What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-22 compared with 2021-02-22 · 434 added, 828 removed, 853 unchanged (60% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )  

Consolidated Balance Sheets

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We have audited the accompanying consolidated balance sheets of Qualys, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’

equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, cash flows, and stockholders’

equity  for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

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Our audit procedures related to the tax effects of temporary and permanent differences related to stock-based compensation included the following, among others.

Involved an employee compensation specialist to assess the application of executive compensation rules.

Involved an employee compensation specialist to assess the application of stock-based compensation tax rules.

Obtained management’s permanent and temporary provision calculation and tied out inputs to supporting equity documentation.

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Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 22, 2021 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2021, and our report dated February 22, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting (“Management’s Report”).

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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San Jose, California

February 22, 2021

February 22, 2022

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(in thousands, except per share data)

Current assets:

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281,892  

Accounts receivable, net of allowance of $ 725 and $ 585 at December 31, 2020 and 2019, respectively

Accounts receivable, net of allowance of $ 793 and $ 725 as of December 31, 2021 and 2020, respectively

108,998  

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12,006  

16,795  

Restricted cash

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Accounts payable

$ 1,296  

Accrued liabilities

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12,608  

11,672  

Total current liabilities

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$ 0.001 par value;

20,000,000 shares authorized, no shares issued and outstanding at December 31, 2020 and 2019

Common stock, $ 0.001 par value;

1,000,000,000 shares authorized, 39,252,665 and 39,146,272 shares issued and outstanding at December 31, 2020 and 2019, respectively

20,000 shares authorized, no shares issued and outstanding as of December 31, 2021 and 2020

Common stock:

$ 0.001 par value;

1,000,000 shares authorized, 39,112 and 39,253 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Additional paid-in capital

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Accumulated other comprehensive income (loss)

( 484 )  

Retained earnings

Retained earnings (accumulated deficit)

( 41,655 )  

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Year Ended December 31,

$ 362,963  

$ 321,607  

$ 278,889  

Cost of revenues

79,226  

69,517  

66,185  

283,737  

252,090  

212,704  

Operating expenses:

Research and development

72,548  

68,239  

53,255  

Sales and marketing

67,965  

70,833  

70,039  

General and administrative

46,570  

40,765  

39,049  

Total operating expenses

187,083  

179,837  

162,343  

Income from operations

96,654  

72,253  

50,361  

Other income (expense), net:

Interest expense

( 106 )  

Interest income

Other income (expense), net

( 607 )  

Total other income (expense), net

Total other income, net

Income before income taxes

102,037  

79,983  

55,468  

Provision for (benefit from) income taxes

10,465  

10,647  

$ 91,572  

$ 69,336  

$ 57,304  

Income tax provision

Net income per share:

$ 2.34  

$ 1.77  

$ 1.47  

$ 2.24  

$ 1.68  

$ 1.37  

Weighted average shares used in computing net income per share:

39,167  

39,075  

38,876  

40,823  

41,345  

41,897  

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Year Ended December 31,

$ 91,572  

$ 69,336  

$ 57,304  

Other comprehensive income (loss):

Available-for-sale debt securities:

Change in net unrealized gain (loss), net of tax effect of ($ 128 ), ($ 243 ) and $ 0 in fiscal years 2020, 2019 and 2018, respectively

Reclassification adjustment for net (gain) loss realized and included in net income, net of tax effect of $ 6 , $ 0 and $ 0 in fiscal years 2020, 2019 and 2018

( 19 )  

Total change in unrealized gain on marketable securities, net of tax

Cash flow hedges:

Change in net unrealized gain (loss), net of tax effect of $ 486 , ($ 136 ) and $ 0 in fiscal years 2020, 2019 and 2018, respectively

( 1,613 )  

Reclassification adjustment for net gain realized and included in net income, net of tax effect of $ 129 , $ 35 and $ 0 in fiscal years 2020, 2019 and 2018, respectively

( 435 )  

( 134 )  

Total change in unrealized gain (loss) on cash flow hedges, net of tax

( 2,048 )  

Other comprehensive income (loss), net of tax

( 1,646 )  

Net change in unrealized gains (losses) on available-for-sale debt securities, net of tax

Net change in unrealized gains (losses) on cash flow hedges, net of tax

Other comprehensive income (loss), net of tax

Comprehensive income

$ 89,926  

$ 71,084  

$ 57,292  

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Year Ended December 31,

Cash flows from operating activities:

$ 91,572  

$ 69,336  

$ 57,304  

Cash flow from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense

32,845  

31,201  

28,904  

Write off of noncurrent asset

Bad debt expense

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Stock-based compensation

40,035  

34,892  

30,090  

Amortization of premiums and (accretion of discounts) on marketable securities

( 1,597 )  

Amortization of premiums (accretion of discounts) on marketable securities

Deferred income taxes

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Accounts receivable

( 22,631 )  

( 2,456 )  

Prepaid expenses and other assets

( 2,329 )  

( 6,012 )  

Accounts payable

( 389 )  

( 1,076 )  

Accrued liabilities

Accrued liabilities and other noncurrent liabilities

Deferred revenues

30,927  

28,060  

24,725  

Other noncurrent liabilities

Net cash provided by operating activities

180,086  

160,607  

125,464  

Cash flows from investing activities:

Cash flow from investing activities:

Purchases of marketable securities

( 391,693 )  

( 331,131 )  

Sales and maturities of marketable securities

341,879  

328,350  

285,224  

Purchases of property and equipment

( 30,037 )  

( 27,573 )  

Proceeds from disposal of property and equipment  

Acquisition of businesses, net of cash acquired, and purchases of intangible assets

( 1,500 )  

( 4,050 )  

Purchase of privately-held investment

( 625 )  

Proceeds from disposal of property and equipment

Purchases of intangible assets

Maturity (purchase) of note receivable

Net cash used in investing activities

( 80,932 )  

( 35,029 )  

Cash flows from financing activities:

Cash flow from financing activities:

Repurchase of common stock

( 126,729 )  

( 86,424 )  

Proceeds from exercise of stock options

34,461  

24,831  

24,053  

Payments for taxes related to net share settlement of equity awards

( 20,199 )  

( 15,743 )  

Principal payments under finance lease obligations

( 114 )  

( 1,709 )  

Net cash used in financing activities

( 112,581 )  

( 79,045 )  

Net increase (decrease) in cash and cash equivalents

( 13,427 )  

46,533  

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

88,759  

42,226  

87,791  

Cash, cash equivalents and restricted cash at end of period

$ 75,332  

$ 88,759  

$ 42,226  

Supplemental disclosures of cash flow information

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Non-cash investing and financing activities

Business acquisitions recorded in accrued liabilities and deferred tax liability

Purchases of intangible assets recorded in accrued liabilities

Purchases of property and equipment recorded in accounts payable and accrued liabilities

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EQUITY  

(in thousands, except share data)

Additional Paid-In

Accumulated Other Comprehensive Income

Total Stockholders’

(in thousands)

Comprehensive

Stockholders’

Income (Loss)

Balances at December 31, 2018

38,598,117  

$ 304,155  

$ ( 574 )  

$ 39,924  

$ 343,544  

Adjustment to opening retained earnings on adoption of ASC 606

57,304  

Other comprehensive loss, net of tax

( 12 )  

Other comprehensive income, net of tax

Issuance of common stock upon exercise of stock options

1,183,235  

24,052  

24,053  

Repurchase of common stock

( 1,088,899 )  

( 13,064 )  

( 71,975 )  

Issuance of common stock upon vesting of restricted stock units

525,375  

Taxes related to net share settlement of equity awards

( 202,794 )  

( 14,879 )  

Stock-based compensation

30,308  

Balances at December 31, 2019

39,015,034  

330,572  

( 586 )  

27,964  

357,989  

69,336  

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Issuance of common stock upon exercise of stock options

901,290  

24,830  

24,831  

Repurchase of common stock

( 1,026,455 )  

( 12,317 )  

( 74,106 )  

Issuance of common stock upon vesting of restricted stock units

438,892  

Taxes related to net share settlement of equity awards

( 182,489 )  

( 15,743 )  

Stock-based compensation

35,066  

Balances at December 31, 2020

39,146,272  

362,408  

23,194  

386,803  

91,572  

Other comprehensive loss, net of tax

( 1,646 )  

Other comprehensive income, net of tax

Issuance of common stock upon exercise of stock options

1,129,845  

34,460  

34,461  

Repurchase of common stock

( 1,292,750 )  

( 15,530 )  

( 111,198 )  

Issuance of common stock upon vesting of restricted stock units

475,853  

Taxes related to net share settlement of equity awards

( 206,555 )  

( 20,199 )  

Stock-based compensation

40,220  

Balances at December 31, 2021

39,252,665  

$ 401,359  

$ ( 484 )  

$ 3,568  

$ 404,482  

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Description of Business

(the “Company”, "we", "us", "our") was incorporated in the state of Delaware on December 30, 1999.

(the “Company”, “we”, “us”, “our”) was incorporated in the state of Delaware on December 30, 1999.

The Company is headquartered in Foster City, California and has wholly-owned subsidiaries throughout the world.

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All intercompany transactions and balances have been eliminated upon consolidation.

Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the current year presentation.

The reclassifications did not have material effects on the prior year’s consolidated financial statements.

Risks and Uncertainties

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be required by federal, state or local authorities or that the Company determines are in the best interests of its employees, customers, partners, suppliers and stockholders.

COVID- 19 has not had and is not expected to have a significant impact on the Company's business in 2021.

However, while the Company has 

not  incurred significant disruptions from the COVID- 19  outbreak, the Company is unable to accurately predict the full impact that COVID- 19  will have due to numerous uncertainties, including the duration of the outbreak, actions that 

While the Company has 

not  incurred significant disruptions from the COVID- 19  pandemic to date and does not expect the pandemic will have a significant impact on the Company’s business in 2022, the Company is unable to accurately predict the full impact that COVID- 19  will have due to numerous uncertainties, including the duration of the outbreak, actions that 

be taken by governmental authorities and the impact to the business of its customers and partners.

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GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the consolidated financial statements and the reported results of operations during the reporting period.

The Company’s management regularly assesses these estimates, which primarily affect revenue recognition, the valuation of accounts receivable, goodwill and intangible assets, capitalization of internally developed software, stock-based compensation and the provision for income taxes.

