applications to competing products.
With open source software, competitors can also develop competing products without the amount of overhead and lead time required for traditional proprietary software development. In addition, if competing products are also based on or compatible with Apache Kafka or Apache Flink, existing customers may also be able to easily transfer their applications to competing products.
Overall growth of our revenue depends on a number of factors, including our ability to: • market and price our offering effectively so that we are able to attract new customers and expand sales to our existing customers; • invest in the growth of our business while adjusting our cost structure to focus on operating efficiency and improved margins; • successfully develop a substantial customer and sales pipeline for our products; • expand the features and functionality of our offering to enable additional use cases for our customers; • continue investing in our sales and marketing function to support our growth, and reduce the time for new sales personnel to achieve desired productivity levels; • extend our product leadership to expand our addressable market; • differentiate our offering from open source alternatives and products offered by our competitors; • maintain and expand the rates at which new customers purchase and existing customers renew subscriptions and committed use of our offering and increase consumption of our offering, including in light of the evolving macroeconomic environment; • provide our customers with support that meets their needs; 19 Table of Contents • expand our partner ecosystem, including with major cloud providers, independent software vendors (ISVs), and regional and global systems integrators; • increase awareness of our brand on a global basis to successfully compete with other companies; and • expand to new international markets and grow within existing markets.
Overall growth of our revenue depends on a number of factors, including our ability to: • market and price our offering effectively so that we are able to attract new customers and expand sales to our existing customers; • invest in the growth of our business while adjusting our cost structure to focus on operating efficiency and improved margins; • successfully develop a substantial customer and sales pipeline for our products; • expand the features and functionality of our offering to enable additional use cases for our customers; • continue investing in our sales and marketing function to support our growth, reduce the time for new sales personnel to achieve desired productivity levels, and successfully shift to a consumption-oriented sales model; 19 Table of Contents • extend our product leadership to expand our addressable market; • differentiate our offering from open source alternatives and products offered by our competitors; • maintain and expand the rates at which new customers purchase and existing customers renew subscriptions and committed use of our offering and increase consumption of our offering, including in light of the evolving macroeconomic environment; • provide our customers with support that meets their needs; • expand our partner ecosystem, including with major cloud providers, independent software vendors (ISVs), and regional and global systems integrators; • increase awareness of our brand on a global basis to successfully compete with other companies; and • expand to new international markets and grow within existing markets.
As a result, the future of Apache Kafka and other open source software could change dramatically and such change in trajectory, use and acceptance in the marketplace and resulting competitive pressure could result in reductions in the prices we charge for our offering, loss of market share, and adversely affect our business operations and financial outlook.
As a result, the future of Apache Kafka, Apache Flink and other open source software could change dramatically and such change in trajectory, use and acceptance in the marketplace and resulting competitive pressure could result in reductions in the prices we charge for our offering, loss of market share, and adversely affect our business operations and financial outlook.
Our existing sales and marketing strategies for new customer acquisition may also be unsuccessful. For example, we offer free, limited evaluation and developer usage of Confluent Platform and free introductory usage of Confluent Cloud to encourage awareness, usage, familiarity, and adoption, and a pay-as-you-go arrangement for Confluent Cloud without minimum usage commitments.
Our existing sales and marketing strategies for new customer acquisition may also be unsuccessful. For example, we offer free, limited evaluation and developer usage of Confluent Platform and free introductory usage of Confluent Cloud to encourage awareness, usage, familiarity, and adoption, and a pay-as-you-go arrangement for Confluent Cloud without usage commitments.
As a result, any decreases in new subscriptions or renewals in any one period may not immediately be fully reflected as a decrease in revenue for that period but would negatively affect our revenue in future quarters, even though such a decrease would be reflected in certain of our key metrics as of the end of such period, including RPO.
As a result, any decreases in new subscriptions or renewals in any one period may not immediately be fully reflected as a decrease in revenue for that period but would negatively affect our revenue in future quarters, even though such a decrease would be reflected in certain of our metrics as of the end of such period, including RPO.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. 57 Table of Contents Risks Related to Ownership of Our Class A Common Stock The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to the IPO, including our executive officers, employees, and directors and their affiliates, and limiting your ability to influence corporate matters, which could adversely affect the trading price of our Class A common stock.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. 61 Table of Contents Risks Related to Ownership of Our Class A Common Stock The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to the IPO, including our executive officers, employees, and directors and their affiliates, and limiting your ability to influence corporate matters, which could adversely affect the trading price of our Class A common stock.
