What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-05-07 · 279 added, 185 removed, 458 unchanged (50% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Current assets:

1 unchanged sentence

Short-term marketable securities 233,922 211,331

Accounts receivable, net of allowance of $640 and $585 as of March 31, 2020 and December 31, 2019, respectively

Accounts receivable, net of allowance of $643 and $585 as of June 30, 2020 and December 31, 2019, respectively 75,938 78,034

Prepaid expenses and other current assets 24,338 18,692

5 unchanged sentences

Intangible assets, net 13,755 16,795

Goodwill 7,447 7,447

Restricted cash 1,200 1,200

Other noncurrent assets 16,024 15,082

Total assets $ 707,015 $ 675,608

Liabilities and Stockholders’ Equity

12 unchanged sentences

Preferred stock, $0.001 par value;

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

20,000,000 shares authorized, no shares issued and outstanding at June 30, 2020 and December 31, 2019

Common stock, $0.001 par value;

1,000,000,000 shares authorized;

39,024,673 and 39,146,272 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

39,315,337 and 39,146,272 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 384,202 362,408

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income 2,435 1,162

Retained earnings 21,098 23,194

4 unchanged sentences

(in thousands, except per share data)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Revenues $ 88,830 $ 78,929 $ 175,093 $ 154,272

Cost of revenues 18,891 17,537 37,386 35,246

Gross profit 69,939 61,392 137,707 119,026

Operating expenses:

7 unchanged sentences

Interest income 1,392 2,198 3,316 4,249

Other expense, net

Other income, net 194 231 59 8

Total other income, net 1,586 2,401 3,372 4,187

1 unchanged sentence

Provision for income taxes 775 2,277 4,298 4,848

Net income $ 26,319 $ 16,232 $ 45,013 $ 29,498

Net income per share:

Basic $ 0.67 $ 0.41 $ 1.15 $ 0.75

Diluted $ 0.64 $ 0.39 $ 1.10 $ 0.71

Weighted average shares used in computing net income per share:

Basic 39,161 39,198 39,137 39,143

Diluted 40,919 41,530 40,928 41,570

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

1 unchanged sentence

(in thousands)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Net income $ 26,319 $ 16,232 $ 45,013 $ 29,498

Other comprehensive income (loss):

Available-for-sale debt securities:

Changes in net unrealized gain, net of tax effects of ($104) and ($38) in the three months ended March 31, 2020 and 2019, respectively

Reclassification adjustments for net realized (gain) loss included in net income, net of tax effects of $25 and ($2) in the three months ended March 31, 2020 and 2019, respectively

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

Changes in net unrealized gains, net of tax effects of ($324) and ($213) in the three months ended June 30, 2020 and 2019, respectively, and ($428) and ($251) in the six months ended June 30, 2020 and 2019, respectively.

1,093 724 1,444 1,379

Reclassification adjustments for net realized (gains) losses included in net income, net of tax effects of $5 and ($4) in the three months ended June 30, 2020 and 2019, respectively, and $30 and ($6) in the six months ended June 30, 2020 and 2019, respectively.

( 15 ) 15 ( 100 ) 43

Total changes in unrealized gains on marketable securities, net of tax 1,078 739 1,344 1,422

Cash flow hedges:

Changes in net unrealized gain, net of tax effects of ($94) and ($48) in the three months ended March 31, 2020 and 2019, respectively

Reclassification adjustments for net realized (gain) loss included in net income, net of tax effects of $57 and ($3) in the three months ended March 31, 2020 and 2019, respectively

Total changes in unrealized gain on cash flow hedges, net of tax

Changes in net unrealized gains (losses), net of tax effects of $33 and ($43) in the three months ended June 30, 2020 and 2019, respectively, and ($61) and ($91) in the six months ended June 30, 2020 and 2019, respectively.

( 108 ) 148 208 351

Reclassification adjustments for net realized (gains) losses included in net income, net of tax effects of $25 and ($13) in the three months ended June 30, 2020 and 2019, respectively, and $82 and ($16) in the six months ended June 30, 2020 and 2019, respectively.

( 88 ) 43 ( 279 ) 53

Total changes in unrealized gains (losses) on cash flow hedges, net of tax ( 196 ) 191 ( 71 ) 404

Other comprehensive income, net of tax 882 930 1,273 1,826

3 unchanged sentences

(in thousands)

Three Months Ended

Cash flows from operating activities:

Six Months Ended

Cash flow from operating activities:

Net income $ 45,013 $ 29,498

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

3 unchanged sentences

Stock-based compensation 19,441 16,780

Amortization of accretion of discounts on marketable securities

Accretion of discounts on marketable securities ( 21 ) ( 1,060 )

Deferred income taxes 1,269 3,047

5 unchanged sentences

Deferred revenues 5,695 12,397

Other non-current liabilities

Other noncurrent liabilities — 150

Net cash provided by operating activities 81,649 81,275

Cash flows from investing activities:

Cash flow from investing activities:

Purchases of marketable securities

( 162,912 ) ( 184,829 )

Sales and maturities of marketable securities 164,109 193,270

1 unchanged sentence

Business combinations

Net cash provided by investing activities

Cash flows from financing activities:

Repurchase of common stock

Net cash used in investing activities ( 10,371 ) ( 7,547 )

Cash flow from financing activities:

Repurchases of common stock ( 54,182 ) ( 24,117 )