The Company’s management regularly assesses these estimates, which primarily affect revenue recognition, allowance for credit loss, the valuation of goodwill and intangible assets, leases, stock-based compensation and income tax provision.

Actual results could differ from those estimates and such differences may be material to the accompanying consolidated financial statements.

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Otherwise, the credit loss component of the impairment is recorded as allowance for credit losses with an offsetting entry charged to other income (expense), net, while the remaining loss is recognized in other comprehensive income (loss).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounts Receivable

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Non-marketable securities

During the fiscal year ended December 31, 2018, the Company invested $ 2.5 million in preferred stock of a privately-held company. The fair value of the investment is not readily available, and there are no quoted market prices for the investment.

In 2018, the Company invested $ 2.5 million in preferred stock of a privately-held company (the “Investee”). The fair value of the investment is not readily available, and there are no quoted market prices for the investment.

The Company elected the measurement alternative to account for the investment at cost less impairment and will measure the investment at fair value when the Company identifies observable price changes.

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No  impairment has been incurred related to the investment.

The investment is included in other noncurrent assets on the consolidated balance sheets. The Company has not received any dividends from the investment. 

The investment is included in other noncurrent assets in the consolidated balance sheets. The Company has not received any dividends from the investment. 

In 2019, the Company made an advance payment of $ 0.6  million to the Investee for it to perform certain technology development work, which should either be settled in the form of royalty fee charges when the technology materializes and is licensed to the Company or, otherwise, should be repaid to the Company in cash.

The advance payment was recorded in other non-current assets in the consolidated balance sheet.

During the fourth quarter ended December 31, 2021, the technology has not been developed and the Company decided to no longer pursue the development of the technology or the collection of the advanced amount.

Accordingly, the entire amount of the advance payment was written off and recorded in the general and administrative expense during the year ended December 31, 2021.

Property and Equipment, net

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The Company leases certain offices, computer equipment and its data center facilities under finance leases and non-cancelable operating leases.

On January 1, 2019, the Company adopted ASC 842 Leases using the current period adjustment method with an effective date of January 1, 2019.

For both operating and finance leases, we recognize a right-of-use asset, which represents our right to use the underlying asset for the lease term, and a lease liability, which represents the present value of our obligation to make payments arising over the lease term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments and lease terms when appropriate.

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Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s estimated fair value.

In each of 2020 , 2019 and 2018 , the Company had no impairment of long-lived assets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2021 , 2020 and 2019 , there was no impairment of long-lived assets.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination and is not subject to amortization.

Goodwill and other intangible assets with indefinite lives are not amortized, but tested for impairment at least annually or more frequently if certain circumstances indicate a possible impairment may exist.

These tests are performed at the reporting unit level.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination.

Goodwill and indefinite-lived intangible assets are not amortized but tested for impairment at least annually or more frequently if certain circumstances indicate a possible impairment may exist.

The goodwill impairment tests are performed at the reporting unit level.

The Company’s operations are organized as one reporting unit.

In testing for a potential impairment of goodwill, the Company first performs a qualitative assessment of its reporting unit to determine if it is more likely than not (a more than 50% likelihood) that the fair value of the reporting unit is less than its carrying amount.

If the fair value is not considered to be less than the carrying amount, no further evaluation is necessary.

The Company performed the annual assessment on December 

1, 2020 and 2019 and concluded there was no potential impairment of goodwill.

In testing for a potential impairment of intangible assets with indefinite lives that are not subject to amortization, the Company first performs a qualitative assessment to determine if it is more likely than not (a more than 50% likelihood) that the fair value of the indefinite-lived intangible assets is less than the carrying amount.

In testing for a potential impairment of goodwill and the indefinite-lived intangible assets, the Company first performs a qualitative assessment to determine if it is more likely than not (a more than 50% likelihood) that the fair value of the reporting unit or the indefinite-lived intangible assets is less than their carrying amount.

If the fair value is not considered to be less than the carrying amount, no further evaluation is necessary.

The Company performs the annual qualitative assessment in the fourth quarter each fiscal year.

There were no such impairment losses during 2020 , 2019 and 2018 .

If the qualitative assessment indicates there is more than a 50% likelihood that the fair value is less than the carrying amount of the reporting unit or the intangible asset, the Company would perform a quantitative test.

Goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value.

For indefinite-lived intangible assets, the Company would perform the quantitative impairment test by comparing the fair value of the indefinite-lived intangible asset with its carrying value.

Internally Developed Software

Costs incurred in the development phase are capitalized and amortized over the product’s estimated useful life, which is three years.

Capitalized costs include salaries, benefits and stock-based compensation charges for employees that are directly involved in developing its cloud security platform during the post planning and implementation phases.

Capitalized costs related to internally developed software under development are treated as construction in progress until the program, feature or functionality is ready for its intended use, at which time amortization commences.

These capitalized costs are included in other noncurrent assets on the consolidated balance sheets.

For the fiscal years 2020 , 2019 and 2018 , the Company capitalized $ 1.0 million, $ 1.0  million and $ 1.3 million of costs related to internally developed software (of which $ 0.2 million, $ 0.2 million and $ 0.2 million, respectively, were stock-based compensation), respectively.

As of December 31, 2020 and 2019 , unamortized internally developed software costs totaled $ 2.6  million and $ 2.0 million, respectively.

Amortization of internally developed software is recorded in cost of revenues.

Costs associated with minor enhancements and maintenance are expensed as incurred. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. 

Otherwise, the Company will perform a quantitative test.

Goodwill impairment is measured as the amount by which the carrying value of the reporting unit or the indefinite-lived intangible assets exceeds their fair value.

The Company performed the annual assessments on December 

2021 and 2020 and concluded there was no impairment of goodwill or the indefinite-lived intangible assets.

Business Combinations

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Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to its consolidated statements of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivative Financial Instruments

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Gains and losses resulting from currency exchange rate movements on non-designated forward contracts are recognized in other income (expense), net.

Any gains or losses from derivatives designated as cash flow hedges are first recorded within accumulated other comprehensive income ("AOCI") and then reclassified into revenue or operating expenses when the hedged item impacts the consolidated statements of operations.

Any gains or losses from derivatives designated as cash flow hedges are first recorded within accumulated other comprehensive income (“AOCI”) and then reclassified into revenue or operating expenses when the hedged item impacts the consolidated statements of operations.

Cash flows related to these forward contracts are classified in our consolidated statements of cash flows in the same manner as the underlying hedged transaction within cash flows from operating activities.

Stock-Based Compensation

The Company recognizes the fair value of its employee stock options and restricted stock units (RSU) on a straight-line basis over the requisite service periods for those awards ultimately expected to vest.

The fair value of each option is estimated on the date of grant using the Black-Scholes-Merton option pricing model and the fair value of each RSU is based on the price of the Company's stock on the date of grant.

Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates.

For performance-based non-qualified stock options (PSO) and performance-based restricted stock units (PSU), we recognize compensation costs over the requisite service period when it is probable that the performance conditions will be met.

We assess these conditions on a quarterly basis.

The Company recognizes the fair value of its stock options, restricted stock units (“RSUs”) and stock purchase rights under the employee stock purchase plan (the “ESPP”) on a straight-line basis over the requisite service periods.

The fair value of each stock option or stock purchase right is estimated on the date of grant using the Black-Scholes-Merton option pricing model and the fair value of each RSU is based on the Company's common stock price on the date of grant.

Compensation expenses for performance-based stock options (“PSOs”) and performance-based restricted stock units (“PSUs”) are recorded based on expected achievement of the performance metrics specified in the grant, which are assessed on a quarterly basis.

Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture materially differs from original estimates.

Revenue Recognition

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Customers are required to return physical scanner appliances and computer equipment if they do not renew their subscriptions. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company determines revenue recognition through the following steps:

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At the inception of a customer contract, the Company makes an assessment as to that customer's ability to pay for the services provided.

The Company assesses collectability based on a number of factors, including credit worthiness of the customer along with past transaction history.

The Company assesses collectability based on several factors, including credit worthiness of the customer along with past transaction history.

In addition, the Company performs periodic evaluations of its customers’

financial condition. 

The vast majority of the Company’s revenue contracts are subscription based and contain a single performance obligation.

In the rare case that multiple performance obligations exist, the Company determines the standalone selling prices ("SSP") of each performance obligation at contract inception, using information that may include market conditions and other observable inputs.

As the Company, in general, does not offer rights of return, performance bonuses, customer loyalty programs, payments via non-cash methods, refunds, volume rebates, incentive payments, penalties, price concessions or payments or discounts contingent on future events, the contract prices are generally composed of fixed amount consideration for a specific period of time and typically do not include variable consideration.

The subscription contracts typically do not confer to the customers any future rights that would constitute material rights under ASC 606.

Revenue is recognized when control of the subscription service is transferred to its customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

The Company's subscription services are typically satisfied ratably over the subscription term as its cloud-based offerings are delivered to customers electronically and over time.

In addition, the Company recognizes revenues for certain limited scan arrangements on an as-used basis.

The Company recognizes revenue related to professional services based on time and materials or completion of milestones stated in the contracts. When physical equipment are provided to the customers as part of the subscription service contract, the Company applies the practical expedient allowed under ASC 842 Leases to combine lease and nonlease components as a combined component to be accounted for under ASC 606, as the Company determined that the software subscription is the predominant component of the combined components. Therefore, the Company recognizes revenue for the physical equipment ratably over the related subscription period.

Most of the Company’s revenue contracts are subscription based and contain a single performance obligation.

The subscription contracts typically do not offer to the customers any future rights that would constitute material rights. Contract prices are generally composed of fixed consideration for a specific period of time as the Company in general does not offer refunds, volume rebates, customer loyalty programs or other forms of customer incentive payments.

In limited situations, contract prices are contingent on future events, such as actual usage during the contract terms, which are accounted for as variable consideration and estimated based on the most likely amount of consideration that the Company is expected to be entitled to.

Estimates are included in the contract price to the extent that it is considered probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Such estimates are made at contract inception and updated periodically when additional information becomes available. A cumulative catch-up adjustment is made when there is a change in the estimate of variable consideration.

As the Company's cloud-based subscription services are delivered to customers electronically and over time, revenue is generally recognized ratably over the contract terms.

When physical equipment is provided to the customers as part of the subscription service contract, the Company applies the practical expedient allowed under ASC 842 Leases to combine lease and nonlease components as a combined component to be accounted for under ASC 606, as the Company determined that the software subscription is the predominant component of the combined components. Therefore, the Company recognizes revenue for the physical equipment ratably over the related subscription period.

