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Item 1A. Risk Factors

2021-05-07 compared with 2020-11-05 · 309 added, 298 removed, 476 unchanged (56% of the section changed)

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Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

Furthermore, the ongoing COVID-19 pandemic (including federal, state and local governmental responses, broad economic impacts and market disruptions) has heightened risks discussed in the risk factors described below.

Furthermore, the COVID-19 pandemic (including federal, state and local governmental responses, broad economic impacts and market disruptions) has heightened risks discussed in the risk factors described below.

If any of the following risks or others not specified below materialize, our business, financial condition and results of operations could be materially adversely affected.

In that event, the trading price of our common stock could decline.

Summary of Risk Factors

Our business is subject to numerous risks and uncertainties which include, but are not limited to, the following:

• The ongoing COVID-19 pandemic could materially and adversely affect our business, results of operations and financial condition.

• Our quarterly operating results may vary from period to period, which could result in our failure to meet expectations with respect to operating results and cause the trading price of our stock to decline.

• We are a rapidly growing company, which makes it difficult to evaluate our future operating and financial results and may increase the risk that we will not be successful.

• If we are unable to sustain our revenue growth rate, we may not achieve or maintain profitability in the future.

• Real or perceived failures, errors or defect in our solutions could adversely affect our brand and reputation, which could have an adverse effect on our business and results of operations.

• Our brand, reputation and ability to attract, retain and serve our customers are dependent in part upon the reliable performance of our products and network infrastructure.

• Our business and growth depend substantially on customers renewing their subscriptions with us.

Any decline in our customer renewals or failure to convince customers to expand their use of our subscription offerings could adversely affect our future operating results.

• If we or our third party service providers experience a security breach or unauthorized parties otherwise obtain access to our customers’ data, our reputation may be harmed, demand for our solutions may be reduced and we may incur significant liabilities.

• We face intense competition in our market.

• If we fail to manage our operations infrastructure, our customers may experience service outages and/or delays.

• A component of our growth strategy is dependent on our continued international expansion, which adds complexity to our operations.

• Because our products collect and store user and related information, domestic and international privacy and cyber security concerns, and other laws and regulations, could result in additional costs and liabilities to us or inhibit sales of our products.

• If our customers are unable to implement our products successfully, customer perceptions of our offerings may be impaired or our reputation and brand may suffer.

• We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause our stock price to decline.

• If we are not able to maintain and enhance our brand, our business and operating results may be adversely affected.

• Failure to maintain high-quality customer support could have a material adverse effect on our business.

• We are dependent on the continued services and performance of our senior management and other key employees, the loss of any of whom could adversely affect our business, operating results and financial condition.

• We rely on third-party software to operate certain functions of our business.

• We use third-party software and data that may be difficult to replace or that may cause errors or failures of our solutions, which could lead to lost customers or harm to our reputation and our operating results.

• Organizations may be reluctant to purchase our cloud-based offerings due to the actual or perceived vulnerability of cloud solutions.

• We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.

• Assertions by third parties of infringement or other violations by us of their intellectual property rights, whether or not correct, could result in significant costs and harm our business and operating results.

• We have a significant amount of debt that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur additional debt in the future, which may adversely affect our operations and financial results.

We may not have sufficient cash flow from our business to pay our substantial debt when due.

The summary risk factors described above should be read together with the text of the full risk factors below and our unaudited consolidated financial statements and the related notes, as well as in other documents that we file with the U.S.

Securities and Exchange Commission (SEC).

The risks summarized above or described in full below are not the only risks that we face.

Additional risks and uncertainties not precisely known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations, and future growth prospects.

Risks Related to Our Business and Industry

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To support the health and well-being of our employees, customers, partners and communities, a vast majority of our employees began working remotely as of late March 2020, and they continue to do so.

In addition, many of our customers and prospective customers are working remotely, which may delay the timing of subscriptions.

In addition, many of our customers and prospective customers are working remotely.

The disruptions to our operations caused by the COVID-19 pandemic may result in inefficiencies, delays and additional costs in our sales and marketing, professional service and research and development efforts, which cannot be predicted or quantified at this time.

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In addition, given the economic uncertainty created by COVID-19, we have and may continue to see delays in our sales cycle, failures of customers to renew at all or to renew the anticipated scope their subscriptions with us, requests from customers for payment term deferrals as well as pricing or bundling concessions, which, if significant, could materially and adversely affect our business, results of operations and financial condition.

