What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-05 compared with 2020-08-10 · 158 added, 104 removed, 616 unchanged (30% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

1 unchanged sentence

Short-term investments 81,209 116,158

Accounts receivable, net of allowance for doubtful accounts of $ 2,608 and $ 1,829 at June 30, 2020 and December 31, 2019, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 3,203 and $ 1,829 at September 30, 2020 and December 31, 2019, respectively

73,625 87,927

25 unchanged sentences

Preferred stock, $ 0.01 par value per share;

10,000,000 shares authorized at June 30, 2020 and December 31, 2019;

0 shares issued at June 30, 2020 and December 31, 2019

10,000,000 shares authorized at September 30, 2020 and December 31, 2019;

0 shares issued at September 30, 2020 and December 31, 2019

Common stock, $ 0.01 par value per share;

100,000,000 shares authorized at June 30, 2020 and December 31, 2019;

51,438,042 and 50,397,922 shares issued at June 30, 2020 and December 31, 2019, respectively;

50,951,234 and 49,911,114 shares outstanding at June 30, 2020 and December 31, 2019, respectively

Treasury stock, at cost, 486,808 shares at June 30, 2020 and December 31, 2019

100,000,000 shares authorized at September 30, 2020 and December 31, 2019;

52,264,083 and 50,397,922 shares issued at September 30, 2020 and December 31, 2019, respectively;

51,777,275 and 49,911,114 shares outstanding at September 30, 2020 and December 31, 2019, respectively

Treasury stock, at cost, 486,808 shares at September 30, 2020 and December 31, 2019

( 4,764 ) ( 4,764 )

Additional paid-in-capital 677,983 605,650

Accumulated other comprehensive income 85 213

Accumulated other comprehensive (loss) income ( 23 ) 213

Accumulated deficit ( 588,361 ) ( 518,430 )

4 unchanged sentences

(in thousands, except share and per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

25 unchanged sentences

(in thousands)

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

2 unchanged sentences

Change in fair value of investments ( 20 ) ( 47 ) ( 127 ) 335

Adjustments for net losses (gains) realized and included in net loss 35 — ( 21 ) —

Adjustments for net gains realized and included in net loss — — ( 21 ) —

Total change in unrealized gains (losses) on investments ( 20 ) ( 47 ) ( 148 ) 335

Change in unrealized losses on cash flow hedges ( 88 ) — ( 88 ) —

Total other comprehensive income (loss) ( 108 ) ( 47 ) ( 236 ) 335

Comprehensive loss $ ( 25,649 ) $ ( 14,453 ) $ ( 70,167 ) $ ( 39,164 )

2 unchanged sentences

(in thousands)

Three Months Ended September 30, 2020

Common stock Treasury stock Additional paid-in-capital Accumulated other comprehensive gain (loss) Accumulated deficit Total stockholders’ equity

Shares Amount Shares Amount

Balance, March 31, 2020 50,419 $ 504 487 $ ( 4,764 ) $ 621,992 $ ( 78 ) $ ( 541,354 ) $ 76,300

Balance, June 30, 2020 50,952 $ 509 487 $ ( 4,764 ) $ 657,678 $ 85 $ ( 562,820 ) $ 90,688

Stock-based compensation expense — — — — 16,620 — — 16,620

Issuance of common stock under employee stock purchase plan 132 1 — — 3,735 — — 3,736

Vesting of restricted stock units 369 4 — — ( 4 ) — — —

1 unchanged sentence

Issuance of common stock upon exercise of stock options 367 4 — — 2,491 — — 2,495

Change in unrealized gains on investments — — — — — 163 — 163

Other comprehensive loss — — — — — ( 108 ) — ( 108 )

Equity component of convertible senior notes, net — — — — ( 3 ) — — ( 3 )

Purchase of capped calls related to convertible senior notes — — — — ( 27,255 ) — — ( 27,255 )

Net loss — — — — — — ( 25,541 ) ( 25,541 )

Balance, June 30, 2020 50,952 $ 509 487 $ ( 4,764 ) $ 657,678 $ 85 $ ( 562,820 ) $ 90,688

Balance, September 30, 2020 51,777 $ 518 487 $ ( 4,764 ) $ 677,983 $ ( 23 ) $ ( 588,361 ) $ 85,353

Three Months Ended September 30, 2019

Common stock Treasury stock Additional paid-in-capital Accumulated other comprehensive gain (loss) Accumulated deficit Total stockholders’ equity