Proceeds from exercise of stock options 20,430 8,991

1 unchanged sentence

Principal payments under finance lease obligations

( 61 ) ( 836 )

Net cash used in financing activities ( 44,928 ) ( 23,373 )

3 unchanged sentences

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Accumulated Other

Common Stock Additional

Capital Accumulated Other

Comprehensive

Income (Loss)

Retained Earnings

Income Retained Earnings Total

Stockholders’

Shares Amount

Balances at December 31, 2019 39,146,272 $ 39 $ 362,408 $ 1,162 $ 23,194 $ 386,803

Net income — — — — 18,694 18,694

Other comprehensive income, net of tax — — — 391 — 391

5 unchanged sentences

Balances at March 31, 2020 39,024,673 39 368,016 1,553 17,122 386,730

Net income — — — — 26,319 26,319

Other comprehensive income, net of tax — — — 882 882

Issuance of common stock upon exercise of stock options 448,056 1 15,715 — — 15,716

Repurchase of common stock ( 242,500 ) ( 1 ) ( 2,912 ) — ( 22,343 ) ( 25,256 )

Issuance of common stock upon vesting of restricted stock units 146,343 — — — —

Taxes related to net share settlement of equity awards ( 61,235 ) — ( 6,115 ) — — ( 6,115 )

Stock-based compensation — — 9,498 — — 9,498

Balances at June 30, 2020 39,315,337 $ 39 $ 384,202 $ 2,435 $ 21,098 $ 407,774

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Retained Earnings

Income (Loss) Retained Earnings Total

Stockholders’

Shares Amount

Balances at December 31, 2018 39,015,034 $ 39 $ 330,572 $ ( 586 ) $ 27,964 $ 357,989

Net income — — — — 13,266 13,266

Other comprehensive income, net of tax — — — 896 — 896

5 unchanged sentences

Balances at March 31, 2019 39,133,832 39 338,566 310 34,488 373,403

Net income — — — — 16,232 16,232

Other comprehensive income, net of tax — — 930 — 930

Issuance of common stock upon exercise of stock options 192,687 — 4,944 — — 4,944

Repurchase of common stock ( 183,948 ) — ( 2,207 ) — ( 14,038 ) ( 16,245 )

Issuance of common stock upon vesting of restricted stock units 126,754 — — — — —

Taxes related to net share settlement of equity awards ( 45,250 ) — ( 4,044 ) — — ( 4,044 )

Stock-based compensation — — 8,378 — — 8,378

Balances at June 30, 2019 39,224,075 $ 39 $ 345,637 $ 1,240 $ 36,682 $ 383,598

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

4 unchanged sentences

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

The Company is a pioneer and leading provider of cloud-based IT, security and compliance solutions that enable organizations to identify security risks to their IT infrastructures, help protect their IT systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations.

The Company is a pioneer and leading provider of cloud-based information technology ("IT"), security and compliance solutions that enable organizations to identify security risks to their IT infrastructures, help protect their IT systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations.

The Company’s cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external IT infrastructures and web environments, the rapid adoption of cloud computing and the proliferation of geographically dispersed IT assets.

8 unchanged sentences

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results of operations expected for the entire year ending December 31, 2020 or for any other future annual or interim periods.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations expected for the entire year ending December 31, 2020 or for any other future annual or interim periods.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020.

1 unchanged sentence

In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus (“COVID-19”) as a pandemic.

As a result of COVID-19, the Company has modified certain aspects of our business, including restricting employee travel, requiring employees to work from home, and canceling certain events and meetings, among other modifications.

As a result of COVID-19, the Company has modified certain aspects of its business, including restricting employee travel, requiring employees to work from home, and canceling certain events and meetings, among other modifications.

The Company will continue to actively monitor the situation and may take further actions that alter its business operations as may 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.

3 unchanged sentences

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S.

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.

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 condensed consolidated financial statements and the reported results of operations during the reporting period.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

income taxes.

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

Derivative Financial Instruments

1 unchanged sentence

The Company uses foreign currency forward contracts to mitigate the impact of foreign currency fluctuations of certain non-U.S.

dollar denominated net asset positions, to date primarily cash, accounts receivable and operating lease liabilities (non-designated forward contracts), as well as to manage foreign currency fluctuation risk related to forecasted transactions (designated cash flow hedges).

dollar denominated net asset positions, to date primarily cash, accounts receivable and operating lease liabilities, as well as to manage foreign currency fluctuation risk related to forecasted transactions.

Open contracts are recorded within prepaid expenses and other current assets, other noncurrent assets, accrued liabilities or other noncurrent liabilities in the condensed consolidated balance sheets.

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 to revenue or operating expenses when the hedged item impacts the condensed 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 condensed consolidated statements of operations.

Stock-Based Compensation

8 unchanged sentences

The fair value of the investment is not readily available, and there are no quoted market prices for the investment.

The investment is included in other noncurrent assets on the consolidated balance sheets and measured at cost less impairment, adjusted for observable price changes.

The investment is included in other noncurrent assets on the condensed consolidated balance sheets and measured at cost less impairment, adjusted for observable price changes.

The investment is assessed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

As of March 31, 2020 and December 31, 2019, no impairment was recorded for the investment.

During the second quarter ended June 30, 2019, the Company made an advance payment of $ 0.6 million to the investee for certain development work, which is recorded in other noncurrent assets on the condensed consolidated balance sheet.