Our future success depends in part on our ability to expand our customers’ use of our offering into additional use cases, our customers renewing their subscriptions and usage-based minimum commitments, and our ability to develop our offering for additional use cases and applications. The terms of our subscriptions and usage-based minimum commitments are primarily one year in duration.
Our future success depends in part on our ability to expand our customers’ use of our offering into additional use cases, our customers renewing their subscriptions and usage-based commitments, and our ability to develop our offering for additional use cases and applications. The terms of our subscriptions and usage-based commitments are primarily one year in duration.
If we are unable to successfully convert these free users into paying customers, or convert pay-as-you-go customers into customers with usage-based minimum commitments, we will not realize the intended benefits of this marketing and adoption strategy.
If we are unable to successfully convert these free users into paying customers, or convert pay-as-you-go customers into customers with usage-based commitments, we will not realize the intended benefits of this marketing and adoption strategy.
While we have taken steps aimed at improving our operating efficiency, including our recent Restructuring Plan, we cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business.
While we have taken steps aimed at improving our operating efficiency, including our Restructuring Plan, we cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business.
While our recent Restructuring Plan is expected to streamline sales and marketing spend, we expect to continue investing significant financial and other resources in our sales and marketing efforts, which will result in increased costs and impact our margins and results of operations.
While our Restructuring Plan is expected to streamline sales and marketing spend, we expect to continue investing significant financial and other resources in our sales and marketing efforts, which will result in increased costs and impact our margins and results of operations.
In addition, as some customers transition from Confluent Platform to Confluent Cloud, our dollar-based net retention rate may decline or fluctuate, at least in the short term, as those customers replace subscriptions to Confluent Platform with usage-based minimum commitments.
In addition, as some customers transition from Confluent Platform to Confluent Cloud, our dollar-based net retention rate may decline or fluctuate, at least in the short term, as those customers replace subscriptions to Confluent Platform with usage-based commitments.
The imposition by state or local governments of sales tax collection obligations on out-of-state sellers also could create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could have a material adverse effect on our business and results of operations. 55 Table of Contents Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
The imposition by state or local governments of sales tax collection obligations on out-of-state sellers also could create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could have a material adverse effect on our business and results of operations. 59 Table of Contents Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
Pay-as-you-go customers are billed, and revenue from them is recognized, based on usage. Customers with usage-based minimum commitments are billed annually in advance or monthly in arrears, and we recognize revenue from such subscriptions based on usage by the customer.
Pay-as-you-go customers are billed, and revenue from them is recognized, based on usage. Customers with usage-based commitments are billed annually in advance or monthly in arrears, and we recognize revenue from such subscriptions based on usage by the customer.
Because the market for our offering is relatively new, it is difficult to predict customer adoption, increased customer usage and demand for our offering, the size and growth rate of this market, the entry of competitive products, or the success of existing competitive products.
Because the market for our offerings is relatively new, it is difficult to predict customer adoption, increased customer usage and demand for our offering, the size and growth rate of this market, the entry of competitive products, or the success of existing competitive products.
The technology underlying our offering has evolved from certain open source software, such as Apache Kafka, and as a result we cannot exclude other companies from adopting and modifying certain common elements of our software and that of such open source software.
The technology underlying our offering has evolved from certain open source software, such as Apache Kafka and Apache Flink, and as a result we cannot exclude other companies from adopting and modifying certain common elements of our software and that of such open source software.
If we are not able to successfully hedge against the risks associated with fluctuations in these currencies or if we do not hedge a sufficient portion of such operating expenses, our financial condition and results of operations could be adversely affected. 52 Table of Contents Risks Related to Our Tax, Legal, and Regulatory Environment We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls.
If we are not able to successfully hedge against the risks associated with fluctuations in these currencies or if we do not hedge a sufficient portion of such operating expenses, our financial condition and results of operations could be adversely affected. 56 Table of Contents Risks Related to Our Tax, Legal, and Regulatory Environment We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls.
It is difficult to predict customer adoption rates and demand for our offering, the entry of competitive products or the future growth rate and size of the data infrastructure market.
It is difficult to predict customer adoption rates, consumption, and demand for our offering, the entry of competitive products or the future growth rate and size of the data infrastructure market.
As a result, in the future we may be required to reduce our prices or increase our discounting, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow. 40 Table of Contents Sales to enterprise customers involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations.
As a result, in the future we may be required to reduce our prices or increase our discounting, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow. 43 Table of Contents Sales to enterprise customers involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations.
Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following: 47 Table of Contents • cease selling or using offerings that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate; • make substantial payments for legal fees, settlement payments, or other costs or damages; • obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or • redesign the allegedly infringing offerings to avoid infringement, misappropriation or violation, which could be costly, time-consuming, or impossible.
Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following: • cease selling or using offerings that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate; • make substantial payments for legal fees, settlement payments, or other costs or damages; • obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or • redesign the allegedly infringing offerings to avoid infringement, misappropriation or violation, which could be costly, time-consuming, or impossible.
Any decreased use of our offering or limitation on our ability to export or sell our offering would adversely affect our business, results of operations, and growth prospects. 53 Table of Contents We are subject to anti-corruption, anti-bribery, anti-money laundering, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition, and results of operations.
Any decreased use of our offering or limitation on our ability to export or sell our offering would adversely affect our business, results of operations, and growth prospects. 57 Table of Contents We are subject to anti-corruption, anti-bribery, anti-money laundering, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition, and results of operations.
As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our Class A common stock and diluting their interests. 32 Table of Contents Investors’ and other stakeholders’ expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our Class A common stock and diluting their interests. 34 Table of Contents Investors’ and other stakeholders’ expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. 41 Table of Contents Risks Related to Our Customers If we are unable to attract new customers or expand our potential customer and sales pipeline, our business, financial condition, and results of operations will be adversely affected.
Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. 44 Table of Contents Risks Related to Our Customers If we are unable to attract new customers or expand our potential customer and sales pipeline, our business, financial condition, and results of operations will be adversely affected.
If the use of the internet is adversely affected by these issues, demand for our subscription offering and related services could suffer. 54 Table of Contents Our international operations may subject us to greater than anticipated tax liabilities. We are expanding our international operations to better support our growth into international markets.
If the use of the internet is adversely affected by these issues, demand for our subscription offering and related services could suffer. 58 Table of Contents Our international operations may subject us to greater than anticipated tax liabilities. We are expanding our international operations to better support our growth into international markets.
Each of these difficulties could harm our business and results of operations. 31 Table of Contents Acquisitions, strategic investments, joint ventures, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business and culture, dilute stockholder value, and adversely affect our business, financial condition, and results of operations.
Each of these difficulties could harm our business and results of operations. 33 Table of Contents Acquisitions, strategic investments, joint ventures, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business and culture, dilute stockholder value, and adversely affect our business, financial condition, and results of operations.
We may also be bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example, data privacy laws including the GDPR and CCPA increasingly require companies to impose specific contractual restrictions on their service providers or processors.
We may also be bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example, data privacy laws including the EU GDPR, UK GDPR, and CCPA increasingly require companies to impose specific contractual restrictions on their service providers or processors.
Significant estimates and judgments involve revenue recognition, deferred contract costs, and the valuation of our stock-based compensation awards, among others.
Significant estimates and judgments involve revenue recognition, deferred contract acquisition costs, and the valuation of our stock-based compensation awards, among others.
Our subscriptions and services are billed in U.S. dollars, and therefore, our revenue is not subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our offering to our customers outside of the United States, which could adversely affect our results of operations.
Substantially all of our subscriptions and services are billed in U.S. dollars, and therefore, our revenue is not subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our offering to our customers outside of the United States, which could adversely affect our results of operations.
If we do not replace departing employees on a timely basis, our business and growth may be harmed. 50 Table of Contents Risks Related to Our International Operations If we are not successful in expanding our operations and customer base internationally, our business and results of operations could be negatively affected.
If we do not replace departing employees on a timely basis, our business and growth may be harmed. 54 Table of Contents Risks Related to Our International Operations If we are not successful in expanding our operations and customer base internationally, our business and results of operations could be negatively affected.
Our inability or failure to do so could result in adverse consequences. 37 Table of Contents Foreign laws relating to data privacy and security are also undergoing a period of rapid change and have become more stringent in recent years.
Our inability or failure to do so could result in adverse consequences. 39 Table of Contents Foreign laws relating to data privacy and security are also undergoing a period of rapid change and have become more stringent in recent years.
We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price and the value of your investment could decline.
We expect fluctuations in our financial results and key metrics, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price and the value of your investment could decline.
All of the foregoing could make it difficult or impossible for us to provide subscriptions and services that compete favorably with those of the public cloud providers. With the introduction of new technologies, market entrants, and open source alternatives, including those based on Apache Kafka, we expect that the competitive environment will remain intense going forward.
All of the foregoing could make it difficult or impossible for us to provide subscriptions and services that compete favorably with those of the public cloud providers. 25 Table of Contents With the introduction of new technologies, market entrants, and open source alternatives, including those based on Apache Kafka, we expect that the competitive environment will remain intense going forward.
If we are unable to respond to evolving customer needs, requirements, or preferences in a cost-effective manner, our offering may become less marketable and less competitive or obsolete, and our business, financial condition, and results of operations could be adversely affected. 29 Table of Contents The market for our offering may develop more slowly or differently than we expect.