Shares Amount Shares Amount

Balance, March 31, 2019 48,158 $ 482 487 $ ( 4,764 ) $ 569,229 $ 162 $ ( 476,258 ) $ 88,851

Balance, June 30, 2019 48,798 $ 488 487 $ ( 4,764 ) $ 581,127 $ 351 $ ( 489,678 ) $ 87,524

Stock-based compensation expense — — — — 10,426 — — 10,426

Issuance of common stock under employee stock purchase plan 74 1 — — 2,886 — — 2,887

Vesting of restricted stock units 319 3 — — ( 3 ) — — —

1 unchanged sentence

Issuance of common stock upon exercise of stock options 150 1 — — 1,877 — — 1,878

Change in unrealized losses on investments — — — — — 189 — 189

Other comprehensive loss — — — — — ( 47 ) — ( 47 )

Net loss — — — — — — ( 14,406 ) ( 14,406 )

Balance, June 30, 2019 48,798 $ 488 487 $ ( 4,764 ) $ 581,127 $ 351 $ ( 489,678 ) $ 87,524

Balance, September 30, 2019 49,303 $ 493 487 $ ( 4,764 ) $ 594,226 $ 304 $ ( 504,084 ) $ 86,175

Nine Months Ended September 30, 2020

Common stock Treasury stock Additional

11 unchanged sentences

Issuance of common stock upon exercise of stock options 652 6 — — 6,222 — — 6,228

Change in unrealized losses on investments — — — — — ( 128 ) — ( 128 )

Other comprehensive loss — — — — — ( 236 ) — ( 236 )

Equity component of convertible senior notes, net — — — — 46,832 — — 46,832

1 unchanged sentence

Net loss — — — — — — ( 69,931 ) ( 69,931 )

Balance, June 30, 2020 50,952 $ 509 487 $ ( 4,764 ) $ 657,678 $ 85 $ ( 562,820 ) $ 90,688

Balance, September 30, 2020 51,777 $ 518 487 $ ( 4,764 ) $ 677,983 $ ( 23 ) $ ( 588,361 ) $ 85,353

Nine Months Ended September 30, 2019

Common stock Treasury stock Additional

11 unchanged sentences

Issuance of common stock upon exercise of stock options 700 7 — — 7,928 — — 7,935

Change in unrealized gains on investments — — — — — 382 — 382

Other comprehensive income — — — — — 335 — 335

Net loss — — — — — — ( 39,499 ) ( 39,499 )

Balance, June 30, 2019 48,798 $ 488 487 $ ( 4,764 ) $ 581,127 $ 351 $ ( 489,678 ) $ 87,524

Balance, September 30, 2019 49,303 $ 493 487 $ ( 4,764 ) $ 594,226 $ 304 $ ( 504,084 ) $ 86,175

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

1 unchanged sentence

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

Net loss $ ( 69,931 ) $ ( 39,499 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization 16,347 11,969

13 unchanged sentences

Other liabilities ( 915 ) 1,292

Net cash used in operating activities ( 6,773 ) ( 11,083 )

Net cash provided by (used in) operating activities 4,305 ( 9,244 )

Cash flows from investing activities:

8 unchanged sentences

Purchase of capped calls related to convertible senior notes ( 27,255 ) —

Deferred business acquisition payment ( 150 ) —

Payments of debt issuance costs ( 411 ) —

28 unchanged sentences

All intercompany transactions and balances have been eliminated in consolidation.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Use of Estimates

4 unchanged sentences

The COVID-19 pandemic is expected to result in a sustained global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services, including from our customers.

We currently expect our operational and financial performance to be negatively impacted by the slowdown in activity associated with the COVID-19 pandemic for the quarters ending September 30, 2020 and December 31, 2020 and the year ending December 31, 2020 and beyond.

We currently expect our operational and financial performance to be negatively impacted by the slowdown in activity associated with the COVID-19 pandemic for the quarter and the year ending December 31, 2020 and beyond.

Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment.

4 unchanged sentences

Prior to the fiscal year beginning January 1, 2020, we have presented revenue on our consolidated statement of operations as products, maintenance and support and professional services revenue.

For the three and six months ended June 30, 2020, we have combined products and maintenance and support revenue as products revenue on our consolidated statement of operations as our customers continue to migrate from our on-premise products to our SaaS Insight Platform.