During the third quarter ended September 30, 2019, the Company made an additional investment of $ 0.6 million in a convertible security issued by this investee and recorded it in other current assets on the condensed consolidated balance sheet.

As of June 30, 2020 and December 31, 2019, no impairment was recorded for the investments.

Recently Adopted Accounting Pronouncements

4 unchanged sentences

The Company adopted this ASU prospectively to applicable implementation costs incurred since January 1, 2020.

Applicable implementation costs capitalized during the three months ended March 31, 2020 were not material.

The adoption did not have a material impact on the Company's condensed consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326) as modified by subsequently issued ASU No.

2018-19, 2019-04 and 2019-05, which introduces a new accounting model, Current

2018-19, 2019-04 and 2019-05, which introduces a new accounting model,

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Expected Credit Losses (CECL).

Current Expected Credit Losses ("CECL").

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

2 unchanged sentences

The Company adopted this ASU on January 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustme nt, 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.

The adoption did not have a material impact on the Company's condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

3 unchanged sentences

It is effective for the Company beginning in the first quarter of fiscal 2021, and earlier adoption is permitted.

The Company is currently evaluating the impact of its pending adoption of ASU 2020-01 on the Company's consolidated financial statements.

The Company is currently evaluating the impact of its pending adoption of ASU 2020-01 on the Company's condensed consolidated financial statements.

In December 2019, the FASB issued ASU No.

2 unchanged sentences

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 Company is currently evaluating the impacts of the provisions of ASU 2019-12 on its consolidated financial statements.

The Company is currently evaluating the impacts of the provisions of ASU 2019-12 on its condensed consolidated financial statements.

Fair Value of Financial Instruments

5 unchanged sentences

Level 1 -Valuations based on quoted prices in active markets for identical assets or liabilities.

Level 2 -Valuations based on other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 2 -Valuations based on other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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.

5 unchanged sentences

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

During the fiscal year ended December 31, 2019 and 2018, the Company made investments of $ 0.6 million in a convertible security and $ 2.5 million in preferred stock, respectively, issued by a privately-held company.

During the fiscal years ended December 31, 2019 and 2018, the Company made investments of $ 0.6 million in a convertible security and $ 2.5 million in preferred stock, respectively, issued by a privately-held company.

The estimated fair value of the investments was determined based on Level 3 inputs.

As of March 31, 2020 and December 31, 2019, management estimated that the fair value of the investments equaled their carrying value.

As of June 30, 2020 and December 31, 2019, management estimated that the fair value of the investments equaled their carrying value.

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

March 31, 2020

Amortized Cost

Unrealized Gains

Unrealized (Losses)

June 30, 2020

Amortized Cost Unrealized Gains Unrealized (Losses) Fair Value

(in thousands)

Cash and cash equivalents:

Cash $ 106,272 $ — $ — $ 106,272

Money market funds 5,638 — — 5,638

government agencies

Commercial paper 1,999 — — 1,999

Corporate bonds

Total 113,909 — — 113,909

Short-term marketable securities:

3 unchanged sentences

government agencies 200,419 580 ( 5 ) 200,994

Total 233,066 861 ( 5 ) 233,922

Long-term marketable securities:

1 unchanged sentence

government agencies 14,544 444 — 14,988

Foreign government agencies 1,005 34 — 1,039

Corporate bonds 44,542 1,066 — 45,608

Total 95,532 1,951 — 97,483

Total $ 442,507 $ 2,812 $ ( 5 ) $ 445,314

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2019

Amortized Cost

Unrealized Gains

Unrealized (Losses)

Amortized Cost Unrealized Gains Unrealized (Losses) Fair Value

(in thousands)

Cash and cash equivalents:

Cash $ 84,102 $ — $ — $ 84,102

Money market funds 58 — — 58

Commercial paper 3,399 — — 3,399

Total 87,559 — — 87,559

Short-term marketable securities:

3 unchanged sentences

government agencies 173,364 184 ( 3 ) 173,545

Total 211,089 246 ( 4 ) 211,331

Long-term marketable securities:

2 unchanged sentences

Corporate bonds 32,236 262 — 32,498

Total 118,684 825 ( 1 ) 119,508

Total $ 417,332 $ 1,071 $ ( 5 ) $ 418,398

There were no marketable securities that had been in a continuous unrealized loss position for 12 months or longer.

As of March 31, 2020, the Company had the ability and intent to hold all marketable securities that were in an unrealized loss position until maturity or recovery.

As of June 30, 2020, the Company had the ability and intent to hold all marketable securities that were in an unrealized loss position until maturity or recovery.

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:

March 31, 2020

June 30, 2020

Level 1 Level 2 Fair Value

(in thousands)

2 unchanged sentences

government agencies — 215,982 215,982

Foreign government agencies — 1,039 1,039

Corporate bonds — 70,124 70,124

Asset-backed securities — 42,411 42,411

Total $ 5,638 $ 333,404 $ 339,042

December 31, 2019

Level 1 Level 2 Fair Value

(in thousands)

4 unchanged sentences

Asset-backed securities — 42,642 42,642

Total $ 58 $ 334,238 $ 334,296

There were no transfers between Level 1 and Level 2 of the fair value hierarchy, as determined at the end of each reporting period.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following summarizes the fair value of marketable securities by contractual or effective maturity as of March 31, 2020 and December 31, 2019:

March 31, 2020

The following summarizes the fair value of marketable securities by contractual or effective maturity as of June 30, 2020 and December 31, 2019:

June 30, 2020

Mature within

Mature after One Year through Two Years

Mature over Two Years

One Year Mature after One Year through Two Years Mature over Two Years Fair Value

(in thousands)

1 unchanged sentence

government agencies 200,994 14,988 — 215,982

Foreign government agencies — — 1,039 1,039

Corporate bonds 24,516 24,506 21,102 70,124

Asset-backed securities 6,563 18,270 17,578 42,411

Total $ 235,921 $ 57,764 $ 39,719 $ 333,404

December 31, 2019

Mature within

Mature after One Year through Two Years

Mature over Two Years

One Year Mature after One Year through Two Years Mature over Two Years Fair Value

(in thousands)

3 unchanged sentences

Asset-backed securities 2,449 15,550 24,643 42,642

Total $ 214,731 $ 85,617 $ 33,890 $ 334,238

Derivative Financial Instruments

2 unchanged sentences

The Company uses forward currency contracts accounted for as cash flow hedges against a designated portion of forecasted subscription renewals and new orders .

U nrealized foreign exchange gains or losses related to those designated cash flow hedge contracts are recorded in AOCI and will be reclassified into revenue when the respective hedged transactions affect earnings.

U nrealized 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 Indian Rupee ("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 costs are incurred.

At March 31, 2020 , the Company had 39 open designated cash flow hedge contracts with notional amounts of € 22.3 million , £ 9.4 million and Rs.

At June 30, 2020, the Company had 39 open designated cash flow hedge contracts with notional amounts of € 21.8 million, £ 9.2 million and Rs.

1,590 million.

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

Three Months Ended March 31,

The following table shows the gains and losses, before tax, of the Company's derivative instruments designated as cash flow hedges in AOCI and the condensed consolidated statements of operation for the three and six months ended June 30, 2020 and 2019:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended June 30, Six Months Ended June 30,

Derivative instruments designated as cash flow hedges:

Net unrealized gains (before tax) recognized in AOCI:

2020 2019 2020 2019

Net unrealized (losses) gains recognized in AOCI:

(in thousands)

Foreign currency forward contracts (GBP, Euro and INR) $ ( 141 ) $ 191 $ 269 $ 442

Net unrealized (gains) losses (before tax) reclassified from AOCI into income:

Net unrealized (gains) losses reclassified from AOCI into income:

Foreign currency forward contracts (GBP and Euro) ( 328 ) 56 ( 576 ) 69

Foreign currency forward contracts (INR) 215 — 215 —

Net change in AOCI before tax $ ( 254 ) $ 247 $ ( 92 ) $ 511

Net tax impact on the change in AOCI

Net change in AOCI after tax

As of March 31, 2020 , the net amount of unrealized gains and losses on the foreign currency forward contracts for GBP and Euro reported in AOCI that is expected to be reclassified into revenue within the next 12 months is a gain of $ 1.2 million (before tax).

As of March 31, 2020, the net amount of unrealized gains and losses on the foreign currency

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

forward contracts for INR reported in AOCI that is expected to be reclassified into operating expenses is a loss of $ 1.0 million (before tax).

As of June 30, 2020, the net amount of unrealized gains and losses on the foreign currency forward contracts for GBP and Euro reported in AOCI that is expected to be reclassified into revenue within the next 12 months is a gain of $ 0.9 million (before tax).

As of June 30, 2020, the net amount of unrealized gains and losses on the foreign currency forward contracts for INR reported in AOCI that is expected to be reclassified into operating expenses is a loss of $ 0.6 million (before tax).

Non-designated forward contracts

At March 31, 2020 , the Company had 13 outstanding non-designated forward contracts with notional amounts of € 13.1 million , £ 6.2 million and Rs.

At June 30, 2020, the Company had 15 outstanding non-designated forward contracts with notional amounts of € 12.5 million, £ 7.9 million and Rs.

351.7 million.

1 unchanged sentence

756.0 million.

The following summarizes derivative financial instruments as of March 31, 2020 and December 31, 2019:

The following summarizes derivative financial instruments as of June 30, 2020 and December 31, 2019:

June 30, December 31,

(in thousands)

1 unchanged sentence

Foreign currency forward contracts not designated as hedging instruments 409 515

Total $ 862 $ 942

Foreign currency forward contracts designated as cash flow hedge $ ( 802 ) $ ( 524 )

Foreign currency forward contracts not designated as hedging instruments ( 309 ) ( 550 )

Total $ ( 1,111 ) $ ( 1,074 )

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

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

Three Months Ended March 31,

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

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(in thousands)

Net gain from non-designated forward contracts

Other foreign currency transactions loss

Total foreign exchange loss, net

Net (losses) gains from non-designated forward contracts $ ( 224 ) $ 44 $ 580 $ 66

Other foreign currency transactions gains (losses) 475 249 ( 396 ) 66

Total foreign exchange gains, net 251 293 184 132

Other expenses ( 57 ) ( 62 ) ( 125 ) ( 125 )

Other expense, net

Accumulated Other Comprehensive Income (loss)

The components and changes in accumulated other comprehensive income (loss), net of taxes, for the three months ended March 31, 2020 and 2019 were as follows (in thousands):

Unrealized gains (losses) on AFS debt securities

Unrealized gains (losses) on cash flow hedges

Other income, net $ 194 $ 231 $ 59 $ 8

Accumulated Other Comprehensive Income

The components and changes in accumulated other comprehensive income, net of taxes, for the six months ended June 30, 2020 and 2019 were as follows:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unrealized gains (losses) on AFS debt securities Unrealized gains (losses) on cash flow hedges Total