If we are unable to respond to evolving customer needs, requirements, or preferences in a cost-effective manner, our offering may become less marketable and less competitive or obsolete, and our business, financial condition, and results of operations could be adversely affected. The market for our offering may develop more slowly or differently than we expect.
This may also harm our competitive position against larger enterprises whose competitive offerings are FedRAMP authorized. Further, there can be no assurance that we will secure commitments or contracts with government entities even following such certifications, which could harm our margins, business, financial condition, and results of operations.
This may also harm our competitive position against larger enterprises whose competitive offerings are FedRAMP authorized. Further, there can be no assurance that we will secure commitments or contracts with government entities even if we obtain such certifications, which could harm our margins, business, financial condition, and results of operations.
Any expansion in our market depends on a number of factors, including the cost, performance, and perceived value associated with our platform for data in motion and those of our competitors. Even if the market in which we compete meets our size estimates and growth forecasts, our business could fail to grow at similar rates, if at all.
Any expansion in our market depends on a number of factors, including the cost, performance, and perceived value associated with our data streaming platform and those of our competitors. Even if the market in which we compete meets our size estimates and growth forecasts, our business could fail to grow at similar rates, if at all.
Any of these outcomes or failures could also adversely affect our business, financial condition, and results of operations. Risks Related to Our Intellectual Property We use third-party open source software in our offering, which could negatively affect our ability to sell our offering or subject us to litigation or other actions.
Any of these outcomes or failures could also adversely affect our business, financial condition, and results of operations. 47 Table of Contents Risks Related to Our Intellectual Property We use third-party open source software in our offering, which could negatively affect our ability to sell our offering or subject us to litigation or other actions.
We may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business. Our success depends, in part, on our ability to develop and commercialize our offering without infringing, misappropriating or otherwise violating the intellectual property rights of third parties.
We may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business. 50 Table of Contents Our success depends, in part, on our ability to develop and commercialize our offering without infringing, misappropriating or otherwise violating the intellectual property rights of third parties.
In addition, the success of our business is substantially dependent on the actual and perceived viability, benefits, and advantages of our offering as a preferred platform for data in motion, particularly when compared to open source alternatives developed internally by customers. As such, market adoption of our offering is critical to our continued success.
In addition, the success of our business is substantially dependent on the actual and perceived viability, benefits, and advantages of our offering as a preferred data streaming platform, particularly when compared to open source alternatives developed internally by customers. As such, market adoption of our offering is critical to our continued success.
If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster and to execute successfully on those plans in the event of a disaster or emergency, our business would be harmed. Climate change may have an impact on our business.
If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster and to execute successfully on those plans in the event of a disaster or emergency, our business would be harmed. 68 Table of Contents Climate change may have an impact on our business.
If we fail to meet these commitments, we could face customer terminations, a reduction in renewals, and damage to our reputation, which would lower our revenue and harm our business, financial condition, and results of operations. Our agreements with our customers contain uptime and response service-level commitments.
We typically provide service-level commitments under our customer agreements. If we fail to meet these commitments, we could face customer terminations, a reduction in renewals, and damage to our reputation, which would lower our revenue and harm our business, financial condition, and results of operations. Our agreements with our customers contain uptime and response service-level commitments.
We have only recently established an internal audit group, and as we continue to grow, we may hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
We have established an internal audit group, and as we continue to grow, we may hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
As a result, the trading price, volume, and liquidity of our Class A common stock could be adversely affected. 58 Table of Contents Our stock price may be volatile, and the value of our Class A common stock may decline.
As a result, the trading price, volume, and liquidity of our Class A common stock could be adversely affected. 62 Table of Contents Our stock price may be volatile, and the value of our Class A common stock may decline.
Our professional services business, which engages with customers to help them in their strategy, architecture, and adoption of a platform for data in motion, has grown as we have scaled our business. We believe our investment in professional services facilitates the adoption of our offering, especially with larger customers.
Our professional services business, which engages with customers to help them in their strategy, architecture, and adoption of a data streaming platform, has grown as we have scaled our business. We believe our investment in professional services facilitates the adoption of our offering, especially with larger customers.
Any of these results could adversely affect our business, financial condition, and results of operations. Real or perceived errors, failures, bugs, or defects in our offering could adversely affect our reputation and harm our business. Our offering and platform for data in motion are complex and, like all software, may contain undetected defects or errors.
Any of these results could adversely affect our business, financial condition, and results of operations. Real or perceived errors, failures, bugs, or defects in our offering could adversely affect our reputation and harm our business. Our offering and data streaming platform are complex and, like all software, may contain undetected defects or errors.