Contract modifications happen when there is an upsell, where the customers subsequently enter into contract with the Company to purchase additional product offerings or additional scans for additional devices.

Contract modifications related to upsells are typically accounted for prospectively.

Deferred revenues consist of customer contracts billed or cash received that will be recognized in the future under subscriptions existing at the balance sheet date.

The current portion of deferred revenues represents amounts that are expected to be recognized within one year of the balance sheet date.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Costs of shipping and handling charges incurred by the Company associated with physical scanner appliances and other computer equipment are included in cost of revenues. Sales taxes and other taxes collected from customers to be remitted to government authorities are excluded from revenues.

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Advertising Expenses

Advertising costs are expensed as incurred and include costs of advertising and promotional materials.

The Company incurred advertising costs of $ 207 thousand, $ 74 thousand and $ 87 thousand for 2020 , 2019 and 2018 , respectively.

Advertising costs are expensed as incurred and are included in sales and marketing expense in the consolidated statements of operations.

The Company incurred advertising costs of $ 2.1 million, $ 1.6 million and $ 1.5 million for the years ended December 31, 2021 , 2020 and 2019 , respectively.

The Company provides for the effect of income taxes in its consolidated financial statements using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.

Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryovers, and tax credit carry forwards.

The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

To make this assessment, the Company takes into account predictions of the amount and category of taxable income from various sources and all available positive and negative evidence about these possible sources of taxable income.

The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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Income tax expense or benefit is recognized for the amount of taxes payable or refundable for the current year and for deferred tax assets and liabilities for the tax consequences of events that have been recognized in an entity’s financial statements or tax returns.

The Company must make significant assumptions, judgments and estimates to determine its current provision for (benefit from) income taxes, its deferred tax assets and liabilities, and any valuation allowance to be recorded against its deferred tax assets.

The Company's judgments, assumptions and estimates relating to the current provision for (benefit from) income taxes include the geographic mix and amount of income (loss), its interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities.

The Company's judgments also include anticipating the tax positions the Company will record in the consolidated financial statements before actually preparing and filing the tax returns.

The Company must make significant assumptions, judgments and estimates to determine its current income tax provision (benefit), its deferred tax assets and liabilities, and any valuation allowance to be recorded against its deferred tax assets.

The Company's estimates and assumptions may differ from the actual results as reflected on its income tax returns and will record the required adjustments when they are identified or resolved.

Changes in the Company's business, tax laws or its interpretation of tax laws, and developments in current and future tax audits, could significantly impact the amounts provided for income taxes in the Company's results of operations, financial position, or cash flows.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carry-forwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis.

The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified.

The Company applies a two -step approach to determining the financial statement recognition and measurement of uncertain tax positions.

9 unchanged sentences

The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Comprehensive Income (Loss)

7 unchanged sentences

Foreign currency re-measurement gains and losses and foreign currency transaction gains and losses are recognized in other income (expense), net.

The Company recorded total foreign currency transaction gain of $ 0.3 million and losses of $ 0.4 million and $ 0.6 million during 2020 , 2019 and 2018 , respectively.

Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period.

All participating securities are excluded from basic weighted average common shares outstanding.

Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, adjusted for the effects of potentially dilutive common shares, which are comprised of outstanding stock options and RSUs.

The dilutive potential common shares are computed using the treasury stock method or the as-if converted method, as applicable.

The outstanding stock options and RSUs which would be anti-dilutive are excluded from the computation of diluted net income per common share.

Basic net income per share is computed by dividing net income by the weighted-average number of shares outstanding during the period.

Diluted net income per share is computed by dividing net income by the weighted-average number of shares outstanding plus potentially dilutive shares outstanding during the period.

The potentially dilutive shares are computed by applying the treasury stock method to the Company's stock options, RSUs and the stock purchase rights under the ESPP.

Any potential shares that would be anti-dilutive are excluded from the computation of diluted net income per share.

Recently Adopted Accounting Pronouncements

August 2018, 

the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 

2018 - 15,  Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs related to internal-use software.

It also requires the Company to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement.

The Company adopted this ASU prospectively to applicable implementation costs incurred since 

January 1, 2020. 

The adoption did 

not  have a material impact on the Company's consolidated financial statements.

June 2016, 

the FASB issued ASU 

2016 - 13,  Financial Instruments-Credit Losses (Topic 

326 ) as modified by subsequently issued ASU 

2018 - 19,  

2019 - 04, 2019 - 05 and 

2019 - 11,  which introduces a new accounting model, Current Expected Credit Losses ("CECL").

CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk.

CECL utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired.

The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

The Company adopted this ASU on 

January 1, 2020, 

using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods 

not  restated.

The adoption did 

not  have a material impact on the Company's consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No.

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No.

2019 - 12, Simplifying the Accounting for Income Taxes ("ASU 2019 - 12" ), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

1 unchanged sentence

Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

The Company adopted ASU 2019 - 12 in the first quarter of 2021 with no material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

The Company does not believe any other new accounting pronouncements issued by the FASB that have 

not become effective will have a material impact on its consolidated financial statements.

Fair Value of Financial Instruments

7 unchanged sentences

Level 3 - Valuations based on inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company's financial instruments consist of assets and liabilities measured using Level 1 and 2 inputs.

Level 1 assets include a highly liquid money market fund, which is valued using unadjusted quoted prices that are available in an active market for an identical asset.

Level 2 assets include fixed-income U.S.

and foreign government agency securities, commercial paper, corporate bonds, asset-backed securities and derivative financial instruments consisting of foreign currency forward contracts.

The securities, bonds and commercial paper are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive market, quoted prices of similar instruments in active market or industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets.

The foreign currency forward contracts are valued using observable inputs, such as quotations on forward foreign exchange points and foreign interest rates. 

The Company's cash and cash equivalents, short-term marketable securities, and long-term marketable securities consist of the following:

The Company's financial instruments consist of assets and liabilities measured using Level 

1  and 

2  inputs.

1  assets include a highly liquid money market fund, which is valued using unadjusted quoted prices that are available in an active market for an identical asset.

2  assets include fixed-income U.S.

Treasury and government agency securities, commercial paper, corporate bonds, asset-backed securities, foreign government securities and derivative financial instruments consisting of foreign currency forward contracts.

The securities, bonds and commercial paper are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive markets, quoted prices of similar instruments in active markets, or industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets.

The foreign currency forward contracts are valued using observable inputs, such as quotations on forward foreign exchange points and foreign interest rates.

The Company's cash and cash equivalents and marketable securities consist of the following:

December 31, 2021

14 unchanged sentences

Commercial paper

Corporate bonds

28,869  

28,963  

Corporate bonds

Asset-backed securities

government agencies

217,160  

1 unchanged sentence

216,999  

Treasury and government agencies

18,046  

1 unchanged sentence

268,027  

( 170 )  

267,960  

Long-term marketable securities:

2 unchanged sentences

( 36 )  

government agencies

Foreign government agencies  

14,911  

Treasury and government agencies

37,664  

( 136 )  

37,528  

Foreign government

Corporate bonds

7 unchanged sentences

$ ( 524 )  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$ 516,486  

December 31, 2020

7 unchanged sentences

Money market funds

Commercial paper  

38,028  

Commercial paper

74,132  

Short-term marketable securities:

4 unchanged sentences

Asset-backed securities

government agencies

Treasury and government agencies

244,568  

2 unchanged sentences

281,346  

Long-term marketable securities:

Asset-backed securities

( 11 )  

281,892  

government agencies

Long-term marketable securities:

Asset-backed securities

38,456  

38,613  

Treasury and government agencies

Foreign government

Corporate bonds

7 unchanged sentences

$ 454,482  

December 31, 2020  and 2019 , there were 

no  marketable securities that had been in a continuous unrealized loss position for 

12  months or longer.

December 31, 2021  and 2020 , there were no marketable securities that had been in a continuous unrealized loss position for 12 months or longer.

The Company had the ability and intent to hold all marketable securities that were in an unrealized loss position until recovery of the amortized cost basis.

The Company considered the extent to which fair value was less than amortized cost basis and conditions related to security’s industry and geography and changes to the ratings, if any, and concluded the decline in fair value compared to carrying value was 

not  related to credit loss.

The following table sets forth by level within the fair value hierarchy the fair value of the Company's cash equivalents and marketable securities measured on a recurring basis:

5 unchanged sentences

Commercial paper

government agencies

18,896  

Foreign government agencies  

Treasury and government agencies

254,527  

Foreign government

Corporate bonds

10 unchanged sentences

Money market funds

$ 38,028  

Commercial paper

government agencies

Treasury and government agencies

251,827  

Foreign government

Corporate bonds

6 unchanged sentences

$ 383,349  

As of December 31, 2020 and 2019 , the Company had no investments utilizing level 3 inputs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following summarizes the fair value of marketable securities classified as AFS debt securities by contractual maturity:

$ 421,377  

The following summarizes the fair value of marketable securities by contractual maturity:

December 31, 2021

Mature within One Year

After One Year through Two Years

Over Two Years

Mature within One Year  

Mature after One Year through Two Years  

Mature over Two Years  

(in thousands)

2 unchanged sentences

$ 18,896  

government agencies  

Treasury and government agencies

216,999  

37,528  

Foreign government agencies  

254,527  

Foreign government

Corporate bonds

9 unchanged sentences

$ 380,008  

$ 41,118  

$ 383,349  

Derivative Financial Instruments

Designated cash flow hedges

The Company uses a hedging strategy to reduce its exposure to foreign currency exchange rate fluctuations for forecasted subscription renewals and new orders in both GBP and Euro.

The Company uses forward currency contracts accounted for as cash flow hedges against a designated portion of forecasted subscription renewals and new orders. Unrealized foreign exchange gains or losses related to those designated cash flow hedge contracts are recorded in AOCI and will be reclassified into revenues in the same periods when the hedged contracts are recognized into revenues. 

In addition, the Company uses a hedging strategy to reduce its exposure associated with costs incurred in INR.

Unrealized foreign exchange gains or losses related to those designated cash flow hedge contracts are recorded in AOCI and will be reclassified into operating expenses when the associated hedged expenses are incurred.

At December 31, 2020 , the Company had 39 open designated cash flow hedge forward contracts with notional amounts of 

€25.9  million, £8.7  million and Rs.