Although such events did not have a material adverse impact on our customer renewals for the first three quarters of fiscal 2020, our annualized recurring revenue (ARR) related to contracts in place at the end of the third quarter of fiscal year 2020 was lower than initially anticipated at the beginning of fiscal year 2020 as a result of the pull back on customer spending, in light of the economic uncertainty caused by the COVID-19 pandemic.

Negative conditions in the general economy both in the United States and abroad, including conditions resulting from the COVID-19 pandemic, changes in gross domestic product growth, financial and credit market fluctuations, energy costs, international trade relations and other geopolitical issues, the availability and cost of credit and the global housing and mortgage markets could cause a decrease in consumer discretionary spending and business investment and diminish growth expectations in the U.S.

markets could cause a decrease in consumer discretionary spending and business investment and diminish growth expectations in the U.S.

economy and abroad.

products and professional services and could materially and adversely impact our results and financial condition even after the pandemic is contained and the shelter-in-place orders are lifted.

More generally, the COVID-19 pandemic raises the possibility of an extended global economic downturn and has caused volatility in financial markets, which could materially and adversely affect demand for our products and professional services and could materially and adversely impact our results and financial condition even after the pandemic is contained and the various pandemic-related orders are lifted.

For example, we may be unable to collect receivables from those customers significantly impacted by COVID-19, which may be more pronounced in industry verticals more directly impacted by the COVID-19 pandemic.

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We will continue to evaluate the nature and extent of the impact of the COVID-19 pandemic on our business.

Although we expect that current cash and cash equivalent balances, including the proceeds of our convertible senior notes offering in May 2020, together with cash flows that are generated from operations and availability under our new revolving credit facility, will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months, if our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted.

The full extent of the COVID-19 pandemic’s impact on our operations and financial performance depends on future developments that are uncertain and unpredictable, including the ultimate duration, spread and reemergence of the pandemic, its impact on capital and financial markets, the timing of economic recovery and any new information that may emerge concerning the severity of the virus, its spread to or reemergence in other geographic regions as well as the actions taken to contain it, among others.

Although we expect that current cash and cash equivalent balances, including the proceeds of our convertible senior notes offering in March 2021, together with cash flows that are generated from operations and availability under our revolving credit facility, will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months, if our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted.

Any of these impacts could have a material adverse impact on our business, results of operations and financial condition and ability to execute and capitalize on our strategies.

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Our quarterly operating results may vary from period to period, which could result in our failure to meet expectations with respect to operating results and cause the trading price of our stock to decline.

Our operating results, including the levels of our revenue, ARR, renewal rates, cash flow, deferred revenue and gross margins, have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control, including:

• quarantine, travel limitation, or business disruptions in regions affecting our operations, stemming from actual, imminent or perceived outbreak of contagious disease, including the COVID-19 pandemic;

Our operating results, including the levels of our revenue, ARR, cash flow, deferred revenue and gross margins, have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control, including:

• quarantines, travel limitations, or business disruptions in regions affecting our operations, stemming from actual, imminent or perceived outbreak or reemergence of contagious disease, including the COVID-19 pandemic;

• the level of demand for our products and professional services;

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• price competition;

• our ability to successfully manage and integrate any acquired businesses, including Divvy Cloud Corporation (DivvyCloud) and NetFort Technologies Limited (NetFort), and including without limitation the amount and timing of expenses and potential future charges for impairment of goodwill from acquired companies;

• our ability to successfully manage and integrate any acquired businesses, including Divvy Cloud Corporation (DivvyCloud) and Alcide.IO Ltd.

(Alcide), and including without limitation the amount and timing of expenses and potential future charges for impairment of goodwill from acquired companies;

• our ability to increase, retain and incentivize the channel partners that market and sell our products and professional services;

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We have posted a net loss in each year since inception, including net losses of $98.8 million, $53.8 million and $55.5 million in the years ended December 31, 2020, 2019 and 2018, respectively.

As of September 30, 2020, we had an accumulated deficit of $588.4 million.

As of March 31, 2021, we had an accumulated deficit of $619.5 million.

While we have experienced significant revenue growth in recent periods, we may not obtain a high enough volume of sales of our products and professional services to sustain or increase our growth or achieve or maintain profitability in the future.

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If our revenue growth does not meet our expectations in future periods, our financial performance may be harmed, and we may not achieve or maintain profitability in the future.

If our products or professional services fail to detect vulnerabilities or identify and respond to cyber security incidents, or if our products contain undetected errors or defects, our brand and reputation could be harmed, which could have an adverse effect on our business and results of operations.