For the three and nine months ended September 30, 2020, we have combined products and maintenance and support revenue as products revenue on our consolidated statement of operations as our customers continue to migrate from our on-premise products to our SaaS Insight Platform.

Given this continued migration, we believe it is more relevant to categorize maintenance and support revenue together as products revenue.

2 unchanged sentences

Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

There have been no changes to the significant accounting policies during the three and six-month periods ended June 30, 2020.

There have been no

changes to the significant accounting policies during the three and nine-month periods ended September 30, 2020 other than those noted below.

Derivatives and Hedging Activities

As a global business, we are exposed to currency exchange rate risk.

Although the majority of our revenue is denominated in U.S.

dollars, a portion of our operating expenses are denominated in foreign currencies, making them subject to fluctuations in foreign currency exchange rates.

In order to manage certain exposures to currency fluctuations, we initiated a derivative instrument and hedging program during the quarter ended September 30, 2020.

We enter into foreign currency derivative contracts, which we designate as cash flow hedges to manage the foreign currency exchange risk associated with these expenses denominated in certain foreign currencies.

Derivative instruments are measured at fair value and reported as either an asset or liability on our consolidated balance sheets.

Gains or losses related to our cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) in our consolidated balance sheets and are reclassified into the financial statement line item associated with the underlying hedged transaction in our consolidated statement of operations when the underlying hedged transaction is recognized in earnings.

If it becomes probable that the hedged transaction will not occur, the cumulative unrealized gain or loss is reclassified immediately from accumulated other comprehensive income (loss) into the financial statement line item associated with the underlying hedged transaction in our consolidated statement of operations.

Derivatives designated as cash flow hedges are classified in our consolidated statements of cash flow in the same manner as the underlying hedged transaction, primarily within cash flow from operating activities.

Recent Accounting Pronouncements

8 unchanged sentences

Accounting Pronouncements Not Yet Effective

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The standard eliminates beneficial conversion feature and cash conversion models resulting in more convertible instruments being accounted for as a single unit;

and simplifies classification of debt on the balance sheet and earnings per share calculation.

The standard is effective for us in our first quarter of fiscal 2022 and can be adopted on a full or modified retrospective basis.

Early adoption is permitted from our first quarter of fiscal 2021.

We are currently assessing the timing, method of adoption and overall impact that the adoption of this standard will have on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

11 unchanged sentences

We generate products revenue from the sale of (1) cloud-based subscriptions for our InsightIDR, InsightVM, InsightAppSec and InsightConnect products, (2) managed services offerings which utilize our products and (3) term or perpetual software licenses for our Nexpose, Metasploit, AppSpider and DivvyCloud products, and associated content subscriptions for our Nexpose and Metasploit products.

We also generate appliance revenue that is included in our products revenue and is associated with hardware sold with our Nexpose product to certain customers.

We generate maintenance and support revenue that is included in our products revenue and is associated with customers’ purchases of our software licenses for Nexpose, Metasploit and AppSpider products.

1 unchanged sentence

Our deployment services educate and assist our customers on the best use and best practices to deploy our solutions.

The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2020 and 2019:

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

The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

43 unchanged sentences

Such amounts are recognized as revenue over the contractual period consistent with the above methodology.

For the three months ended June 30, 2020 and 2019, we recognized revenue of $ 84.8 million and $ 66.6 million, respectively, and for the six months ended June 30, 2020 and 2019, we recognized $ 149.3 million and $ 117.2 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

For the three months ended September 30, 2020 and 2019, we recognized revenue of $ 90.4 million and $ 72.7 million, respectively, and for the nine months ended September 30, 2020 and 2019, we recognized $ 197.4 million and $ 158.7 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

3 unchanged sentences

If the right to consideration is based on satisfaction of another performance obligation in the contract other than the passage of time, we record a contract asset.

As of June 30, 2020 and December 31, 2019, unbilled receivables of $ 1.5 million and $ 0.8 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of June 30, 2020 and December 31, 2019, we had no contract assets recorded on our consolidated balance sheet.

As of September 30, 2020 and December 31, 2019, unbilled receivables of $ 2.0 million and $ 0.8 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of September 30, 2020 and December 31, 2019, we had no contract assets recorded on our consolidated balance sheet.

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of June 30, 2020.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of September 30, 2020.

The estimated revenues do not include unexercised contract renewals.