(in thousands)

Balances as of December 31, 2019 $ 822 $ 340 $ 1,162

Other comprehensive income before reclassification 1,444 208 1,652

Reclassification of gains from Other comprehensive income (loss)

Total change in unrealized gain, net of tax

Balances as of March 31, 2020

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unrealized gains (losses) on AFS debt securities

Unrealized gains (losses) on cash flow hedges

Reclassification of gains from Other comprehensive income ( 100 ) ( 279 ) ( 379 )

Total change in unrealized gains (losses), net of tax 1,344 ( 71 ) 1,273

Balances as of June 30, 2020 $ 2,166 $ 269 $ 2,435

Unrealized gains (losses) on AFS debt securities Unrealized gains (losses) on cash flow hedges Total

(in thousands)

Balances as of December 31, 2018 $ ( 545 ) $ ( 41 ) $ ( 586 )

Other comprehensive income before reclassification 1,379 351 1,730

Reclassification of losses from Other comprehensive income (loss)

Total change in unrealized gain, net of tax

Balances as of March 31, 2019

Reclassification of losses from Other comprehensive income 43 53 96

Total change in unrealized gains, net of tax 1,422 404 1,826

Balances as of June 30, 2019 $ 877 $ 363 $ 1,240

Property and Equipment, Net

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

June 30, December 31,

(in thousands)

8 unchanged sentences

Property and equipment, net $ 63,098 $ 60,579

Physical scanner appliances and other computer equipment had a net carrying value of $ 4.4 million and $ 4.9 million at March 31, 2020 and December 31, 2019 , respectively, including assets that had not been placed in service of $ 0.8 million and $ 0.9 million , respectively.

Depreciation and amortization expense relating to property and equipment, including assets under finance leases, was $ 6.1 million and $ 6.4 million for the three months ended March 31, 2020 and 2019 , respectively.

Physical scanner appliances and other computer equipment had a net carrying value of $ 8.2 million and $ 4.9 million at June 30, 2020 and December 31, 2019, respectively, including assets that had not been placed in service of $ 4.5 million and $ 0.9 million, respectively.

Depreciation and amortization expense relating to property and equipment, including assets under finance leases, was $ 6.4 million and $ 6.3 million for the three months ended June 30, 2020 and 2019, respectively, and $ 12.6 million and $ 12.8 million for the six months ended June 30, 2020 and 2019, respectively.

Revenue from Contracts with Customers

2 unchanged sentences

The Company recognizes revenue related to professional services based on time and materials or completion of milestones stated in the contracts.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As the vast majority of the Company’s offerings are subscription based, the Company rarely needs to allocate the transaction price to separate performance obligations.

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For contracts that include leased scanners and PCPs, the Company applies the lease and non-lease component practical expedient under ASC 842 to account for non-lease components and lease components as combined components under the revenue recognition guidance in ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606) as the subscriptions are the predominant components in the arrangements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Costs of shipping and handling charges associated with physical scanner appliances and other computer equipment are included in cost of revenues.

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The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets and other noncurrent assets, respectively, in its condensed consolidated balance sheets.

Capitalized costs to obtain contracts, current and noncurrent are as follows (in thousands):

March 31, 2020

December 31, 2019

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

June 30, 2020 December 31, 2019

(in thousands)

Commission asset, current $ 2,968 $ 2,568

Commission asset, noncurrent $ 6,604 $ 6,454

For the three months ended March 31, 2020 and 2019 , the Company recognized $ 0.7 million and $ 0.4 million , respectively, of commission expense from amortization of its commission assets.

For the three months ended June 30, 2020 and 2019, the Company recognized $ 0.7 million and $ 0.5 million, respectively, of commission expense from amortization of its commission assets.

For the six months ended June 30, 2020 and 2019, the Company recognized $ 1.4 million and $ 0.9 million, respectively, of commission expense from amortization of its commission assets.

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

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

Revenue of $ 73.8 million and $ 64.2 million was recognized during the three months ended March 31, 2020 and 2019 , respectively, which amounts were included in the deferred revenue balances as of December 31, 2019 and 2018, respectively.

Revenue of $ 55.9 million and $ 49.1 million was recognized during the three months ended June 30, 2020 and 2019, respectively, which amounts were included in the deferred revenue balances as of December 31, 2019 and 2018, respectively.

Revenue of $ 129.7 million and $ 113.3 million was recognized during the six months ended June 30, 2020 and 2019, respectively, which amounts were included in the deferred revenue balances as of December 31, 2019 and 2018, respectively.

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

For certain products or services and customer types, 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 March 31, 2020 (in thousands):

The following table sets forth the expected revenue from all remaining performance obligations as of June 30, 2020:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Total Expected Revenue

2020 (remaining nine months)

(in thousands)

2020 (remaining six months) $ 46,130

2025 and thereafter 184

Total $ 152,675

Revenues allocated to remaining performance obligations represents contracted revenues that have not yet been recognized, which include deferred revenue and the amounts that will be invoiced and recognized as revenues in future periods from open contracts.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenues by sales channel are as follows (in thousands):

Three Months Ended

Revenues by sales channel are as follows:

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

(in thousands)

Direct $ 51,805 $ 45,672 $ 101,810 $ 88,711

Partner 37,025 33,257 73,283 65,561

Total $ 88,830 $ 78,929 $ 175,093 $ 154,272

The Company utilizes partners to enable and accelerate the adoption of its cloud platform by increasing its distribution capabilities and market awareness of its cloud platform as well as by targeting geographic regions outside the reach of its direct sales force.