If our products or professional services fail to detect vulnerabilities in our customers’ cyber security infrastructure, or if our products or professional services fail to identify and respond to new and increasingly complex methods of cyber attacks, our business and reputation may suffer.

There is no guarantee that our products or professional services will detect all vulnerabilities, especially in light of the rapidly changing security landscape to which we must respond.

Additionally, our products may falsely detect vulnerabilities or threats that do not actually exist.

For example, our Metasploit offering relies on information provided by an active community of security researchers who contribute new exploits, attacks and vulnerabilities.

If the information from these third parties is inaccurate, the potential for false indications of security vulnerabilities increases.

These false positives, while typical in the industry, may impair the perceived reliability of our offerings and may therefore adversely impact market acceptance of our products and professional services and could result in negative publicity, loss of customers and sales and increased costs to remedy any problem.

Our products may also contain undetected errors or defects.

Errors or defects may be more likely when a product is first introduced or as new versions are released, or when we introduce an acquired company's products.

We have experienced these errors or defects in the past in connection with new products, acquired products and product upgrades and we expect that these errors or defects will be found from time to time in the future in new, acquired or enhanced products after commercial release.

Defects may cause our products to be vulnerable to attacks, cause them to fail to detect vulnerabilities, or temporarily interrupt customers’ networking traffic.

Any errors, defects, disruptions in service or other performance problems with our products may damage our customers’ businesses and could hurt our reputation.

If our products or professional services fail to detect vulnerabilities for any reason, we may incur significant costs, the attention of our key personnel could be diverted, our customers may delay or withhold payment to us or elect not to renew or other significant customer relations problems may arise.

We may also be subject to liability claims for damages related to errors or defects in our products.

A material liability

claim or other occurrence that harms our reputation or decreases market acceptance of our products may harm our business and operating results.

Many federal, state and foreign governments have enacted laws requiring companies to notify individuals of data security breaches involving their personal data.

These mandatory disclosures regarding a security breach often lead to widespread negative publicity, and any association of us with such publicity may cause our customers to lose confidence in the effectiveness of our data security solutions.

An actual or perceived security breach or theft of the sensitive data of one of our customers, regardless of whether the breach is attributable to the failure of our products or professional services, could adversely affect the market’s perception of our offerings and subject us to legal claims.

Our brand, reputation and ability to attract, retain and serve our customers are dependent in part upon the reliable performance of our products and network infrastructure.

We have experienced, and may in the future experience, disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints and fraud or security attacks.

In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.

We utilize third-party data centers located in North America, in addition to operating and maintaining certain elements of our own network infrastructure.

We also utilize other cloud providers, such as Amazon Web Services, for our Insight Platform infrastructure.

Some elements of our complex infrastructure are operated by third parties that we do not control and that could require significant time to replace.

We expect this dependence on third parties to continue.

More specifically, certain of our products, in particular our cloud-based products, are hosted on cloud providers such as Amazon Web Services, which provides us with computing and storage capacity.

Interruptions in our systems or the third-party systems on which we rely, whether due to system failures, computer viruses, physical or electronic break-ins, or other factors, could affect the security or availability of our products, network infrastructure and website.

Prolonged delays or unforeseen difficulties in connection with adding capacity or upgrading our network architecture when required may cause our service quality to suffer.

Problems with the reliability or security of our systems could harm our reputation.

Damage to our reputation and the cost of remedying these problems could negatively affect our business, financial condition, and operating results.

Additionally, our existing data center facilities and third-party hosting providers have no obligations to renew their agreements with us on commercially reasonable terms or at all, and certain of the agreements governing these relationships may be terminated by either party at any time.

If we are unable to maintain or renew our agreements with these providers on commercially reasonable terms or if in the future we add additional data center facilities or third-party hosting providers, we may experience additional costs or downtime or delays as we transition our operations.

Any disruptions or other performance problems with our products could harm our reputation and business and may damage our customers’ businesses.

Interruptions in our service delivery might reduce our revenue, cause us to issue credits to customers, subject us to potential liability and cause customers to not renew their purchases or our products.

If we fail to manage our operations infrastructure, our customers may experience service outages and/or delays.

Our future growth is dependent upon our ability to continue to meet the expanding needs of our customers and to attract new customers.

As existing customers gain more experience with our products, they may broaden their reliance on our products, which will require that we expand our operations infrastructure.

We also seek to maintain excess capacity in our operations infrastructure to facilitate the rapid provision of new customer deployments.