13 unchanged sentences

We have determined the fair value of the deferred cash payments was $ 7.0 million as of the acquisition date.

In addition, in connection with the acquisition, we will issue an aggregate of 200,596

shares of Rapid7’s common stock to the founders of DivvyCloud in three equal annual installments beginning on the first anniversary of the closing date.

During the third quarter of 2020, we made a $ 0.2 million payment for the first deferred cash payment and final working capital and other purchase price adjustments.

In addition, in connection with the acquisition, we will issue an aggregate of 200,596 shares of Rapid7’s common stock to the founders of DivvyCloud in three equal annual installments beginning on the first anniversary of the closing date.

The 200,596 shares of common stock were accounted for as stock-based compensation expense as continued service was required.

The fair value of the 200,596 shares of common stock was $ 8.9 million.

In the three and six months ended June 30, 2020, we recognized stock-based compensation expense related to such shares in the amount of $ 0.5 million.

In the three and six months ended June 30, 2020, we recorded $ 0.8 million and $ 1.1 million, respectively, of acquisition-related costs in general and administrative expense.

In the nine months ended September 30, 2020, we recorded $ 1.1 million of acquisition-related costs in general and administrative expense.

The following table summarizes the preliminary allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):

2 unchanged sentences

Deferred cash consideration 6,963

Estimated working capital and other purchase price adjustments 68

Working capital and other purchase price adjustments 55

Fair value of total consideration transferred $ 137,828

31 unchanged sentences

The RSUs and PSUs are expensed as stock-based compensation expense over the required service periods, assuming the service and performance conditions are achieved.

Our revenue attributable to the DivvyCloud business for the three and nine months ended September 30, 2020 was $ 2.3 million and $ 3.4 , respectively.

Our net loss attributable to the DivvyCloud business for the three and nine months ended September 30, 2020 was $ 6.7 million and $ 11.1 million, respectively.

Pro Forma Financial Information

1 unchanged sentence

The unaudited pro forma financial information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, including an adjustment to revenue for the deferred revenue fair value adjustment, amortization expense from acquired intangibles assets, reversal of acquisition-related expenses and the stock-compensation expense recorded to retain certain employees.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

4 unchanged sentences

The $ 16.1 million purchase price was funded with cash.

In the three and six months ended June 30, 2019, we recorded $ 0.3 million and $ 0.5 million, respectively, of acquisition-related costs in general and administrative expense.

In the nine months ended September 30, 2019, we recorded $ 0.5 million of acquisition-related costs in general and administrative expense.

The assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date.

4 unchanged sentences

Accordingly, a $ 0.8 million deferred tax benefit was recorded resulting from a partial release of our valuation allowance to account for the creation of a deferred tax liability for the developed technology intangible asset acquired.

Following the acquisition, certain retained employees and non-employee contractors of NetFort received an aggregate of 123,623 restricted stock units (RSUs), which vest over a maximum of three years .

The vesting of the RSUs is subject to the employee's continued service with us.

Following the acquisition, certain retained employees and non-employee contractors of NetFort received an aggregate of 123,623 RSUs, which vest over a maximum of three years .

The vesting of the RSUs is subject to the employee's continued

service with us.

Accordingly, the compensation expense associated with the RSUs is expensed as incurred in our post-acquisition financial statements.

10 unchanged sentences

The following table presents our financial assets measured and recorded at fair value on a recurring basis using the above input categories:

As of June 30, 2020

As of September 30, 2020

Level 1 Level 2 Level 3 Total

2 unchanged sentences

government agencies 32,987 — — 32,987

Corporate bonds — 13,702 — 13,702

Commercial paper — 32,252 — 32,252

Corporate bonds — 20,349 — 20,349

Agency bonds — 3,998 — 3,998

Asset-backed securities — 2,436 — 2,436

Total assets $ 248,436 $ 59,035 $ — $ 307,471

Foreign currency forward contracts designated as cash flow hedges $ — $ 88 $ — $ 88

Total liabilities $ — $ 88 $ — $ 88

As of December 31, 2019

8 unchanged sentences

Total assets $ 143,760 $ 102,066 $ — $ 245,826

As of June 30, 2020, the fair values of our 1.25 % and 2.25 % convertible senior notes due 2023 and 2025, respectively, as further described in Note 8, Debt , were $ 309.1 million and $ 247.9 million, respectively, based upon quoted market prices.