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

Business Combination

On January 10, 2019, the Company acquired the assets of Adya, Inc.

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Total purchase consideration was $ 1.0 million, including $ 0.2 million of deferred consideration due eighteen months from the closing date of the acquisition, subject to potential adjustment from possible indemnity claims.

Pro forma financial information for this acquisition has not been presented because it is not material to the Company's condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

forma financial information for this acquisition has not been presented because it is not material to the Company's condensed consolidated financial statements.

The Company accounted for this transaction as a business combination and allocated $ 0.9 million of the purchase price to technology-based intangible assets and $ 0.1 million to goodwill.

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

Inta ngible Assets, Net

On July 24, 2020, the Company acquired certain intangible assets of Spell Security Private Limited ("Spell Security"), a privately held company incorporated in India.

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 fifteen months from the closing date of the acquisition, subject to potential adjustment from possible indemnity claims.

Intangible Assets, Net

Intangible assets consist primarily of developed technology and patent licenses from business combinations.

Acquired intangibles are amortized on a straight-line basis over the respective estimated useful lives of the assets.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The carrying values of intangible assets are as follows (in thousands, except for years):

March 31, 2020

Weighted Average Life (Years)

Weighted Average Remaining Life (Years)

Accumulated Amortization

Net Book Value

The carrying values of intangible assets are as follows:

June 30, 2020

(in thousands, except for years)

Weighted Average Life (Years) Weighted Average Remaining Life (Years) Cost Accumulated Amortization Net Book Value

Developed technology 4.6 2.2 $ 26,356 $ ( 13,056 ) $ 13,300

1 unchanged sentence

Total intangibles subject to amortization

$ 27,743 $ ( 14,028 ) 13,715

Intangible assets not subject to amortization

1 unchanged sentence

December 31, 2019

Weighted Average Life (Years)

Weighted Average Remaining Life (Years)

Accumulated Amortization

Net Book Value

(in thousands, except for years)

Weighted Average Life (Years) Weighted Average Remaining Life (Years) Cost Accumulated Amortization Net Book Value

Developed technology 4.6 2.7 $ 26,356 $ ( 10,066 ) $ 16,290

1 unchanged sentence

Total intangibles subject to amortization

$ 27,743 $ ( 10,988 ) 16,755

Intangible assets not subject to amortization

Total intangible assets, net

Intangible asset amortization expense was $ 1.5 million for each of the three months ended March 31, 2020 and 2019 .

As of March 31, 2020 , the Company expects amortization expense in future periods to be as follows (in thousands):

Intangible asset amortization expense wa s $ 1.5 million for each of the three months ended June 30, 2020 and 2019, and $ 3.0 million for each of the six months ended June 30, 2020 and 2019.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 30, 2020 , the Company expects amortization expense in future periods to be as follows:

Amortization Expense

2020 (remaining nine months)

(in thousands)

2020 (remaining six months) $ 3,041

Total expected future amortization expense $ 13,715

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We adopted the standard using the current period adjustment method with an effective date of January 1, 2019.

Prior year financial statements were not restated under the new standard and, therefore, those amounts are not presented below.

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.

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The incremental borrowing rate is determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term.

Where the Company is the lessee, the Company elected to account for non-lease components associated with its leases (e.g., common area maintenance costs) and lease components separately for substantially all of its asset classes.

In arrangements where the Company is the lessor, the Company elected to apply the practical expedient

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

which allows the Company to account for lease components (e.g., customer premise equipment) and non-lease components (e.g., service revenue) as combined components under the revenue recognition guidance in Topic 606 as service revenues are the predominant components in the arrangements.

In arrangements where the Company is the lessor, the Company elected to apply the practical expedient which allows the Company to account for lease components (e.g., customer premise equipment) and non-lease components (e.g., service revenue) as combined components under the revenue recognition guidance in Topic 606 as service revenues are the predominant components in the arrangements.

The Company leases property and equipment under finance and operating leases.

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Therefore, the Company must estimate an incremental borrowing rate to discount the lease payments based on information available at lease commencement.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below presents the lease-related assets and liabilities recorded on the balance sheet.

(in thousands)

Classification on the Balance Sheet

Operating lease assets

Operating lease - right of use asset

Finance lease assets

Property and equipment, net

June 30, December 31,

(in thousands) Classification on the Balance Sheet 2020 2019

Operating lease assets Operating lease - right of use asset $ 42,930 $ 40,551

Finance lease assets Property and equipment, net 715 1,299

Total lease assets $ 43,645 $ 41,850

Operating lease liabilities, current

Accrued liabilities

Operating lease liabilities, noncurrent

Other noncurrent liabilities

Operating Operating lease liabilities, current $ 9,161 $ 7,663

Finance Accrued liabilities 117 124

Operating Operating lease liabilities, noncurrent 45,050 44,015

Finance Other noncurrent liabilities — 54

Total lease liabilities $ 54,328 $ 51,856

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Lease expense was $ 4.4 million and $ 3.0 million for the three months ended March 31, 2020 and 2019 , respectively.