If we are not successful in achieving this goal, our business, financial condition, and results of operations may be harmed. If we are unable to successfully manage the growth of our professional services business and improve our margins from these services, our business, financial condition, and results of operations will be harmed.
If we are not successful in achieving this goal, our business, financial condition, and results of operations may be harmed. 31 Table of Contents If we are unable to successfully manage the growth of our professional services business and improve our margins from these services, our business, financial condition, and results of operations will be harmed.
These claims, even if unsuccessful, could be costly and time consuming to defend and could harm our business, financial condition, results of operations, and cash flows. 36 Table of Contents Interruptions or performance problems associated with our offering may adversely affect our business, financial condition, and results of operations.
These claims, even if unsuccessful, could be costly and time consuming to defend and could harm our business, financial condition, results of operations, and cash flows. Interruptions or performance problems associated with our offering may adversely affect our business, financial condition, and results of operations.
If our customers do not renew their subscriptions and/or usage-based minimum commitments, expand their use of our offering, and purchase additional products from us, our revenue may decline and our business, financial condition, and results of operations may be harmed. 42 Table of Contents If we or any of our partners fail to offer high-quality support, our reputation could suffer.
If our customers do not renew their subscriptions and/or usage-based commitments, expand their use of our offering, and purchase additional products from us, our revenue may decline and our business, financial condition, and results of operations may be harmed. If we or any of our partners fail to offer high-quality support, our reputation could suffer.
We use third-party open source software in our offering, most significantly Apache Kafka, and we expect to continue to incorporate such open source software in our offering in the future.
We use third-party open source software in our offering, most significantly Apache Kafka and including Apache Flink, and we expect to continue to incorporate such open source software in our offering in the future.
As a result, our shifts in sales strategy focused on customer acquisition for Confluent Cloud could result in near term fluctuations in our financial results as compared to prior periods, particularly if previous Confluent Platform customers shift to Confluent Cloud, given that subscriptions to Confluent Cloud have historically had a lower average price compared to subscriptions to Confluent Platform.
As a result, our shifts in sales strategy focused on customer acquisition for Confluent Cloud and a consumption-oriented sales model could result in near term fluctuations in our financial results as compared to prior periods, particularly if previous Confluent Platform customers shift to Confluent Cloud, given that subscriptions to Confluent Cloud have historically had a lower average price compared to subscriptions to Confluent Platform.
Competitors with greater resources than ours or members of the Apache Kafka community may create similar or superior offerings, or modify Apache Kafka with different, superior features, and could make such products available to the public free of charge.
Competitors with greater resources than ours or members of the Apache Kafka or Apache Flink communities may create similar or superior offerings, or modify Apache Kafka or Apache Flink with different, superior features, and could make such products available to the public free of charge.
Future acquisitions could also expose us to additional cybersecurity risks and vulnerabilities from any newly acquired information technology infrastructure. 34 Table of Contents In addition, our reliance on third-party service providers could introduce new cybersecurity risks and vulnerabilities, including supply-chain attacks, and other threats to our business operations.
Future acquisitions could also expose us to additional cybersecurity risks and vulnerabilities from any newly acquired information technology infrastructure. In addition, our reliance on third-party service providers could introduce new cybersecurity risks and vulnerabilities, including supply-chain attacks, and other threats to our business operations.
Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, inflation and efforts to control further inflation, including rising interest rates, international trade relations, political turmoil, natural catastrophes, warfare, and terrorist attacks on the United States, Europe, the Asia Pacific region, including Japan, or elsewhere, could cause a decrease in business investments by existing or potential customers, including spending on information technology, and negatively affect the growth of our business.
Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, inflation and efforts to control further inflation, including rising interest rates, bank failures, international trade relations, political turmoil, potential U.S. federal government shutdowns, natural catastrophes, warfare, and terrorist attacks on the United States, Europe, the Asia Pacific region, including Japan, or elsewhere, could cause a decrease in business investments by existing or potential customers, including spending on information technology, and negatively affect the growth of our business.
If our assumptions regarding these risks and uncertainties and our future revenue growth are incorrect or change, 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. 21 Table of Contents Macroeconomic uncertainty, unfavorable conditions in our industry or the global economy, including those caused by the ongoing conflict between Russia and Ukraine, reductions in information technology spending, or inflation, have impacted, and may continue to impact our ability to grow our business and negatively affect our results of operations.