1,933.5 million. At December 31, 2019 , the Company had 26 open cash flow hedge contracts with notional amount of €24.2 million and £9.7 million.

December 31, 2020  and 

2019 , a net amount of unrealized losses of $ 1.8 million before tax and unrealized gains of $ 0.7 million before tax, respectively, on the foreign currency forward contracts for GBP and Euro reported in AOCI is expected to be reclassified into revenue within the next 

12  months.

December 31, 2020 , a net amount of unrealized gains of $ 1.5 million before tax on the foreign currency forward contracts for INR reported in AOCI is expected to be reclassified into operating expenses within the next 

12  months.

The Company enters into foreign currency forward contracts to reduce the risk of variability in future cash flow due to foreign currency exchange rate fluctuation from certain forecasted subscription revenue orders billed in GBP and Euro and operation expenses incurred in INR, which are designated as cash flow hedges.

Unrealized foreign exchange gains or losses related to those designated cash flow hedge contracts are recorded in Accumulated other comprehensive income ("AOCI") and will be reclassified into revenues or operating expenses, respectively, in the same periods when the hedged transactions hit earnings.

December 31, 2021 , the Company had designated cash flow hedge forward contracts with notional amounts of €29.8  million, £9.4  million and 

Rs.2,955.3  million.

As of December 31, 2020 , the Company had designated cash flow hedge forward contracts with notional amounts of €25.9  million, £8.7 million and Rs.1,933.5 million.

As of December 31, 2021 , a net amount of unrealized gains of $ 1.0  million before tax on the foreign currency forward contracts for GBP and Euro reported in AOCI is expected to be reclassified into revenue within the next 

As of December 31, 2021 , a net amount of unrealized gains of $ 0.3  million before tax on the foreign currency forward contracts for INR reported in AOCI is expected to be reclassified into operating expenses within the next 12 months.

Non-designated forward contracts

At December 31, 2020 , the Company had 24 outstanding non-designated forward contracts with notional amounts of €17.7 million, £6.5 million and ₨.

32.8 million which will mature at various dates through January 2022.

At December 31, 2019 , the Company had 15 outstanding non-designated forward contracts with notional amounts of €20.0 million, 

£5.6 million and Rs.

756.0 million.

The Company also uses foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities, which are not designated as cashflow hedges.

December 31, 2021 , the Company had non-designated forward contracts with notional amounts of 

€34.5  million, £11.6  million, Rs.74.9  million, C$2.5 million and CHF1.0  million.

December 31, 2020 , the Company had non-designated forward contracts with notional amounts of €17.7  million, £6.5  million and Rs.32.8  million.

The following summarizes derivative financial instruments as of December 31, 2021 and 2020 :

1 unchanged sentence

Foreign currency forward contracts designated as cash flow hedge

$ 1,737  

Foreign currency forward contracts not designated as hedging instruments

$ 3,336  

Foreign currency forward contracts designated as cash flow hedge

4 unchanged sentences

All foreign currency forward contracts were valued at fair value using Level 2 inputs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following summarizes the gains (losses) recognized from forward contracts and other foreign currency transactions in other income (expense), net on the consolidated statements of operations:

The following summarizes the gains (losses) recognized from forward contracts and other foreign currency transactions in other income (expense), net in the consolidated statements of operations:

Year Ended December 31,

(in thousands)  

Net gains (losses) from forward contracts

Net gains (losses) from non-designated forward contracts

$ 2,452  

Other foreign currency transaction gains (losses)

$ ( 1,634 )  

Other foreign currency transactions gains (losses)

( 2,749 )  

Total foreign exchange gains (losses), net

5 unchanged sentences

$ ( 573 )  

Accumulated Other Comprehensive Income

The components of AOCI were as follows:

Accumulated Other Comprehensive Income (Loss)

The components and changes in accumulated other comprehensive income (loss) were as follows:

Available-for-sale debt securities

Cash flow hedges

(in thousands)

Unrealized gains (losses) on AFS debt securities

$ 1,224  

Unrealized gains (losses) on cash flow hedges

( 1,708 )  

Total accumulated other comprehensive income $ ( 484 ) $ 1,162

Balances at December 31, 2018

Change in unrealized gains during the period

Net gains reclassified into income during the period

Income tax provision

Net change during the period

Balances at December 31, 2019

Change in unrealized gains (losses) during the period

Net gains reclassified into income during the period

Income tax benefit (provision)

Net change during the period

Balances at December 31, 2020

Change in unrealized gains (losses) during the period

Net losses reclassified into income during the period

Income tax benefit (provision)

Net change during the period

Balances at December 31, 2021

The effects on income before income taxes of amounts reclassified from AOCI to the consolidated statements of operations were as follows:

Year Ended December 31,  

(in thousands)

Reclassification of AOCI - AFS debt securities

Reclassification of AOCI - Available-for-sale debt securities

Other income (expense), net

Reclassification of AOCI - cashflow hedges

Revenue  

Cost of revenues  

( 76 )  

Research and development expenses  

( 264 )  

Sales and marketing expenses  

( 20 )  

General and administrative expenses

( 36 )  

Reclassification of AOCI - Cash flow hedges

Cost of revenues

Research and development

Sales and marketing

General and administrative

Property and Equipment, Net

Property and equipment, net, which includes assets under finance lease, consists of the following: 

Property and equipment, net, which includes assets under finance leases, consists of the following: 

(in thousands)

Computer equipment

$ 136,286  

$ 112,599  

Computer software

26,164  

26,137  

Leasehold improvements

Scanner appliances

16,749  

15,864  

Furniture, fixtures and equipment

Equipment under capital lease

Leasehold improvements

21,107  

18,817  

Finance leases - right of use asset

Total property and equipment

210,408  

183,893  

accumulated depreciation and amortization

( 145,558 )  

Property and equipment, net

$ 64,850  

$ 60,579  

Physical scanner appliances and other computer equipment that are or will be subject to leases by customers have a net carrying value of $ 7.5 million and $ 4.9 million, respectively, including assets that have not been placed in service of $ 1.9 million and $ 0.9 million, respectively, as of December 31, 2020 and 2019 .

Depreciation and amortization expenses relating to property and equipment were $ 26.1 million, $ 24.9  million and $ 25.1  million for 2020 , 2019 and 2018 , respectively.

December 31, 2021  and 2020 , physical scanner appliances and other computer equipment that are or will be subject to leases by customers had a net carrying value of $5.3  million and $7.5  million, respectively, including assets that had not been placed in service of $1.3  million and $1.9  million, respectively.

Depreciation and amortization expenses relating to property and equipment were $ 28.5  million, $ 26.1  million and $ 24.9 million for the years ended December 31, 2021 , 2020 and 2019 , respectively. Assets under finance leases were acquired upon completion of lease term and placed within computer equipment as of December 

Revenue from Contracts with Customers

The Company records deferred revenue when cash payments are received or due in advance of its performance offset by revenue recognized in the period.

Revenues of $ 188.6 million and $ 160.8 million were recognized during the years ended December 31, 2020 and December 31, 2019 , respectively, which amounts were included in the deferred revenue balances as of December 31, 2019 and December 31, 2018 , respectively.

The Company's payment terms vary by the type and location of its customers and the products or services offered.

The term between invoicing and when payment is due is not significant.

For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.

The Company records deferred revenue when cash payments are received or due in advance of its performance obligations offset by revenue recognized in the period.

Revenues of $ 211.0  million and $ 188.6  million were recognized during the years ended December 31, 2021 and December 31, 2020 , respectively, which amounts were included in the deferred revenue balances as of December 31, 2020 and December 31, 2019 , respectively.

The Company's payment terms vary by the type and location of its customers.

The term between invoicing and when payment is due is 

not  significant.

In certain circumstances, based on the credit quality of the customer, the Company requires payment before the products or services are delivered to the customer.

The following table sets forth the expected revenue from all remaining performance obligations as of December 31, 2021 :

8 unchanged sentences

From time to time, the Company enters into contracts with customers that extend beyond one year, with certain of its customers electing to pay for more than one year of services upon contract execution.

For any discounts associated with these multiple year contracts, the Company concluded its contracts did not contain a financing component.

The Company concluded that these contracts did not contain a financing component.

Revenues by sales channel are as follows:

19 unchanged sentences

See Note 13, "Segment Information and Information about Geographic Area" for disaggregation of revenue by geographic area.

Capitalized costs to obtain contracts, current and noncurrent are as follows:

December 31, 2020

December 31, 2019

Deferred costs to obtain contracts are as follows:

December 31,  

(in thousands)  

Commission asset, current

$ 4,223  

$ 3,459  

Commission asset, noncurrent

$ 8,391  

1 unchanged sentence

For the years ended December 31, 2021 , 

2019 ,and 

2018 , the Company recognized $ 3.0  million, $ 2.0 million and $ 1.2 million of commission expense from amortization of its commission assets, respectively.

During the same periods, there was no impairment loss related to the capitalized costs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the purchase price allocation of business and asset acquisitions during the fiscal years 2020 , 2019 and 2018 based on estimated fair values of the acquired assets as of the acquisition date:

2020  and 

2019 , the Company recognized $ 4.0  million, $ 3.0 million and $ 2.0  million, respectively, of amortization expense relating to deferred costs to obtain contracts in sales and marketing expense in the consolidated statements of operations.

 During the same periods, there was no impairment loss related to the deferred costs to obtain contracts.

The following table summarizes the purchase price allocation of business and asset acquisitions for the years ended December 31, 2021 , 

2020  and 

2019 based on estimated fair values of the acquired assets as of the acquisition date:

Acquisition Date

Purchase Consideration

Net Tangible Assets Acquired/ (liabilities assumed)

Purchased Intangible Assets

Deferred Tax Liability

(in thousands)

August 19, 2021

Spell security

July 24, 2020

$ 1,500  

January 10, 2019

$ 1,000  

Layered Insight

October 16, 2018

$ 13,434  

$ ( 80 )  

$ 9,600  

$ 5,498  

April 1, 2018

$ 4,000  

$ 3,700  

On August 19, 2021, the Company acquired certain developed technology intangible assets of TotalCloud, a privately held company incorporated in India, for a total cash consideration of $ 1.2  million, of which $ 1.1  million was paid on the acquisition date and the remaining $ 0.1  million will be due one year from the acquisition date, subject to potential adjustment from possible indemnity claims.