Supplemental cash flow information related to leases was as follows (in thousands):

Three Months Ended

March 31, 2020

Lease expense was $ 4.5 million and $ 3.4 million for the three months ended June 30, 2020 and 2019, respectively, and $ 8.9 million and $ 6.4 million for the six months ended June 30, 2020 and 2019, respectively.

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

Six Months Ended

June 30, 2020 June 30, 2019

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Operating leases $ 7,033 $ 1,525

Operating and financing cash flows from finance leases were immaterial during the three months ended March 31, 2020.

Operating and financing cash flows from finance leases were immaterial during the six months ended June 30, 2020.

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

March 31, 2020

June 30, 2020 June 30, 2019

Weighted average remaining lease term (years)

4 unchanged sentences

Finance leases 5.0 % 5.0 %

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Commitments and Contingencies

7 unchanged sentences

2012 Equity Incentive Plan

Under the 2012 Equity Incentive Plan (the "2012 Plan"), the Company is authorized to grant to eligible participants incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance units and performance shares equivalent to up to 15.7 million shares of common stock as of March 31, 2020 .

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.

As of March 31, 2020 , 7.2 million shares were available for grant under the 2012 Plan.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 30, 2020, 7.2 million shares were available for grant under the 2012 Plan.

2000 Equity Incentive Plan

3 unchanged sentences

Stock-Based Compensation

The following table shows a summary of the stock-based compensation expense included in the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 :

Three Months Ended

The following table shows a summary of the stock-based compensation expense included in the condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019:

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

(in thousands)

4 unchanged sentences

Total stock-based compensation $ 9,444 $ 8,335 $ 19,441 $ 16,780

As of March 31, 2020 , the Company had $ 14.9 million of total unrecognized stock-based compensation cost related to unvested options which was expected to be recognized over a weighted-average period of 2.2 years , and $ 60.5 million of unrecognized stock-based compensation cost related to unvested RSUs which was expected to be recognized over a weighted-average period of 2.5 years .

As of June 30, 2020 , the Company had $ 16.7 million of total unrecognized stock-based compensation cost related to unvested options which was expected to be recognized over a weighted-average period of 2.2 years, and $ 54.3 million of unrecognized stock-based compensation cost related to unvested RSUs which was expected to be recognized over a weighted-average period of 2.5 years.

Compensation cost is recognized over the service period.

Forfeitures are estimated at the time of grant and revised in subsequent periods, if actual forfeitures differ from those estimates.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Option Plan Activity

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

Outstanding Options

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life (Years)

Aggregate Intrinsic Value

Outstanding Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value

(in thousands)

Balance as of December 31, 2019 2,866,675 $ 40.54 6.0 $ 125,647

Balance as of March 31, 2020

Vested and expected to vest - March 31, 2020

Exercisable - March 31, 2020

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Granted 155,300 $ 96.20

Exercised ( 593,045 ) $ 34.45

Canceled ( 26,083 ) $ 82.61

Balance as of June 30, 2020 2,402,847 $ 45.19 5.9 $ 141,415

Vested and expected to vest - June 30, 2020 2,246,671 $ 42.27 5.8 $ 138,778

Exercisable - June 30, 2020 1,704,504 $ 29.13 4.9 $ 127,656

Restricted Stock

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

Outstanding RSUs

Weighted Average Grant Date Fair Value Per Share

Outstanding RSUs Weighted Average Grant Date Fair Value Per Share

Balance as of December 31, 2019 1,214,818 $ 67.99

Balance as of March 31, 2020

Outstanding and expected to vest - March 31, 2020

Granted 124,633 $ 95.96

Vested ( 284,603 ) $ 61.04

Canceled ( 154,670 ) $ 71.00

Balance as of June 30, 2020 900,178 $ 75.99

Outstanding and expected to vest - June 30, 2020 668,594 $ 74.20

Performance-Based Stock Options and Restricted Stock Units

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Courtot’s continued status as a service provider through the date that performance is certified.

Courtot’s employment (a) is terminated by reason of death or disability or (b) is terminated by the Company for reasons other than cause within 12 months following a change in control (a “double trigger” termination), then 100 % of any unvested portions of the award 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 (2019 performance-based NSOs).

Courtot’s employment (a) is terminated by reason of death or disability or (b) is terminated by the Company for reasons other than cause 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 change in control terminations conditioned upon the effectiveness of a release of claims in favor of the Company (2019 performance-based NSOs).

On December 21, 2018, the Compensation Committee granted the equity award for 2019, which consisted of time-based and performance-based RSUs, to Mr.

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

The Compensation Committee, in consultation with its

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

independent compensation consultant, designed these awards so that greater than 50 % of this compensation was based on the achievement of performance goals linked to metrics designed to drive the creation of shareholder value.

The first portion of the award consists of 56,250 time-based RSUs that will vest in 16 quarterly increments beginning on January 1, 2019, assuming continued service through each applicable vesting date.

3 unchanged sentences

Courtot’s continued status as a service provider through the date that performance is certified for the relevant increment.

Courtot’s employment (a) is terminated by reason of death or disability or (b) is terminated by the Company for reasons other than cause or good reason within 12 months following a change in control (a “double trigger” termination), then 100 % of any unvested portions of the award 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 (2018 performance-based RSUs).

During the three months ended March 31, 2020, 14,864 shares, which represent 135 % of the target number of 11,030 shares under the 2018 performance-based RSUs, vested as a result of the Company achieving the performance goals for fiscal 2019.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During each of the three months ended March 31, 2020 and 2019 , stock-based compensation costs of $ 0.1 million and $ 0.2 million , respectively, were recognized for the 2019 performance-based NSOs and the 2018 performance-based RSUs.