If our assumptions regarding these risks and uncertainties and our future revenue growth are incorrect or change, 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. 21 Table of Contents Macroeconomic uncertainty, unfavorable conditions in our industry or the global economy, including those caused by the ongoing conflicts around the world, reductions in information technology spending, or inflation, have impacted and may continue to impact our ability to grow our business and negatively affect our results of operations.
Our growth will depend in large part on enabling additional use cases for our customers after they initially adopt our offering, ranging from industry-specific use cases to use cases generated by the network effects of connecting multiple applications within an enterprise.
Our growth will depend in large part on enabling additional use cases for our customers after they initially adopt our offering, ranging from industry-specific use cases, including generative AI (“GenAI”) use cases, to use cases generated by the network effects of connecting multiple applications within an enterprise.
Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights. 46 Table of Contents We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other third parties, including suppliers and other partners.
Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights. We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other third parties, including suppliers and other partners.
In addition, as of December 31, 2022, we had foreign NOL carryforwards of $60.8 million which can be carried forward indefinitely. A lack of future taxable income would adversely affect our ability to utilize these NOLs before they expire.
In addition, as of December 31, 2023, we had foreign NOL carryforwards of $60.3 million which can be carried forward indefinitely. A lack of future taxable income would adversely affect our ability to utilize these NOLs before they expire.
We compete on the basis of a number of factors, including: • ease of deployment, integration, and use; 25 Table of Contents • enterprise-grade data in motion; • the cloud-native capabilities of our offering; • the ability to operate at scale and offer elasticity, end-to-end security, and reliability; • the completeness of our offering, including as a complete platform for data in motion, and our ability to offer rich SQL-based stream processing, integrated governance capabilities, and connectors to existing applications and IT and cloud infrastructure; • the availability of our offering, including in multiple public clouds, and for use in private clouds and in on-premise data centers; • quality of professional services and customer support; • price and total cost of ownership; • flexible pricing, such as pay-as-you-go delivery; • sales and marketing productivity and expertise; • brand recognition and reputation; and • adherence to industry standards and certifications.
We compete on the basis of a number of factors, including: • ease of deployment, integration, and use; • enterprise-grade data in motion; • the cloud-native capabilities of our offering; • the ability to operate at scale and offer elasticity, end-to-end security, and reliability; • the completeness of our offering, including as a complete data streaming platform, and our ability to offer rich SQL-based stream processing, integrated governance capabilities, and connectors to existing applications and IT and cloud infrastructure; • the availability of our offering, including in multiple public clouds, and for use in private clouds and in on-premise data centers; • quality of professional services and customer support; • price and total cost of ownership; • flexible pricing, such as pay-as-you-go delivery; • sales and marketing productivity and expertise; • brand recognition and reputation; and • adherence to industry standards and certifications. 26 Table of Contents Our competitors vary in size and in the breadth and scope of the products offered.
While our revenue mix has increasingly shifted toward Confluent Cloud, our business remains substantially dependent on Confluent Platform, our enterprise-ready, self-managed software offering. Confluent Platform contributed 61% and 73% of our subscription revenue for the years ended December 31, 2022 and 2021, respectively.
While our revenue mix has increasingly shifted toward Confluent Cloud, our business remains substantially dependent on Confluent Platform, our enterprise-ready, self-managed software offering. Confluent Platform contributed 52% and 61% of our subscription revenue for the years ended December 31, 2023 and 2022, respectively.