TotalCloud's technology strengthens the Company's cloud security solution by allowing customers to build user-defined workflows for custom policies and execute them on-demand for simplified security and compliance.

The acquired intangible assets will be amortized over five years. 

July 24, 2020, 

the Company acquired certain intangible assets of Spell Security, a privately held company incorporated in India.

the Company acquired certain intangible assets of Spell Security, a privately held company incorporated in India, for a total cash consideration of $ 1.5  million, of which $ 1.3 million was paid on the acquisition date and the remaining $ 0.2  million was deferred and paid in October 2021.

Spell Security’s technology expands the Company's endpoint behavior detection, threat hunting, malware research and multi-layered response capabilities for its EDR application.

The purchase consideration related to the acquisition was $ 1.5  million in cash, including $ 0.2  million of deferred consideration due 

15  months from the closing date of the acquisition, subject to potential adjustment from possible indemnity claims. The Company accounted for this transaction as an asset purchase.

The Company recognized intangible assets of $ 1.0  million for developed technology and $ 0.5  million for non-compete agreements, which will be amortized over 

1 unchanged sentence

two  years, respectively.

On January 10, 2019, the Company acquired the assets of Adya, an India-based company.

On January 10, 2019, the Company acquired Adya, an India-based company.

The acquisition included a cloud application management platform, which enables security and compliance audits of SaaS applications.

2 unchanged sentences

Goodwill arising from the Adya acquisition is deductible for tax purposes over 

15  years. 

On October 16, 2018, the Company completed the acquisition of Layered Insight, a pioneer and global leader in container native application protection, providing accurate insight into container images, adaptive analysis of running containers, and automated enforcement of the container environment.

Of the total consideration, $ 1.6 million was paid during the fiscal year ended December 31, 2019 

based on the terms and conditions of the purchase agreement.

All consideration was paid in cash.

The Company also paid additional $ 4.0 million as the acquired business had achieved certain integration milestones for the annual period ending December 31, 2019.

In addition, the Company initially recorded $ 1.5 million of the contingent consideration related to revenue milestone payments in accrued liabilities of the consolidated balance sheet as of December 31, 2018, which was reversed during the fiscal year 2019 as the revenue milestone was not met.

The acquired intangible asset relating to Layered Insight's developed technology is amortized over the estimated useful life of approximately four years.

Goodwill arising from the Layered Insight acquisition is not deductible for tax purposes.

On April 1, 2018, the Company acquired the assets of 1Mobility, a Singapore-based company.

The acquisition allowed the Company to provide enterprises of all sizes with the ability to create and continuously update an inventory of mobile devices on all versions of Android, iOS and Windows Mobile in their environment;

and to continuously assess their security and compliance posture, while quarantining devices that were compromised or out-of-compliance.

Of the total purchase consideration, $ 0.6 million was paid during the fiscal year ended December 31, 2019 

based on the terms and conditions of the purchase agreement.

The acquired intangible assets relating to 1Mobility's developed technology is being amortized over the estimated useful lives of approximately four years.

Goodwill arising from the 1Mobility acquisition is deductible for tax purposes over 15 years. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Pro forma financial information for these acquisitions in the fiscal years 2020 , 2019 and 2018 was not presented because the acquisitions were not material to the Company's consolidated financial statements, either individually or in aggregate.

Changes in the carrying amount of goodwill for the years ended December 31, 2020 , 2019 and 2018 were as follows:

(in thousands)

Balance as of December 31, 2018

$ 7,225  

Goodwill acquired

Adjustment  

Balance as of December 31, 2019 and 2020

$ 7,447  

15  years.

There were no changes in the carrying amount of goodwill for the years ended December 31, 2021  and 

Intangible Assets, Net

2 unchanged sentences

December 31, 2021

Weighted Average Lives (Years)

Weighted Average Remaining Lives (Years)

(in thousands)

Weighted Average Life (Years)

Weighted Average Remaining Life (Years)

Accumulated Amortization

Net Book Value

(in thousands)

Developed technology

1.8 $ 27,356 $ ( 16,152 ) $ 11,204

Patent licenses

( 1,021 )  

Non-compete agreements  

( 104 )  

Non-compete agreements

Total intangibles subject to amortization

$ 29,243 $ ( 17,277 )  

Intangible assets not subject to amortization

Total intangible assets, net

December 31, 2019  

Weighted Average Lives (Years)

Weighted Average Remaining Lives (Years)

December 31, 2020

(in thousands)

Weighted Average Life (Years)

Weighted Average Remaining Life (Years)

Accumulated Amortization

Net Book Value

(in thousands)  

Developed technology

$ 26,356  

$ ( 10,066 )  

$ 16,290  

Patent licenses

( 922 )  

Non-compete agreements

Total intangibles subject to amortization

$ 27,743  

$ ( 10,988 )  

16,755  

Intangible assets not subject to amortization

Total intangible assets, net

$ 16,795  

Intangible assets amortization expenses were $ 6.3 million, $ 6.1 million and $ 3.7 million for 2020 , 2019 and 2018 respectively, which were recorded in cost of revenues in the consolidated statements of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Intangible assets amortization expenses were $ 6.7  million, $ 6.3  million and $ 6.1  million for the years ended December 31, 2021 , 

2020  and 

2019 , respectively, which were recorded in the consolidated statements of operations.

As of December 31, 2021 , the Company expects amortization expense in future periods to be as follows:

(in thousands)  

$ 6,581  

Total expected future amortization expense

$ 11,966  

The following table presents the lease-related assets and liabilities recorded on the balance sheet:

Classification on the Balance Sheet

Classification of Lease

(in thousands)

Operating lease - right of use asset

Operating leases

$ 44,838  

$ 40,551  

Property and equipment, net

Finance leases

Total lease assets

$ 44,969  

$ 41,850  

Operating lease liabilities, current

Operating leases

$ 11,672  

$ 7,663  

Accrued liabilities

Finance leases

Operating lease liabilities, noncurrent

Operating leases

45,700  

44,015  

Other noncurrent liabilities

Finance leases

Total lease liabilities

$ 57,436  

$ 51,856  

The Company leases certain offices, computer equipment and its data center facilities under non-cancelable operating leases for varying periods through 

 While under our lease agreements we have options to extend our leases up to four years, we have not included renewal options in determining the lease terms for calculating our lease liabilities, as these options have not been reasonably certain of exercise. 

Leases expense was $ 16.7 million, $ 13.9 million and $ 9.9 million for 2020 , 2019 and 2018 , respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Total expected future amortization expense

The Company leases certain offices, computer equipment and its data center facilities under non-cancelable operating leases for varying periods through 2028.

While under the Company's lease agreements the Company has options to extend its certain leases, the Company has not included renewal options in determining the lease terms for calculating its lease liabilities, as these options are not  reasonably certain of being exercised.

Lease expense was $ 16.8  million, $ 16.7  million and $ 13.9  million for the years ended December 31, 2021 , 

2020  and 

2019 , respectively.

Supplemental cash flow information related to operating leases was as follows:

1 unchanged sentence

(in thousands)

Operating cash flows included in the measurement of lease liabilities

13,403  

Cash payments included in the measurement of lease liabilities

Lease liabilities arising from obtaining right-of-use assets

15,837  

17,359  

Maturities of the Company's operating lease liabilities at December 31, 2020  are as follows:

(in thousands)  

$ 14,186  

13,316  

11,297  

10,010  

The weighted average remaining lease term and the weighted average discount rate of the Company's operating leases were as follows:

Weighted average remaining lease term (years)

Weighted average discount rate

Maturities of the Company's operating lease liabilities as of 

December 31, 2021  are as follows:

(in thousands)

2027 and thereafter

10,317  

Total minimum lease payments

65,533  

amount representing interest

Present value of minimum payments

57,372  

lease obligations, current

Lease obligations, noncurrent

$ 45,700  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The weighted average remaining lease term and the weighted average discount rate of the Company's leases were as follows:

Weighted average remaining lease term (years)

Operating leases

Finance leases

Weighted average discount rates

Operating leases

Finance leases

Present value of net minimum lease payments

lease liabilities, current

Lease liabilities, noncurrent

Commitment and Contingencies

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$ 23,672  

Total purchase commitment

11,488  

Total purchase commitments

$ 43,695  

Indemnifications

The Company from time to time enters into certain types of contracts that contingently require it to indemnify various parties against claims from third parties.

These contracts primarily relate to (i) the Company's by-laws, under which it must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship, (ii) contracts under which the Company must indemnify directors and certain officers for liabilities arising out of their relationship, and (iii) contracts under which the Company may be required to indemnify customers or resellers from certain liabilities arising from potential infringement of intellectual property rights, as well as potential damages caused by limited product defects.

These contracts primarily relate to (i) the Company's bylaws, under which it must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship, (ii) contracts under which the Company must indemnify directors and certain officers for liabilities arising out of their relationship, and (iii) contracts under which the Company may be required to indemnify customers or resellers from certain liabilities arising from potential infringement of intellectual property rights, as well as potential damages caused by limited product defects.

To date, the Company has not incurred and has not recorded any liability in connection with such indemnifications.

The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors. 

Legal Proceedings

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Stockholders' Equity and Stock-based Compensation

The Company had reserved shares of common stock for future issuance as of December 31, 2020 as follows:

Options and RSUs outstanding under equity incentive plans

2000 Equity Incentive Plan

102,087  

2012 Equity Incentive Plan

3,160,057  

Shares available for future grants under an equity incentive plan

2012 Equity Incentive Plan

6,628,383  

Total shares reserved for future issuance

9,890,527  

Preferred Stock

Effective October 3, 2012, the Company is authorized to issue 20,000,000 shares of undesignated preferred stock with a par value of $ 0.001 per share.

Each series of preferred stock will have such rights and preferences including dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price, and liquidation preferences as determined by the Board.

Effective October 3, 2012, the Company is authorized to issue 20.0 million shares of undesignated preferred stock with a par value of $ 0.001 per share.

As of December 31, 2021 , and 2020 , there were no issued or outstanding shares of preferred stock.

1 unchanged sentence

2000 Equity Incentive Plan

The 2012 Equity Incentive Plan was adopted and approved in September 2012 and became effective on September 26, 2012.

Under the 2012 Plan, the Company is authorized to grant to eligible participant's incentive stock options (ISOs), non-statutory stock options (NSOs), stock appreciation rights (SARs), restricted stock awards (RSAs), RSUs, performance units and performance shares equivalent to up to 15,699,245 shares of common stock as of December 31, 2020 .