As of September 30, 2020, the fair values of our 1.25 % and 2.25 % convertible senior notes due 2023 and 2025, respectively, as further described in Note 9, Debt , were $ 359.5 million and $ 289.2 million, respectively, based upon quoted market prices.

We consider the fair values of the convertible senior notes to be a Level 2 measurement due to the limited trading activity of both notes.

We had no other liabilities measured and recorded at fair value on a recurring basis as of June 30, 2020 or December 31, 2019.

We had no other liabilities measured and recorded at fair value on a recurring basis as of September 30, 2020 or December 31, 2019.

Our investments, which are all classified as available-for-sale, consisted of the following:

As of June 30, 2020

As of September 30, 2020

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

1 unchanged sentence

government agencies 32,984 3 — 32,987

Corporate bonds 13,613 90 ( 1 ) 13,702

Commercial paper 32,252 — — 32,252

Corporate bonds 20,287 69 ( 7 ) 20,349

Agency bonds 3,998 — — 3,998

Asset-backed securities 2,436 — — 2,436

Total assets $ 91,957 $ 72 $ ( 7 ) $ 92,022

8 unchanged sentences

Total assets $ 138,832 $ 222 $ ( 9 ) $ 139,045

As of June 30, 2020, our available-for-sale investments had maturities ranging from four to fifteen months .

As of September 30, 2020, our available-for-sale investments had maturities ranging from one to nineteen months .

As of December 31, 2019, our available-for-sale investments had maturities ranging from three months to two years .

For all of our investments for which the amortized cost basis was greater than the fair value at June 30, 2020 and December 31, 2019, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity.

For all of our investments for which the amortized cost basis was greater than the fair value at September 30, 2020 and December 31, 2019, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity.

In making the determination as to whether the unrealized loss is other-than-temporary, we considered the length of time and extent the investment has been in an unrealized loss position, the financial condition and near-term prospects of the issuers, the issuers’ credit rating and the time to maturity.

1 unchanged sentence

Property and equipment are recorded at cost and consist of the following:

As of June 30, 2020 As of December 31, 2019

As of September 30, 2020 As of December 31, 2019

(in thousands)

5 unchanged sentences

Property and equipment, net $ 50,305 $ 50,670

Depreciation expense was $ 2.9 million and $ 2.1 million for the three months ended June 30, 2020 and 2019, respectively, and $ 5.4 million and $ 3.9 million for the six months ended June 30, 2020 and 2019, respectively.

Depreciation expense was $ 2.7 million and $ 2.5 million for the three months ended September 30, 2020 and 2019, respectively, and $ 8.1 million and $ 6.4 million for the nine months ended September 30, 2020 and 2019, respectively.

Goodwill and Intangible Assets

Goodwill was $ 213.7 million and $ 97.9 million as of June 30, 2020 and December 31, 2019, respectively.

Goodwill was $ 213.7 million and $ 97.9 million as of September 30, 2020 and December 31, 2019, respectively.

The following table displays the changes in goodwill:

2 unchanged sentences

DivvyCloud acquisition 115,861

Balance at June 30, 2020 $ 213,686

Balance at September 30, 2020 $ 213,727

The following table presents details of our intangible assets, which include acquired identifiable intangible assets and capitalized internal-use software costs:

As of June 30, 2020 As of December 31, 2019

As of September 30, 2020 As of December 31, 2019

Life (years) Gross Carrying

16 unchanged sentences

Total intangible assets $ 72,894 $ ( 26,952 ) $ 45,942 $ 47,287 $ ( 18,726 ) $ 28,561

Amortization expense was $ 2.8 million and $ 1.9 million for the three months ended June 30, 2020 and 2019, respectively, and $ 5.0 million and $ 3.5 million for the six months ended June 30, 2020 and 2019, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of June 30, 2020 was as follows (in thousands):

2020 (for the remaining six months) $ 6,285

Amortization expense was $ 3.2 million and $ 2.1 million for the three months ended September 30, 2020 and 2019, respectively, and $ 8.2 million and $ 5.5 million for the nine months ended September 30, 2020 and 2019, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of September 30, 2020 was as follows (in thousands):

2020 (for the remaining three months) $ 3,246

2025 and thereafter 4,571

Total $ 39,915

The table above excludes the impact of $ 5.8 million of capitalized internal-use software costs for projects that have not been completed as of June 30, 2020, and, therefore, we have not determined the useful life of the software, nor have all the costs associated with these projects been incurred.