In addition to the other risks described herein, factors that may affect our results of operations include the following: • changes in our revenue mix and related changes in revenue recognition; • changes in actual and anticipated growth rates of our revenue, customers, and key operating metrics; • strategic shifts in focus on growth versus operating efficiency and profitability; • fluctuations in demand for or pricing of our offering; 26 Table of Contents • fluctuations in usage of Confluent Cloud under usage-based minimum commitments and pay-as-you-go arrangements; • our ability to attract new customers; • our ability to retain our existing customers, particularly large customers, and secure renewals of subscriptions and usage-based minimum commitments, as well as the timing of customer renewals or non-renewals; • customer retention rates and the pricing and quantity of subscriptions renewed, as well as our ability to accurately forecast customer expansions and renewals; • downgrades in customer subscriptions; • customers and potential customers opting for alternative products, including developing their own in-house solutions or opting to use only the free version of our offering; • timing and amount of our investments to expand the capacity of our third-party cloud service providers; • seasonality in sales, customer implementations, results of operations (including Confluent Cloud revenue), and remaining performance obligations, or RPO; • investments in new offerings, features, and functionality; • fluctuations or delays in development, release, or adoption of new features and functionality for our offering; • delays in closing sales, including the timing of renewals, which may result in revenue being pushed into the next quarter, particularly because a large portion of our sales occur toward the end of each quarter; • fluctuations or delays in purchasing decisions by existing or future customers, including due to geopolitical or economic conditions such as inflation or in anticipation of new offerings or enhancements by us or our competitors; • changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions, including due to macroeconomic factors and currency exchange rate fluctuations; • our ability to control costs, including hosting costs associated with Confluent Cloud and our operating expenses, and to realize operating efficiencies in connection with the Restructuring Plan; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions; • timing of hiring personnel for our research and development and sales and marketing organizations; • the amount and timing of non-cash expenses, including stock-based compensation expense and other non-cash charges; • the amount and timing of costs associated with recruiting, educating, and integrating new employees and retaining and motivating existing employees; • the effects of acquisitions and their integration; • general geopolitical or economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate; • fluctuations in foreign currency exchange rates; • the impact of new accounting pronouncements; 27 Table of Contents • changes in revenue recognition policies that impact our subscriptions and services revenue; • changes in regulatory or legal environments that may cause us to incur, among other things, expenses associated with compliance; • the impact of changes in tax laws or judicial or regulatory interpretations of tax laws, which are recorded in the period such laws are enacted or interpretations are issued and may significantly affect the effective tax rate of that period; • health epidemics or pandemics, such as the COVID-19 pandemic; • changes in the competitive dynamics of our market, including consolidation among competitors or customers; and • significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our offering.
In addition to the other risks described herein, factors that may affect our results of operations include the following: • changes in our revenue mix as Confluent Cloud’s contribution to subscription revenue increases over time, and related changes in revenue recognition; • changes in actual and anticipated growth rates of our revenue, customers, and key operating metrics, including due to changes in methodology for calculating certain of our key operating metrics; • strategic shifts in focus on growth versus operating efficiency and profitability; • fluctuations in demand for, and our ability to effectively and competitively price, our offering; • fluctuations in usage of Confluent Cloud under usage-based commitments and pay-as-you-go arrangements; • our ability to attract new customers; • our ability to retain our existing customers, particularly large customers, secure renewals of subscriptions and usage-based commitments, as well as the timing of customer renewals or non-renewals, and drive their increased consumption of Confluent Cloud; • customer retention rates and the pricing and quantity of subscriptions renewed, as well as our ability to accurately forecast customer consumption, expansions, and renewals; • downgrades in customer subscriptions or decreased consumption; • customers and potential customers opting for alternative products, including developing their own in-house solutions or opting to use only the free version of our offering; • timing and amount of our investments to expand the capacity of our third-party cloud service providers; 27 Table of Contents • seasonality in sales, customer implementations, results of operations (including Confluent Cloud revenue), and remaining performance obligations, or RPO; • investments in new offerings, features, and functionality; • fluctuations or delays in development, release, or adoption of new features and functionality for our offering; • delays in closing sales, including the timing of renewals, which may result in revenue being pushed into the next quarter, particularly because a large portion of our sales occur toward the end of each quarter; • fluctuations or delays in purchasing decisions by existing or future customers, including due to geopolitical or economic conditions such as inflation or in anticipation of new offerings or enhancements by us or our competitors; • changes in customers’ budgets, consumption, and timing of their budget cycles and purchasing decisions, including due to macroeconomic factors and currency exchange rate fluctuations; • our ability to control costs, including hosting costs associated with Confluent Cloud and our operating expenses, and to realize operating efficiencies in connection with the restructuring actions we commenced in January 2023, or the Restructuring Plan; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions; • timing of hiring personnel for our research and development and sales and marketing organizations; • the amount and timing of non-cash expenses, including stock-based compensation expense and other non-cash charges; • the amount and timing of costs associated with recruiting, educating, and integrating new employees and retaining and motivating existing employees, including in connection with our shift to a consumption-oriented sales model for Confluent Cloud; • the effects of acquisitions and their integration; • general geopolitical or economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate; • fluctuations in foreign currency exchange rates; • the impact of new accounting pronouncements; • changes in revenue recognition policies that impact our subscriptions and services revenue; • changes in regulatory or legal environments that may cause us to incur, among other things, expenses associated with compliance; • the impact of changes in tax laws or judicial or regulatory interpretations of tax laws, which are recorded in the period such laws are enacted or interpretations are issued and may significantly affect the effective tax rate of that period; • health epidemics or pandemics, such as the COVID-19 pandemic; • changes in the competitive dynamics of our market, including consolidation among competitors or customers; and 28 Table of Contents • significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our offering.
Since our customers use our platform for data in motion for important aspects of their business, any actual or perceived errors, defects, bugs, or other performance problems could damage our customers’ businesses.