The number of shares of common stock available for issuance under the 2012 Plan includes an annual increase on January 1 of each year by an amount equal to the least of 3,050,000 shares;

5 % of the outstanding shares of stock as of the last day of the immediately preceding fiscal year;

or an amount determined by the Board of Directors.

Options may be granted with an exercise price that is at least equal to the fair market value of the Company's stock at the date of grant and are exercisable when vested.

Options and RSU's granted generally vest over a period of up to four years.

ISOs may only be granted to employees and any subsidiary corporations' employees.

All other awards may be granted to employees, directors and consultants and subsidiary corporations' employees and consultants.

Options, SARs, RSUs, performance units and performance awards may be granted with vesting terms as determined by the Board of Directors and expire no more than 

ten years after the date of grant or earlier if employment or service is terminated.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2000 Equity Incentive Plan

Under the 2000 Equity Incentive Plan ( 2000 Plan), the Company was authorized to grant to eligible participants either ISOs or NSOs.

Under the 2000 Equity Incentive Plan ( “2000 Plan”), the Company was authorized to grant to eligible participants either incentive stock options (“ISOs”) or non-statutory stock options (“NSOs”).

The ISOs were granted at a price per share not less than the fair market value at the date of grant.

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The 2000 Plan continues to govern outstanding awards granted thereunder.

Options granted under the 2000 Plan were immediately exercisable, and unvested shares are subject to repurchase by the Company.

Upon termination of employment of an option holder, the Company has the right to repurchase at the original purchase price any issued but unvested common shares.

The amounts paid for shares purchased under an early exercise of stock options and subject to repurchase by the Company are not reported as a component of stockholders’

equity until those shares vest.

The amounts received in exchange for these shares are recorded as an accrued liability in the accompanying consolidated balance sheets and will be reclassified to common stock and additional paid-in capital as the shares vest.

Stock-based Compensation Expenses

The following table shows a summary of the stock-based compensation expense included in the consolidated statements of operations for the fiscal years ended December 31, 2020 , 2019 and 2018 :

2012 Equity Incentive Plan

The 2012 Equity Incentive Plan ( “2012 Plan”) was adopted and approved in September 2012 and became effective on September 26, 2012.

Under the 2012 Plan, the Company is authorized to grant to eligible participant’s ISOs, NSOs, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), RSUs, performance units and performance shares.

The number of shares of common stock available for issuance under the 2012 Plan is subject to an annual increase on January 1 of each year by an amount equal to the least of 3,050 thousand shares, 5 % of the outstanding shares of stock as of the last day of the immediately preceding fiscal year or an amount determined by the board of directors.

For the year ended 

December 31, 2021 , 1,963 thousand shares were added to the 2012 Plan.

As of December 31, 2021 , a total of 17,662  thousand shares have been authorized for issuance under the 2012 Plan and 8,091  thousand shares are available for future grants.

Options may be granted with an exercise price that is at least equal to the fair market value of the Company's stock at the date of grant and are exercisable when vested.

Options and RSU's granted generally vest over a period of up to four years.

ISOs may only be granted to employees and any subsidiary corporations' employees.

All other awards may be granted to employees, directors and consultants and subsidiary corporations' employees and consultants.

Options, SARs, RSUs, performance units and performance awards may be granted with vesting terms as determined by the board of directors and expire no more than 

ten years after the date of grant or earlier if employment or service is terminated.

2021 Employee Stock Purchase Plan

On June 9, 2021, the Company’s stockholders approved the 2021 ESPP.

A total of 600 thousand shares were authorized for issuance to eligible participating employees upon adoption of the ESPP, all of which are available for future purchases as of December 31, 2021.

The ESPP provides for consecutive 6 -month offering periods beginning on or about August 16 and February 16 of each year.

Eligible employees who elect to participate can contribute from 1 % to 15 % of their eligible compensation through payroll withholding.

During any offering period, contribution rates cannot be changed.

However, eligible employees 

may withdraw from the current offering period.

Any contributions made prior to each purchase date in the case of withdrawal or termination of employment will be refunded. On each purchase date, eligible participating employees will purchase the shares at a price per share equal to 85 % of the lesser of (i) the fair market value of the Company's stock on the first trading day of the offering period or (ii) the fair market value of the Company's stock on the purchase date (i.e., the last trading day of the offering period).

The first ESPP offering period commenced on August 16, 2021 and will end on February 15, 2022.

Stock-based Compensation

The following table shows a summary of the stock-based compensation expenses included in the consolidated statements of operations for the years ended December 31, 2021 , 2020 and 2019 :

Year Ended December 31,

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13,502  

11,151  

Sales and marketing

3 unchanged sentences

16,495  

Total stock-based employee compensation

Total stock-based compensation

$ 67,579  

1 unchanged sentence

$ 34,892  

The income tax benefit related to the stock-based compensation expenses was $ 5.5 million, $ 5.5 million and $ 4.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020 , the Company had $ 21.8 million of unrecognized employee compensation cost related to unvested stock options and $ 71.3  million of unrecognized compensation cost related to unvested RSU's that it expects to recognize over a weighted-average period of 2.7 years and 2.6 years, respectively. 

The fair value of each option granted to employees is estimated on the date of grant using the Black-Scholes-Merton option-pricing model based on the following assumptions:

The income tax benefit related to the stock-based compensation expenses was 

$ 6.2  million, $ 5.5 million and $ 5.5  million for the years ended December 31, 2021 , 2020 and 2019 , respectively. 

As of December 31, 2021 , the Company had unrecognized stock-based compensation expenses of $ 16.7  million, $ 77.0  million and $ 0.2  million related to options, RSUs and ESPP, respectively, which are expected to be recognized over weighted-average periods of 

2.8  years, 2.8  years and 0.1  years, respectively.

Performance-Based Stock Options and Restricted Stock Units 

On December 

21, 2018, the compensation committee of the Company's board of directors (“Compensation Committee”) granted the equity award for 2019  to the Company’s former chief executive officer, Philippe Courtot (“Mr.

Courtot”).

The first portion of the award consists of 56 thousand RSUs that were scheduled to vest in 16 quarterly increments beginning on January 

The second portion of the award consists of a target number of 33 thousand PSUs, which were scheduled to vest at the end of the three -year performance period from January 2019 through December 2021.

The actual number of PSUs eligible to vest range from 0 % to 200 % of the target number, depending on the level of achievement of goals related to revenue growth during the three -year performance period from January 2019 through December 2021 and Adjusted EBITDA margin for the fiscal year of 2021.

The third portion of the award consists of a target number of 33 thousand PSUs, one third of which ( 11 thousand target PSUs) was scheduled to vest at the end of each fiscal year of 2019, 2020 and 2021.

 The actual number of PSUs eligible to vest at each vesting date range from 0 % to 200 % of the target number, depending on the level of achievement of goals related to revenue growth and Adjusted EBITDA margin for each of those years.

On November 2, 2019, the Compensation Committee granted the equity award for 2020 to Mr.

Courtot. The first portion of the award consists of 49 thousand RSUs that were scheduled to vest in 16 quarterly installments beginning on December 1, 2019.

The second portion of the award consists of a target number of 124 thousand PSOs, which were scheduled to vest at the end of the three -year performance period from January 2020 through December 2022.

The actual number of PSOs eligible to vest range from 0 % to 200 % of the target number, depending on the level of achievement of goals related to revenue growth and free cash flow per share growth during the performance period.

On December 10, 2020, the Compensation Committee granted the equity award for 2021  to Mr.

The first portion of the award consists of 69 thousand RSUs that were scheduled to vest in 16 quarterly installments beginning on November 1, 2020. 

The second portion of the award consists of a target number of 224 thousand PSOs, which were scheduled to vest at the end of the three -year performance period from January 2021 through December 2023.

The vesting of the above awards was conditioned on Mr. Courtot’s continued service through the vesting dates or, for PSOs and PSUs, the dates that performance is certified in addition to the achievement of performance goals. If Mr. Courtot’s employment was terminated (a) by reason of death or disability or (b) by the Company for reasons other than cause or good reason within 12 months following a change in control, then 100 % of any unvested portions of these awards would vest, with any vesting in connection with change in control terminations conditioned upon the effectiveness of a release of claims in favor of the Company.

February 2021 

and 2020,  

22 thousand shares (representing 

200 % of target number of awards) and 

15 thousand shares (representing 

135 % of target number of awards) under the equity award for 

Courtot, vested as a result of the Company achieving the corresponding level of performance goals for 2020  and 

2019,  respectively.

Courtot resigned from the Company due to health issues.

The Compensation Committee determined that Mr.

Courtot’s termination of employment was on account of disability.

In accordance with the grant agreements of the equity awards for 

2020  and 

Courtot, all remaining outstanding RSUs, PSUs and PSOs under these grants were subject to accelerated vesting and became fully vested at 

100 % of the target number of awards as of the date of his termination of employment, which consist of 

127 thousand RSUs, 

44 thousand PSUs and 

348  thousand PSOs.

As a result, the Company recognized an additional $ 27.3  million of stock-based compensation expense due to the accelerated vesting in the consolidated statements of operations for the year ended December 31, 2021.

On April 27, 2021, the Compensation Committee granted to the Company’s current president and chief executive officer an equity award consisting of certain RSUs and a target number of 10 thousand PSUs.

The PSUs are scheduled to vest at the end of the three -year performance period from January 2021 through December 2023.

The actual number of the PSUs eligible to vest range from 0% to 200% of the target number, depending on the level of achievement of goals related to revenue growth and free cash flow per share growth during the performance period. If the Company's current president and chief executive officer is terminated (a) by reason of death or disability or (b) by the Company for reasons other than cause or good reason within 

12  months following a change in control, then 

100% of any unvested portions of the award will vest, with any vesting in connection with terminations due to change in control conditioned upon the effectiveness of a release of claims in favor of the Company.

On October 28, 2021, the Compensation Committee granted to certain executive officers of the Company equity awards consisting of certain RSUs and an aggregate number of 73  thousand PSUs. The target PSUs are scheduled to vest in three equal annual installments over a three -year period from January 2022 through December 2024. 

The actual number of the PSUs eligible to vest each year range from 0 % to 200 % of the annual target number, depending on the level of achievement of goals related to revenue growth and adjusted EBITDA margin corresponding to that year.