The table above excludes the impact of $ 6.0 million of capitalized internal-use software costs for projects that have not been completed as of September 30, 2020, and, therefore, we have not determined the useful life of the software, nor have all the costs associated with these projects been incurred.

Deferred Contract Acquisition and Fulfillment Costs

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30,

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the nine months ended September 30, 2020 and 2019:

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

Ending balance $ 56,538 $ 45,357

Derivatives and Hedging Activities

To mitigate our exposure to foreign currency fluctuations resulting from certain expenses denominated in certain foreign currencies, we enter into forward contracts that are designated as cash flow hedging instruments.

These forward contracts have contractual maturities of thirteen months or less, and as of September 30, 2020, outstanding forward contracts had a total notional value of $ 8.9 million.

The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract.

During the three months ended September 30, 2020, all cash flow hedges were considered effective.

The fair values of outstanding derivative instruments were as follows (in thousands):

Consolidated Balance Sheet Location As of September 30, 2020

Derivative liabilities:

Foreign currency forward contracts designated as cash flow hedges Other current liabilities $ 84

Foreign currency forward contracts designated as cash flow hedges Other non-current liabilities 4

Total derivative liabilities $ 88

For the three and nine months ended September 30, 2020, there were no amounts reclassified from accumulated other comprehensive income (loss) on our consolidated balance sheet to the financial statement line item associated with the underlying hedged transaction on our consolidated statement of operations for our cash flow hedges.

Convertible Senior Notes

12 unchanged sentences

• upon the occurrence of specified corporate events (as set forth in the Indenture).

As of June 30, 2020, the Notes are not convertible at the option of the holder.

During the three months ended September 30, 2020, the conversion feature of the 2023 Notes was triggered as the last reported price of our common stock was more than or equal to 130 % of the conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, and therefore the 2023 Notes are currently convertible, in whole or in part, at the option of the holders between October 1, 2020 through December 31, 2020.

Whether the 2023 Notes will be convertible following such period will depend on the continued

satisfaction of this condition or another conversion condition in the future.

We had not received any conversion notices through the issuance date of our consolidated financial statements.

Since we may elect to repay the 2023 Notes in cash, shares of our common stock, or a combination of both, we have continued to classify the 2023 Notes as long-term debt on our consolidated balance sheet as of September 30, 2020.

As of September 30, 2020, the 2025 Notes are not convertible at the option of the holder.

The following table presents details of the Notes (number of shares in millions):

9 unchanged sentences

The foregoing description is qualified in its entirety by reference to the text of the Indenture and the Form of the 2023 Notes, which were incorporated by reference as Exhibits 4.4 and 4.5 to our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020.

The 2025 Notes were incorporated by reference as Exhibits 4.1 and 4.2 to our Current Report on Form 8-K, filed with the SEC on May 4, 2020.

In addition, the foregoing description of the 2025 Notes is qualified in its entirety by reference to the text of the Indenture and the Form of the 2025 Notes, which were filed with the SEC as Exhibit 4.1 to our Current Report on Form 8-K on May 4, 2020.

Accounting for the 2023 Notes and the 2025 Notes

In accounting for the transactions, the 2023 Notes and the 2025 Notes have been separated into liability and equity components.

The initial carrying amounts of the liability components were calculated by measuring the fair value of similar debt instruments

that do not have an associated convertible feature.

The initial carrying amounts of the liability components were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature.

The initial carrying amounts of the equity components representing the Conversion Option was $ 53.8 million and $ 48.3 million for the 2023 Notes and the 2025 Notes, respectively, and were determined by deducting the fair values of the liability components from the par value of the 2023 Notes and 2025 Notes.

6 unchanged sentences

The net carrying amounts of the liability components of the 2023 Notes and the 2025 Notes were as follows (in thousands):

As of June 30, 2020 As of December 31, 2019

As of September 30, 2020 As of December 31, 2019

2023 Notes 2025 Notes Total 2023 Notes

3 unchanged sentences

Net carrying amount $ 193,625 $ 179,693 $ 373,318 $ 185,200

The net carrying amount of the equity component as of June 30, 2020 and December 31, 2019 (for the 2023 Notes) was as follows (in thousands):

The net carrying amount of the equity component as of September 30, 2020 and December 31, 2019 (for the 2023 Notes only) was as follows (in thousands):

2023 Notes 2025 Notes Total

3 unchanged sentences

Interest expense related to the 2023 Notes and the 2025 Notes was as follows (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

8 unchanged sentences

The initial cap prices for the 2023 Capped Calls and the 2025 Capped Calls are $ 63.98 and $ 93.88 per share, respectively, subject to certain adjustments.