Since our customers use our data streaming platform for important aspects of their business, any actual or perceived errors, defects, bugs, or other performance problems could damage our customers’ businesses.
Additionally, due to the ongoing COVID-19 pandemic, certain functional areas of our workforce remain in a remote work environment and outside of our corporate network security protection boundaries, which imposes additional risks to our business, including increased risk of industrial espionage, phishing, and other cybersecurity attacks, including those that are state-sponsored or politically motivated, and unauthorized access to or dissemination of sensitive, proprietary, or confidential information.
Additionally, certain functional areas of our workforce remain in a remote work environment and outside of our corporate network security protection boundaries, which imposes additional risks to our business, including increased risk of industrial espionage, phishing, and other cybersecurity attacks, including those that are state-sponsored or politically motivated, and unauthorized access to or dissemination of sensitive, proprietary, or confidential information.
These proposals, recommendations and enactments include changes to the existing framework in respect of income taxes, as well as new types of non-income taxes (such as taxes based on a percentage of revenue or taxes applicable to digital services), which could apply to our business.
These proposals, recommendations and enactments include changes to the existing framework in respect of income taxes, as well as new types of non-income taxes (such as taxes based on a percentage of revenue), which could apply to our business.
In addition, 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, financial condition, and results of operations may be adversely affected.
To the extent that we do not effectively address recovery scenario planning, capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our reputation, business, financial condition, and results of operations may be adversely affected.
Government contracting requirements may also change and in doing so restrict our ability to sell into the government sector until we have obtained any required government certifications. Further, achieving and maintaining government certifications, such as U.S. Federal Risk and Authorization Management Program (FedRAMP) authorization for Confluent Cloud, may require significant upfront cost, time, and resources.
Government contracting requirements may also change and in doing so restrict our ability to sell into the government sector until we have complied with such requirements. Further, achieving and maintaining certain government certifications, such as U.S. Federal Risk and Authorization Management Program (FedRAMP) authorization for Confluent Cloud, may require significant upfront cost, time, and resources.
If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock could decline substantially, and we could face costly lawsuits, including securities class action suits.
If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock would decline substantially, and we could face costly lawsuits, including securities class actions.
We sell to U.S. Federal, state, and local government customers, as well as foreign and governmental agency customers, generally through resellers. Sales to such entities, whether direct or indirect, are subject to a number of challenges and risks.
Federal, state, and local government customers, as well as foreign and governmental agency customers, generally through resellers. Sales to such entities, whether direct or indirect, are subject to a number of challenges and risks.
A component of our growth strategy involves the further expansion of our operations and customer base internationally. Customers outside the United States generated 36% and 38% of our revenue for the years ended December 31, 2021, and December 31, 2022, respectively.
A component of our growth strategy involves the further expansion of our operations and customer base internationally. Customers outside the United States generated 40% and 38% of our revenue for the years ended December 31, 2023 and 2022, respectively.
If our customers use our offering for the transmission or storage of personal information and our security measures are, or are believed to have been, breached, our business may suffer, and we could incur significant liability. 35 Table of Contents If we, or a third party upon whom we rely, experience a security incident that results in the compromise of the confidentiality, integrity, or availability of our systems or the sensitive, proprietary, or confidential information that we own, process, or control, or the perception that one has occurred, this could result in a loss of customer confidence in the security of our platform and damage to our brand, reduce the demand for our offering, disrupt business operations, result in the exfiltration of proprietary data and information, including source code, require us to spend material resources to investigate or correct the incident and to prevent future security incidents, expose us to legal liabilities, including litigation, regulatory enforcement (including investigations, fines, penalties, audits, and inspections), additional oversight, restrictions or bans on processing personal information, indemnity obligations, claims by our customers or other relevant parties that we have failed to comply with contractual obligations to implement specified security measures, and adversely affect our business, financial condition, and results of operations.
If we, or a third party upon whom we rely, experience a security incident that results in the compromise of the confidentiality, integrity, or availability of our systems or the sensitive, proprietary, or confidential information that we own, process, or control, or the perception that one has occurred, this could result in a loss of customer confidence in the security of our platform and damage to our brand, reduce the demand for our offering, disrupt business operations, result in the exfiltration of proprietary data and information, including source code, require us to spend material resources to investigate or correct the incident and to prevent future security incidents, expose us to legal liabilities, including litigation, regulatory enforcement (including investigations, fines, penalties, audits, and inspections), additional oversight, restrictions or bans on processing personal information, indemnity obligations, claims by our customers or other relevant parties that we have failed to comply with contractual obligations to implement specified security measures, and adversely affect our business, financial condition, and results of operations.
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