The vesting and release of the first and second installment is capped at 100% of the target number at the end of the first and second year, respectively, with cumulative achievement over 100%, if any, to be vested and released at the end of the third year, together with the vesting of the third installment.

If any of the executive officers is terminated (a) by reason of death or disability or (b) by the Company for reasons other than cause or good reason within 

12  months following a change in control, any unvested PSUs eligible to vest pursuant to cumulative achievements over 

100%  for past installments along with any target number of unvested PSUs for any remaining installments will vest immediately.

For the years ended December 31, 2021 , 2020 and 2019 , stock-based compensation expenses of $13.3  million, 

$0.2  million and $0.3 million for PSOs, respectively, and $ 5.3  million, $ 2.8  million and $ 0.9  million for PSUs, respectively, were recognized.

Stock Options

The weighted-average grant date fair value of the Company’s stock options granted for the years ended December 31, 2021 , 2020 and 2019  was $41.23, $ 35.49  and $34.02, respectively, using the Black-Scholes-Merton option-pricing model based on the following assumptions:

Year Ended December 31,

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38 % to 43 %  

45 % to 47 %  

Risk-free interest rate

1 unchanged sentence

0.3 % to 1.4 %  

2.5 % to 3.0 %  

1.5 % to 2.4 %

Dividend yield

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The expected term of the options is based on evaluations of historical and expected future employee exercise behavior.

The risk-free interest rate is based on the U.S.

Treasury rates at the date of grant with maturity dates approximately equal to the expected term at the grant date.

Treasury rates at the date of grant with maturity dates equal to the expected term at the grant date.

The volatility was estimated using the historical volatility derived from the Company's common stock.

The Company has not historically declared any dividends and does not expect to in the future.

Stock Option Plan Activity

The Company has

not historically declared any dividends and does

not expect to in the future.

A summary of the Company’s stock option activity is as follows:

Outstanding Shares

Weighted Average Exercise Price Per Share

Weighted Average Remaining Contractual Life (Years)

Outstanding Options

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Aggregate Intrinsic Value

(in thousands)

Balance as of December 31, 2017

4,495,891  

$ 25.29  

$ 153,129  

366,786  

$ 79.79  

( 1,183,235 )  

$ 20.33  

( 250,133 )  

$ 39.61  

Balance as of December 31, 2018

3,429,309  

$ 31.79  

$ 149,935  

496,145  

$ 87.10  

( 901,290 )  

$ 27.55  

( 157,489 )  

$ 71.04  

(in thousands)

Balance as of December 31, 2020

6 unchanged sentences

$ 102.92  

( 115,082 )  

$ 87.91  

Balance as of December 31, 2021

1 unchanged sentence

$ 130,791  

$ 139,121  

Vested and expected to vest—December 31, 2020

2,071,441  

$ 56.39  

$ 135,647  

Exercisable—December 31, 2020

1,290,452  

$ 34.69  

$ 112,502  

The following table summarizes the outstanding and vested stock options at December 31, 2020 :

Exercise Price

Number of Shares

Weighted Average Exercise Price Per Share

Weighted Average Remaining Contractual Life (Years)

Number of Shares

Weighted Average Exercise Price Per Share

266,447  

$ 13.25  

266,447  

$ 13.25  

22.31 - 25.17

130,550  

$ 24.16  

130,550  

$ 24.16  

25.56 - 25.56

264,824  

$ 25.56  

264,824  

$ 25.56  

26.86 - 34.97

227,072  

$ 30.72  

227,072  

$ 30.72  

232,792  

$ 40.24  

215,601  

$ 39.80  

59.95 - 86.35

307,387  

$ 80.11  

77,644  

$ 74.90  

87.26 - 89.55

189,217  

$ 88.48  

52,147  

$ 88.42  

93.08 - 93.08

223,744  

$ 93.08  

94.45 - 104.8

273,709  

$ 97.76  

56,167  

$ 94.91  

121.65 - 121.65

99,700  

$ 121.65  

Vested and expected to vest - December 31, 2021

$ 61.43  

$ 125,769  

Exercisable - December 31, 2021

$ 42.60  

$ 110,495  

The weighted-average grant date fair value of the Company’s stock options granted during 2020 , 2019 and 2018  was $ 35.49 , $ 34.02 and $ 33.05 , respectively. The total intrinsic value of options exercised during 2020 , 2019 and 2018  was $ 77.5 million, $ 52.1 million and $ 71.7  million, respectively.

Intrinsic value of an option is the difference between the fair value of the Company’s common stock at the time of exercise and the exercise price paid.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restricted Stock Unit Activity

( 1 ) Included 348  thousand shares of PSOs.

The total intrinsic value of options exercised for the years ended December 31, 2021 , 2020 and 2019  was $ 42.5  million, $ 77.5  million and $ 52.1  million, respectively.

Intrinsic value of an option is the difference between the fair value of the Company’s common stock at the time of exercise and the exercise price paid. 

Restricted Stock Units

A summary of the Company’s RSU activity is as follows:

Number of Shares

Weighted-Average Grant Date Fair Value Per Share

Balance as of December 31, 2017

1,410,588  

$ 40.34  

548,245  

$ 75.44  

( 525,375 )  

$ 39.87  

( 206,575 )  

$ 43.43  

Outstanding RSUs

Weighted Average Grant Date Fair Value

(in thousands)

Balance as of December 31, 2020

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$ 90.42  

$ 65.51  

Balance as of December 31, 2021

1 unchanged sentence

$ 104.78  

531,146  

$ 99.96  

( 475,853 )  

$ 62.57  

( 223,409 )  

$ 77.37  

Balance as of December 31, 2020

1,046,702  

Outstanding and expected to vest - December 31, 2021

$ 104.22  

Expected to vest as of December 31, 2020

( 1 ) Included 34  thousand shares of PSUs granted to certain executive officers in 2021 and 11 thousand additional shares of PSUs vested as a result of the Company achieving the corresponding level of performance goals for 2020.

( 2 ) Included 11 thousand additional shares of PSUs vested as a result of the Company achieving the corresponding level of performance goals for 2020.

( 3 ) Included 34  thousand shares of PSUs granted to certain executive officers in 2021.

The aggregate fair value of RSUs vested for the years ended December 31, 2021 , 2020 and 2019 was $ 59.5  million, $ 46.5  million and $ 37.9 million, respectively. 

Employee Stock Purchase Plan

The weighted-average grant date fair value of the Company’s ESPP for the year ended December 31, 2021  was $ 26.88 using the Black-Scholes-Merton option-pricing model based on the following assumptions:

Year Ended December 31,

Expected term (in years)

Risk-free interest rate

Dividend yield

The expected term of the ESPP represents the

six -month offering period.

The risk-free interest rate is based on the U.S.

Treasury rates at the date of grant with maturity dates equal to the expected term at the grant date.

The volatility was estimated using the historical volatility derived from the Company's common stock.

The Company has

not historically declared any dividends and does

not expect to in the future.

Share Repurchase Program

The Company's share repurchase program was authorized by the board of directors as follows:

Announcement Date

Authorized Dollar Value

(in millions)

February 12, 2018

$ 100.0  

October 30, 2018

October 30, 2019

February 10, 2021

November 3, 2021

Total as of December 31, 2021

$ 700.0  

The aggregate vesting date fair value of RSUs vested during 2020, 2019 and 2018 was $ 46.5  million, $ 37.9 million and $ 38.9 million, respectively.

Performance-Based Stock Options and Restricted Stock Units

On December 10, 2020, the compensation committee of the Company's board of directors (Compensation Committee) granted the equity award for 2021  to the Company’s Chairman and Chief Executive Officer, Philippe Courtot (Mr.

The first portion of the award consists of 69,401  RSUs that will vest in 16 quarterly installments beginning on November 1, 2020. 

The second portion of the award consists of a target number of 223,744 PSO, which will vest at the end of the three -year performance period from January 2021 through December 2023.

On November 2, 2019, the Compensation Committee granted the equity award for 2020 to Mr.

Courtot. The first portion of the award consists of 48,683 RSUs that will vest in 16 quarterly installments beginning on December 1, 2019.

The second portion of the award consists of a target number of 123,856 PSOs, which will vest at the end of the three -year performance period from January 2020 through December 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On December 

21, 2018, the Compensation Committee granted the equity award for 2019  to Mr.

Courtot. The first portion of the award consists of 56,250 RSUs that will vest in 16 quarterly increments beginning on January 

The second portion of the award consists of a target number of 33,089 PSU, which will vest at the end of the three -year performance period from January 2019 through December 2021.

The third portion of the award consists of a target number of 33,088 PSUs, one third of which ( 11,030 target PSUs) will vest at the end of each fiscal year of 2019, 2020 and 2021.

The Compensation Committee, in consultation with its independent compensation consultant, designed these awards so that in each year greater than 50 % of the compensation was based on the achievement of performance goals linked to metrics designed to drive the creation of shareholder value.

The vesting of these awards is conditioned on Mr. Courtot’s continued service through the vesting dates or, for PSOs and PSUs, the dates that performance is certified in addition to the achievement of performance goals. If Mr. Courtot’s employment is terminated (a) by reason of death or disability or (b) by the Company for reasons other than cause or good reason within 12 months following a change in control, then 100 % of any unvested portions of these awards will vest, with any vesting in connection with change in control terminations conditioned upon the effectiveness of a release of claims in favor of the Company .

During the year ended 

December 31, 2020 , 

14,864  PSUs, which represent 

135 % of the target, vested as a result of the Company achieving the corresponding level of performance goals for the fiscal year of 2019.

June 10, 2020, 

the board of directors approved changes in the performance targets for certain previously granted PSO and PSU.

Based on the projected performance levels expected to be achieved for those awards as of 

June 10, 2020, 

the modification resulted in a n incremental expense of $ 7.5  million, which is expected to be recognized over 

12  quarters beginning with the quarter ended 

June 30, 2020. 

T his amount 

change based upon actual performance achieved and updates to estimates of future performance during the remainder of the performance periods.

During the year ended 

December 31, 2020 , $ 0.9  

million of incremental expenses due to the modification were recognized.

During the year ended December 31, 2020 , stock-based compensation expense of $ 0.2 million and $ 2.8 million, including changes due to modifications, were recognized for PSOs and PSUs. During the year ended December 

31, 2019 , stock-based compensation expense of $ 0.3 million and $ 0.9 million were recognized for PSOs and PSUs, respectively.