In addition, we need to properly manage our technological operations infrastructure in order to support changes in hardware and software parameters and the evolution of our products, all of which require significant lead time.

If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses.

If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation and our revenue.

Our business and growth depend substantially on customers renewing their subscriptions with us.

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In order for us to improve our operating results, it is important that our existing customers renew their subscriptions with us when the existing subscription term expires, and renew on the same or more favorable terms.

Our customers have no obligation to renew their subscriptions with us and we may not be able to

accurately predict customer renewal rates.

Our customers have no obligation to renew their subscriptions with us and we may not be able to accurately predict customer renewal rates.

Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction or dissatisfaction with our new or current product offerings, our pricing, the effects of economic conditions, including due to the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic, competitive offerings, our customers' perception of their exposure, or alterations or reductions in their spending levels.

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If our efforts to cross-sell and upsell to our customers are unsuccessful, the rate at which our business grows might decline.

The market for S ec urity Operations is new and unproven and may not grow.

We believe our future success will depend in large part on the growth, if any, in the market for Security Operations (SecOps).

This market is nascent, and as such, it is difficult to predict important market trends, including the potential growth, if any.

To date, the majority of enterprise spend on cyber security has been on threat protection products, such as network, endpoint and web security that are designed to stop threats from penetrating corporate networks.

Organizations that use these security products may believe that their existing security solutions sufficiently protect access to their sensitive business data.

Therefore, they may continue allocating their cyber security budgets to these products and may not adopt our products and professional services in addition to, or in lieu of, such traditional products.

Further, sophisticated cyber attackers are skilled at adapting to new technologies and developing new methods of gaining access to organizations’ sensitive business data, and changes in the nature of advanced cyber threats could result in a shift in IT budgets away from products and professional services such as ours.

In addition, while recent high visibility attacks on prominent enterprises and governments have increased market awareness of the problem of cyber attacks, if cyber attacks were to decline, or enterprises or governments perceived that the general level of cyber attacks have declined, our ability to attract new customers and expand our sale to existing customers could be materially and adversely affected.

If products and professional services such as ours are not viewed by organizations as necessary, or if customers do not recognize the benefit of our offerings as a critical layer of an effective cyber security strategy, our revenue may not grow as quickly as expected, or may decline, and the trading price of our stock could suffer.

It is therefore difficult to predict how large the market will be for our solutions.

In addition, it is difficult to predict customer adoption and renewal rates, as well as customer demand for our products and professional services, particularly in light of the ongoing COVID-19 pandemic.

As a result of the pandemic, customers may not renew when or as we expect, including electing to reduce the anticipated scope of their subscriptions with us, or requesting payment term deferrals as well as pricing or bundling concessions, which, if significant, could materially and adversely affect our business, results of operations and financial condition.

It is also difficult to predict the size and growth rate of the market for SecOps, the entry of competitive products or the success of existing competitive products.

Any expansion in our market depends on a number of factors, including the cost, performance and perceived value associated with our offerings and those of our competitors, as well as broader economic conditions.

If these offerings do not achieve widespread adoption or there is a reduction in demand for solutions in our market caused by a lack of customer acceptance, technological challenges, competing technologies and products, decreases in corporate spending, weakening economic conditions, or otherwise, it could result in reduced customer orders, early terminations, reduced renewal rates or decreased revenue, any of which would adversely affect our business operations and financial results.

You should consider our business and prospects in light of the risks and difficulties we face in this new and unproven market.

If our new and existing product offerings and product enhancements do not achieve sufficient market acceptance, our financial results and competitive position will suffer.

Our business substantially depends on, and we expect our business to continue to substantially depend on, sales of our Insight Platform solutions.

As such, market acceptance of our Insight Platform is critical to our continued success.

Demand for Insight Platform solutions are affected by a number of factors beyond our control, including continued market acceptance of cloud-based offerings, the timing of development and release of new products by our competitors, technological change, and growth or contraction in our market and the economy in general.

If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of our Insight Platform solutions, our business operations, financial results and growth prospects will be materially and adversely affected .

We spend substantial amounts of time and money to research and develop or acquire new offerings and enhanced versions of

our existing offerings to incorporate additional features, improve functionality or other enhancements in order to meet our customers’ rapidly evolving demands.

In addition, we continue to invest in solutions that can be deployed on top of our platform to target specific use cases and to cultivate our community.

When we develop a new or enhanced version of an existing offering, we typically incur expenses and expend resources upfront to market, promote and sell the new offering.