Courtot’s employment (a) is terminated by reason of death or disability or (b) is terminated 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 change in control terminations conditioned upon the effectiveness of a release of claims in favor of the Company (2018 performance-based RSUs).

During the six months ended June 30, 2020, 14,864 shares, which represent 135 % of the target number of 11,030 shares under the 2018 performance-based RSUs, vested as a result of the Company achieving the performance goals for fiscal 2019.

On June 10, 2020, the board of directors approved changes in the performance targets for the 2019 and 2018 performance-based awards.

Based on the current projected performance levels expected to be achieved for those awards, the modification resulted in an incremental expense of $ 7.5 million, which is expected to be recognized over 12 quarters.

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

The modifications did not have a material impact on the condensed consolidated statement of operations for the three or six months ended June 30, 2020.

During the three months ended June 30, 2020 and 2019, stock-based compensation costs of $ 0.5 million, including changes due to modifications, and $ 0.3 million, respectively, were recognized for the performance-based NSOs and RSUs.

During the six months ended June 30, 2020 and 2019, stock-based compensation costs of $ 0.6 million, including changes due to modifications, and $ 0.5 million, respectively, were recognized for the performance-based NSOs and RSUs.

Share Repurchase Program

5 unchanged sentences

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 three months ended March 31, 2020 , the Company repurchased 346,250 shares of its common stock for approximately $ 28.9 million .

During the six months ended June 30, 2020, the Company repurchased 588,750 shares of its common stock for approximately $ 54.2 million.

All share repurchases were made using cash resources.

As of March 31, 2020 , approximately $ 99.6 million remained available for share repurchases pursuant to the Company's share repurchase program.

As of June 30, 2020, approximately $ 174.4 million remained available for share repurchases pursuant to the Company's share repurchase program.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net income Per Share

The computations for basic and diluted net income per share are as follows:

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(in thousands, except per share data)

Net income $ 26,319 $ 16,232 $ 45,013 $ 29,498

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

Basic 39,161 39,198 39,137 39,143

Effect of potentially dilutive securities:

1 unchanged sentence

Restricted stock units 376 442 381 477

Diluted 40,919 41,530 40,928 41,570

Net income per share:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$ 0.67 $ 0.41 $ 1.15 $ 0.75

$ 0.64 $ 0.39 $ 1.10 $ 0.71

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

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(in thousands)

1 unchanged sentence

Restricted stock units 2 54 18 62

454 473 603 443

The Company's provision for income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period.

4 unchanged sentences

federal income tax credits and foreign-derived intangible income deduction.

The Company recorded an income tax provision of $ 3.5 million and $ 2.6 million for the three months ended March 31, 2020 and 2019 , respectively, resulting in an effective tax rate of 15.9 % and 16.2 % , respectively.

The tax provision for the three months ended March 31, 2020 as compared to the tax provision for the three months ended March 31, 2019 changed primarily due to an increase in pre-tax income in the current period.

As of March 31, 2020 , the Company had unrecognized tax benefits of $ 8.1 million , of which $ 4.4 million , if recognized, would favorably impact the Company's effective tax rate.

The Company recorded an income tax provision of $ 0.8 million and $ 2.3 million for the three months ended June 30, 2020 and 2019, respectively, resulting in an effective tax rate of 2.9 % and 12.3 %, respectively.

The tax provision for the three months ended June 30, 2020 as compared to the tax provision for the three months ended June 30, 2019 changed primarily due to higher excess tax benefits from stock-based compensation in the current period.

The Company recorded an income tax provision of $ 4.3 million and $ 4.8 million for the six months ended June 30, 2020 and 2019, respectively, resulting in an effective tax rate of 8.7 % and 14.1 %, respectively.

The tax provision for the six months ended June 30, 2020 as compared to the tax provision for the six months ended June 30, 2019 changed primarily due to higher excess tax benefits from stock-based compensation in the current period.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 30, 2020 , the Company had unrecognized tax bene fits of $ 8.4 million, of which $ 4.2 million , if recognized, would favorably impact the Company's effective ta x rate.

As of December 31, 2019, the Company had unrecognized tax benefits of $ 7.8 million, of which $ 4.2 million, if recognized, would favorably impact the Company's effective tax rate.

The Company does not anticipate a material change in its unrecognized tax benefits in the next 12 months.

The Company does not anticipate a mate rial change in its unrecognized tax benefits in the next 12 months.

On June 29, 2020, the California governor signed into law the 2020 Budget Act, which temporarily suspends the utilization of net operating losses and limits the utilization of the research credit to $5 million annually for 2020, 2021 and 2022.

The Company is continuing to assess the 2020 Budget Act, but currently does not expect any material impact to the condensed consolidated financial statements.

Segment Information and Information about Geographic Area

4 unchanged sentences

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

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(in thousands)

United States $ 57,015 $ 50,704 $ 111,978 $ 99,325

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Foreign 31,815 28,225 63,115 54,947

Total $ 88,830 $ 78,929 $ 175,093 $ 154,272

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

June 30, December 31,

(in thousands)

United States $ 46,283 $ 46,100

India 11,255 9,221

Foreign 5,560 5,258

Total property and equipment, net $ 63,098 $ 60,579

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-Q

Item 1. Financial Statements