Share Repurchase Program

On February 5, 2018, the Company's board of directors authorized a $ 100.0 million 

two -year share repurchase program, which was announced on February 12, 2018.

On each of October 30, 2018, 

October 30, 2019 

May 7, 2020, the Company announced that its board of directors had authorized an increase of $ 100.0 million to the share repurchase program, resulting in an aggregate authorization of $ 400.0  million. Shares may be repurchased from time to time on the open market in accordance with Rule 10b - 18 of the Exchange Act of 1934, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5 - 1 under the Exchange Act, until February 14, 2022.

be repurchased from time to time on the open market in accordance with Rule 

10b - 18  of the Exchange Act of 

1934,  including pursuant to a pre-set trading plan adopted in accordance with Rule 

10b5 - 1  under the Exchange Act. All share repurchases have been made using cash resources.

Repurchased shares are retired and reclassified as authorized and unissued shares of common stock.

On retirement of the repurchased shares, common stock is reduced by an amount equal to the number of shares being retired multiplied by the par value.

The excess amount that is retired over its par value is first allocated as a reduction to additional paid-in capital based on the initial public offering price of the stock, with the remaining excess to retained earnings.

During the year ended December 31, 2020 and 2019 , the Company repurchased 

1,292,750 and 1,026,455 shares of its common stock for approximately $ 126.7 million and $ 86.4 million, respectively.

All share repurchases were made using cash resources.

December 31, 2020 and 2019 , approximately $ 101.8 million and $ 128.5 remained available for share repurchases pursuant to the Company's share repurchase program.

On February 10, 2021, the Company announced that its Board of Directors authorized an additional $ 100.0  million to the original share repurchase program authorization, increasing the total amount of authorized repurchase to $ 500.0 million.

The excess amount that is retired over its par value is 

first  allocated as a reduction to additional paid-in capital based on the initial public offering price of the stock, with the remaining excess to retained earnings.

For the years ended December 31, 2021 , 2020 and 2019 , the Company repurch ased 

1.1  million shares, 1.3  million shares and 1.0  million shares of its common stock for $ 130.0 million, $ 126.7 million and $ 86.4 million, respectively .

As of December 31, 2021 , $ 271.8  million  remained available for share repurchases pursuant to the Company's share repurchase program.

Employee Benefits Plan

2 unchanged sentences

Contributions to the 401 (k) Plan are limited to a maximum amount as set periodically by the Internal Revenue Service.

During the fiscal years ended December 31, 2020 , 2019 and 2018 , the Company made contributions to the 401 (k) Plan of $ 1.3 million, $ 1.3 million and $ 1.2 million, respectively.

For the years ended December 31, 2021 , 

2020  and 

2019 , the Company made contributions to the 401 (k) Plan of $ 2.4  million, $ 1.3 million and $ 1.3  million, respectively.

The Company contributes to a Provident Fund Plan for its employees in India, which is a defined contribution plan set up in accordance with local labor and tax laws.

Gratuity is also paid by the Company to eligible employees in India in accordance with Payment of Gratuity Act, 1972.

During the fiscal years ended December 31, 2020 , 2019 and 2018 , the Company contributed $ 1.4 million, $ 1.1 million and $ 0.7 million, respectively, to those plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2021 , 

2020  and 

2019 , the Company contributed $ 1.7  million, $ 1.4  million and $ 1.1  million, respectively, to those plans.

The Company’s geographical breakdown of income before income taxes is as follows:

8 unchanged sentences

$ 79,983  

The provision for (benefit from) income taxes consists of the following:

Income tax provision consists of the following:

Year Ended December 31,

2 unchanged sentences

$ 1,944  

Total current provision

Current income tax provision

28,160  

( 7,342 )  

Total deferred (benefit) provision

Total provision for (benefit from) provision for income taxes

( 1,722 )  

( 659 )  

( 753 )  

Deferred income tax provision (benefit)

( 9,723 )  

Income tax provision

$ 18,437  

$ 10,465  

$ 10,647  

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

2 unchanged sentences

Stock-based compensation

Excess tax benefits related to stock-based compensation  

( 5.4 )  

4 unchanged sentences

( 7.0 )  

( 1.7 )  

Federal and state research and development credit

1 unchanged sentence

( 2.6 )  

Provision for (benefit from) income taxes

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

( 0.1 )  

Income tax provision

Deferred Income Taxes

3 unchanged sentences

Deferred tax assets

Net operating loss carryforwards

$ 1,325  

Research and development credit carryforwards

8 unchanged sentences

Intangible assets

12,377  

Stock-based compensation

24 unchanged sentences

federal and state deferred tax assets are not more-likely-than- not to be realized.

Accordingly, the Company has recorded a valuation allowance of $ 11.2 million and $ 10.1 million against such deferred tax assets as of December 31, 2020 and 2019 , respectively.

The increase in valuation allowance was mainly associated with the California research and development credit generated during the year ended December 31, 2020  that will not likely be realized for the foreseeable future.

At December 31, 2020 , the Company had federal and state net operating loss carryforwards of approximately $ 1.4 million and $ 0.1 million, respectively, available to reduce federal and state taxable income. The federal net operating losses begin to expire in 2022 and the state net operating losses begin to expire in 2037.

Accordingly, the Company has recorded a valuation allowance of $ 11.4  million and $ 11.2  million against such deferred tax assets as of December 31, 2021 and 2020 , respectively.

The increase of $ 0.2 million in valuation allowance was mainly associated with the California research and development credit generated during the year ended December 31, 2021  that will not likely be realized in the foreseeable future.

December 31, 2021 , the Company had federal net operating loss carryforwards of approximately $ 0.7  million available to reduce federal taxable income. The state net operating loss carryforwards are 

not material.

The federal net operating losses begin to expire in 2022.

Utilization of the Company’s net operating loss carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions.

Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization.

As of December 31, 2020 , the Company had $ 10.7 million of federal and $ 15.0 million of state research and development credit carryforwards, respectively.

Federal research and development credits begin to expire in 2035.

As of December 31, 2021 , the Company had $ 15.5  million of state research and development credit carryforwards.

State research and development credits do not expire.

As of December 31, 2020 , the Company had foreign tax credit carryforwards of $ 3.5 million which begin to expire in 2024.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2021 , the Company had foreign tax credit carryforwards of $ 0.9  million which begin to expire in 2028.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:

15 unchanged sentences

$ 7,778  

The unrecognized tax benefits, if recognized, would impact the income tax provision by $ 4.6 million, $ 4.2 million and $ 3.5 million as of December 31, 2020 , 2019 and 2018 , respectively. The remaining amount would result in the recognition of a corresponding deferred tax asset that is then offset by a full valuation allowance.

The unrecognized tax benefits, if recognized, would impact the income tax provision by $ 4.9  million, $ 4.6  million and $ 4.2  million as of December 31, 2021 , 2020 and 2019 , respectively. The remaining amount would result in the recognition of a corresponding deferred tax asset that is then offset by a full valuation allowance.

As of December 31, 2021 , the Company does not believe that its estimates, as otherwise provided for, on such tax positions will significantly increase or decrease within the next twelve months.

The Company has elected to include interest and penalties as a component of income tax expense.

The amounts were not material for 2020 , 2019 and 2018 .

The amounts were not material for the years ended December 31, 2021 , 2020 and 2019 .

The Company files income tax returns in the United States, including various state jurisdictions.

4 unchanged sentences

However, the outcome of tax audits cannot be predicted with certainty.

If any issues addressed in the Company's tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

income tax has not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States.

A determination of the unrecognized deferred tax liability related to this basis difference is not practicable because of the complexities of the calculation.

Segment Information and Information about Geographic Area

Under ASC 280 Segment Reporting, Operating segments are defined as components of an entity about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company operates in one segment and has only one reportable segment. The Company’s chief operating decision maker is the Chairman and Chief Executive Officer, who makes operating decisions, assesses performance and allocates resources on a consolidated basis.

If any issues addressed in the Company's tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its income tax provision in the period such resolution occurs.

As of December 31, 2021 , the Company has undistributed earnings in certain foreign subsidiaries that the Company has indefinitely reinvested outside the United States. As a result, the Company has 

not provided for deferred tax liabilities on those earnings.

The Company 

may be required to pay additional income taxes if the Company repatriates those earnings in the future.

Segment and Geographic Area Information

Under ASC 

280  Segment Reporting, operating segments are defined as components of an entity about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company operates in 

one  segment and has only 

one  reportable segment. The Company’s chief operating decision maker is the Chief Executive Officer, who makes operating decisions, assesses performance and allocates resources on a consolidated basis.

All of the Company’s principal operations and decision-making functions are located in the United States.

Revenue by geographic area, based on the customers billing address, is as follows:

Revenue by geographic area, based on the customer's billing address, is as follows:

Year Ended December 31,

11 unchanged sentences

$ 321,607  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property and equipment, net, by geographic area, is as follows:

Long-lived assets, which consist of Property and equipment, net and Operating leases - right of use asset, by geographic area, are as follows:

(in thousands)

3 unchanged sentences

20,401  

24,774  

Rest of world

Total property and equipment, net

12,029  

15,658  

Total Long-lived Assets

$ 98,870  

$ 109,688  

Net Income Per Share

2 unchanged sentences

(in thousands, except per share data)

$ 91,572  

$ 69,336  

$ 57,304  

Weighted-average shares used in computing net income per share - basic

39,167  

39,075  

38,876  

Effect of potentially dilutive securities:

Common stock options

Basic weighted average shares

Effect of potentially dilutive shares:

Stock options

Restricted stock units

Weighted-average shares used in computing net income per share - diluted

$ 40,823  

$ 41,345  

$ 41,897  

Employee stock purchase plan

Diluted weighted average shares

Net income per share:

$ 2.34  

$ 1.77  

$ 1.47  

$ 2.24  

$ 1.68  

$ 1.37  

Potentially dilutive securities not included in the calculation of diluted net income per share because doing so would be anti-dilutive are as follows:

Potentially dilutive shares not included in the calculation of diluted net income per share because doing so would be anti-dilutive are as follows:

Year Ended December 31,

(in thousands)

Common stock options

Stock options

Restricted stock units

Total anti-dilutive shares

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Selected Quarterly Financial Information (Unaudited)

The following table shows a summary of the Company's quarterly financial information for each of the quarters in the two -year period ended December 31, 2020 :

Three Months Ended

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

(in thousands, except per share data)

Income from operations

Other income (expense), net

Income before income taxes

Net income per share:

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data