Therefore, when we develop or acquire new or enhanced offerings, their introduction must achieve high levels of market acceptance in order to justify the amount of our investment in developing and bringing them to market.

For example, if our recent product expansions and offerings, such as our Cloud Security offerings, do not garner widespread market adoption and implementation, our financial results and competitive position could suffer.

Further, we may make changes to our offerings that our customers do not like, find useful or agree with.

We may also discontinue certain features, begin to charge for certain features that are currently free or increase fees for any of our features or usage of our offerings.

Our new and existing offerings or product enhancements and changes to our existing offerings could fail to attain sufficient market acceptance for many reasons, including:

• our failure to predict market demand accurately in terms of product functionality and to supply offerings that meet this demand in a timely fashion, including changes in demand as a result of the COVID-19 pandemic;

• real or perceived defect, errors or failures;

• negative publicity about their performance or effectiveness;

• delays in releasing to the market our new offerings or enhancements to our existing offerings;

• introduction or anticipated introduction of competing products by our competitors;

• inability to scale and perform to meet customer demands;

• poor business conditions for our customers, causing them to delay IT purchases, including as a result of the COVID-19 pandemic;

• reluctance of customers to purchase cloud-based offerings.

If our new or existing offerings or enhancements and changes do not achieve adequate acceptance in the market, our competitive position will be impaired, and our revenue, business and financial results will be negatively impacted.

The adverse effect on our financial results may be particularly acute because of the significant research, development, marketing, sales and other expenses we will have incurred in connection with the new offerings or enhancements.

We face intense competition in our market.

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Our primary competitors in Vulnerability Risk Management include Qualys and Tenable;

in Incident Detection and Response (SIEM) include Splunk, Micro Focus and LogRhythm;

in Incident Detection and Response (SIEM) include Splunk, Micro Focus, LogRhythm and Microsoft (Sentinel);

in Application Security include Micro Focus and IBM;

in Cloud Security include Prisma (Palo Alto Networks) and CloudGuard (Check Point Software Technologies);

in Security Orchestration and Automation Response include Phantom (Splunk) and Demisto (Palo Alto Networks);

and finally, while the competition in our professional services

business is diverse, our competitors include FireEye's Mandiant, SecureWorks and NCC Group.

in Cloud Security include Prisma (Palo Alto Networks) and CloudGuard (Check Point Software Technologies) and finally, while the competition in our professional services business is diverse, our competitors include FireEye's Mandiant, SecureWorks and NCC Group.

Some of our actual and potential competitors have advantages over us, such as longer operating histories, significantly greater financial, technical, marketing or other resources, stronger brand and business user recognition, larger and more mature intellectual property portfolios and broader global distribution and presence.

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If our competitors are more successful than we are in developing new product and service offerings or in attracting and retaining customers, our business, financial condition and results of operations could be adversely affected.

Our sales cycle may be unpredictable.

The timing of sales of our offerings is difficult to forecast because of the length and unpredictability of our sales cycle, particularly with large enterprises and with respect to certain of our products.

We sell our products primarily to IT departments that are managing a growing set of user and compliance demands, which has increased the complexity of customer requirements to be met and confirmed during the sales cycle and prolonged our sales cycle.

Further, the length of time that potential customers devote to their testing and evaluation, contract negotiation and budgeting processes varies significantly, depending on the size of the organization and nature of the product or service under consideration.

In addition, we might devote substantial time and effort to a particular unsuccessful sales effort, and as a result, we could lose other sales opportunities or incur expenses that are not offset by an increase in revenue, which could harm our business.

If we do not continue to innovate and offer products and professional services that address the dynamic threat landscape, we may not remain competitive, and our revenue and operating results could suffer.

The market for SecOps solutions is characterized by rapid technological advances, changes in customer requirements, frequent new product introductions and enhancements and evolving industry standards.

Our success also depends, in part, upon our ability to anticipate industry evolution and introduce or acquire new products and professional services to keep pace with technological developments and market requirements both within our industry and in related industries.

While we continue to invest significant resources in research and development in order to ensure that our products continue to address the cyber security risks that our customers face, the introduction of products and professional services embodying new technologies could render our existing products or professional services obsolete or less attractive to customers.

In addition, developing new products and product enhancements is expensive and time consuming, and there is no assurance that such activities will result in significant cost savings, revenue or other expected benefits.

If we spend significant time and effort on research and development and are unable to generate an adequate return on our investment, our business and results of operations may be materially and adversely affected.

Further, we may not be able to successfully anticipate or adapt to changing technology or customer requirements or the dynamic threat landscape on a timely basis, in a way that sufficiently differentiates us from competing solutions such that customers choose to purchase our solutions.