The 2023 Capped Calls and the 2025 Capped Calls are expected to offset potential dilution to our common stock upon conversion of the

respective 2023 Notes or the 2025 Notes, with such offset subject to a cap based on the cap price.

The 2023 Capped Calls and the 2025 Capped Calls are expected to offset potential dilution to our common stock upon conversion of the respective 2023 Notes or the 2025 Notes, with such offset subject to a cap based on the cap price.

The 2023 Capped Calls and the 2025 Capped Calls cover, subject to anti-dilution adjustments, approximately 5.5 million and 3.8 million shares of our common stock, respectively.

16 unchanged sentences

The borrowings under the Credit Agreement bear interest, at our option, at a rate equal to either the London Interbank Offered Rate (LIBOR) rate (subject to a 1.00 % floor), plus an applicable margin equal to 2.50 % per annum or the alternate base rate (subject to a floor), plus an applicable margin equal to 0 % per annum.

As of June 30, 2020, we did no t have any outstanding borrowings under the Credit Agreement.

As of September 30, 2020, we did no t have any outstanding borrowings under the Credit Agreement.

Our leases primarily relate to office facilities that have remaining terms of up to 10.2 years, some of which include one or more options to renew with renewal terms of up to 5 years and some of which include options to terminate the leases within the next 3.9 years.

1 unchanged sentence

The components of lease expense were as follows:

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

5 unchanged sentences

Supplemental balance sheet information related to the operating leases was as follows:

As of June 30, 2020 As of December 31, 2019

As of September 30, 2020 As of December 31, 2019

(in thousands, except lease term and discount rate)

6 unchanged sentences

Supplemental cash flow information related to leases was as follows:

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

2 unchanged sentences

Operating lease ROU assets obtained in exchange for new lease obligations $ 456 $ 3,682 $ 16,053 $ 64,454

Maturities of operating lease liabilities as of June 30, 2020 were as follows (in thousands):

2020 (for the remaining six months) $ 6,837

Maturities of operating lease liabilities as of September 30, 2020 were as follows (in thousands):

2020 (for the remaining three months) $ 2,642

2025 and thereafter 53,933

4 unchanged sentences

Stock-based compensation expense for restricted stock units, stock options and issuances of common stock pursuant to our employee stock purchase plan was classified in the accompanying consolidated statements of operations as follows:

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

8 unchanged sentences

In the first quarter of 2020, our Compensation Committee adopted and approved the performance goals, targets and payout formulas for 2020 under our bonus plans, including permitting our executive officers and other employees the opportunity to receive payment of their earned bonuses for fiscal year 2020 in the form of common stock (in lieu of cash).

During the three and six months ended June 30, 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $ 0.4 million a nd $ 0.8 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of June 30, 2020.

During the three and nine months ended September 30, 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $ 0.5 million and $ 1.5 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of September 30, 2020.

For all employees, including executive officers, who elected to receive their 2020 bonuses in the form of common stock (in lieu of cash), the payouts are expected to be made in the form of fully vested stock awards in the first quarter of 2021 pursuant to our 2015 Equity Incentive Plan, as amended.

1 unchanged sentence

(b) Restricted Stock Units

Restricted stock unit activity during the six months ended June 30, 2020 was as follows:

Restricted stock unit activity during the nine months ended September 30, 2020 was as follows:

Shares Weighted-Average

3 unchanged sentences

Forfeited ( 201,187 ) 39.92

Unvested balance as of June 30, 2020 3,639,708 $ 42.65

As of June 30, 2020, the unrecognized compensation expense related to our unvested restricted stock units expected to vest was $ 145.2 million.

Unvested balance as of September 30, 2020 3,261,623 $ 43.74

As of September 30, 2020, the unrecognized compensation expense related to our unvested restricted stock units expected to vest was $ 131.2 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 2.5 years.

Stock option activity during the six months ended June 30, 2020 was as follows:

Stock option activity during the nine months ended September 30, 2020 was as follows:

Shares Weighted

6 unchanged sentences

Forfeited/cancelled ( 16,484 ) 17.01

Outstanding as of June 30, 2020 2,404,012 $ 9.79 4.5 $ 99,113

Vested and exercisable as of June 30, 2020 2,171,711 $ 9.20 4.3 $ 90,811

As of June 30, 2020, the unrecognized compensation expense related to our unvested stock options expected to vest was $ 1.4 million.

Outstanding as of September 30, 2020 2,066,748 $ 10.21 4.4 $ 105,458

Vested and exercisable as of September 30, 2020 1,906,500 $ 9.75 4.2 $ 98,167

As of September 30, 2020, the unrecognized compensation expense related to our unvested stock options expected to vest was $ 0.9 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 0.6 years.

The total fair value of stock options vested in the six months ended June 30, 2020 was $ 1.3 million.

The total fair value of stock options vested in the nine months ended September 30, 2020 was $ 1.8 million.

(d) Employee Stock Purchase Plan

8 unchanged sentences

The purchase price of the shares was $ 32.87 per share, which was discounted in accordance with the terms of the ESPP from the closing price of our common stock on March 13, 2020 of $ 38.67 .

On September 15, 2020, we issued 131,585 shares of common stock to employees for aggregate proceeds of $ 3.7 million.

The purchase price of the shares was $ 28.39 per share, which was discounted in accordance with the terms of the ESPP from the closing price of our common stock on March 16, 2020 of $ 33.40 .

Net Loss per Share

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the three and six months ended June 30, 2020 and 2019:

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

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

3 unchanged sentences

Net loss per share attributable to common stockholders, basic and diluted $ ( 0.50 ) $ ( 0.29 ) $ ( 1.38 ) $ ( 0.82 )

The shares underlying the conversion options in the 2023 Notes and the 2025 Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive.

Based on the initial conversion prices, the entire outstanding principal amount of the 2023 Notes and the 2025 Notes as of September 30, 2020 would have been convertible into approximately 5.5 million and 3.8 million shares, respectively.

We expect to settle the principal amount of the 2023 Notes and the 2025 Notes in cash.

As a result, only the amount by which the conversion value exceeds the aggregate principal amount of the 2023 Notes and the 2025 Notes is considered in the diluted earnings per share computation under the treasury stock method.

The conversion spread has a dilutive impact on diluted net income per share when the average market price of our common stock for a given period of time exceeds the initial conversion prices of $ 41.59 per share for the 2023 Notes and $ 61.02 per share for the 2025 Notes.

In connection with the issuance of the 2023 Notes and the 2025 Notes, we entered into 2023 Capped Calls and 2025 Capped Calls, which were not included for the purpose of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.

Whether the 2023 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future.

We had not received any conversion notices through the issuance date of our consolidated financial statements.

For disclosure purposes, we have calculated the potentially dilutive effect of the conversion spread, which is included in the table below.

The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or if-converted method, have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive:

Three and Six Months Ended June 30,

As of September 30,

Options to purchase common stock 2,066,748 2,977,698

Unvested restricted stock units 3,261,623 3,249,228

Common shares to be issued 200,596 —

Common shares to be issued to DivvyCloud founders 200,596 —

Shares to be issued under ESPP 23,805 10,822

Shares underlying the conversion spread in the 2023 Notes 1,774,460 —

Total 7,327,232 6,237,748

The shares underlying the conversion options in the 2023 Notes and the 2025 Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive.

Based on the initial conversion prices, the entire outstanding principal amount of the 2023 Notes and the 2025 Notes as of June 30, 2020 would have been convertible into approximately 5.5 million and 3.8 million shares, respectively.

We expect to settle the principal amount of the 2023 Notes and the 2025 Notes in cash.

As a result, only the amount by which the conversion value exceeds the aggregate principal amount of

the 2023 Notes and the 2025 Notes is considered in the diluted earnings per share computation under the treasury stock method.

Commitments and Contingencies

6 unchanged sentences

We intend to vigorously contest Finjan's claims.

This litigation is still in its early stages and the final outcome, including our liability, if any, with respect to Finjan's claims, is uncertain.

The final outcome, including our liability, if any, with respect to Finjan's claims, is uncertain.

Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

13 unchanged sentences

Net revenues by geographic area presented based upon the location of the customer were as follows:

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

4 unchanged sentences

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

As of June 30, 2020 As of December 31, 2019

As of September 30, 2020 As of December 31, 2019

(in thousands)

3 unchanged sentences

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