If any of our competitors implement new technologies before we are able to implement them or better anticipate the innovation opportunities in related industries, those competitors may be able to provide more effective or more cost-effective solutions than ours.

In addition, we may experience technical problems and additional costs as we introduce new products and product enhancements, deploy future iterations of our products and integrate new products with existing customer systems.

If any of these problems were to arise, our business,

financial condition and results of operations could be adversely affected.

If we fail to manage our operations infrastructure, our customers may experience service outages and/or delays.

Our future growth is dependent upon our ability to continue to meet the expanding needs of our customers and to attract new customers.

As existing customers gain more experience with our products, they may broaden their reliance on our products, which will require that we expand our operations infrastructure.

We also seek to maintain excess capacity in our operations infrastructure to facilitate the rapid provision of new customer deployments.

To date, we have derived a majority of our revenue from customers using our vulnerability management offerings.

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Our inability to renew or increase sales of our vulnerability management offerings, including cloud-based subscriptions, content subscriptions, managed services and content and maintenance and support subscriptions, or a decline in prices of our vulnerability management offerings would harm our business and operating results more seriously than if we derived significant revenues from a variety of offerings.

In addition, we have introduced several non-VM subscription products, including InsightIDR, InsightAppSec, and InsightConnect.

In addition, we have introduced several non-VM subscription products, including InsightIDR, InsightAppSec, InsightConnect and DivvyCloud.

These products are relatively new, and it is uncertain whether they will gain the market acceptance we expect.

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Any failure to preserve our culture could negatively affect our future success, including our ability to attract, motivate and retain personnel and effectively focus on and pursue our business strategy.

If Metasploit were to be used by attackers to exploit vulnerabilities in the cyber security infrastructures of third parties, our reputation and business could be harmed.

Although Metasploit is a penetration testing tool that is intended to allow organizations to test the effectiveness of their cyber

security programs, Metasploit has in the past and may in the future be used to exploit vulnerabilities in the cyber security infrastructures of third parties.

While we have incorporated certain features into Metasploit to deter misuse, there is no guarantee that these controls will not be circumvented or that Metasploit will only be used defensively or for research purposes.

Any actual or perceived security breach, malicious intrusion or theft of sensitive data in which Metasploit is believed to have been used could adversely affect perception of, and demand for, our offerings.

Further, the identification of new exploits and vulnerabilities by the Metasploit community may enhance the knowledge base of cyber attackers or enable them to undertake new forms of attacks.

If any of the foregoing were to occur, we could suffer negative publicity and loss of customers and sales, as well as possible legal claims.

A component of our growth strategy is dependent on our continued international expansion, which adds complexity to our operations.

We market and sell our products and professional services throughout the world and have personnel in many parts of the world.

For the nine months ended September 30, 2020 and 2019, operations located outside of North America generated 17% and 16%, respectively, of our revenue.

For the three months ended March 31, 2021 and 2020, operations located outside of North America generated 18% and 17%, respectively, of our revenue.

Our growth strategy is dependent, in part, on our continued international expansion.

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If we are unable to successfully manage the challenges of international expansion and operations, our business and operating results could be adversely affected.

We are also monitoring developments related to Brexit, which could have significant implications for our business.

We are also monitoring developments related to Brexit.

Brexit could lead to economic and legal uncertainty, including significant volatility in global stock markets and currency exchange rates, and differing laws and regulations as the United Kingdom determines which European Union laws to replace or replicate.

In particular, although the United Kingdom enacted a Data Protection Act in May 2018 that is consistent with the EU General Data Protection Regulation, uncertainty remains regarding how data transfers to and from the United Kingdom will be regulated.

Any of these effects of Brexit, among others, could adversely affect our operations in the United Kingdom and our financial results.

Because our products collect and store user and related information, domestic and international privacy and cyber security concerns, and other laws and regulations, could result in additional costs and liabilities to us or inhibit sales of our products.

We, and our customers, are subject to a number of domestic and international laws and regulations that apply to online services and the internet generally.

These laws, rules and regulations address a range of issues including data privacy and cyber security, and restrictions or technological requirements regarding the collection, use, storage, protection, retention or transfer of data.

The regulatory framework for online services, data privacy and cyber security issues worldwide can vary substantially from jurisdiction to jurisdiction, is rapidly evolving and is likely to remain uncertain for the foreseeable future.

Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws, rules and regulations regarding the collection, use, storage and disclosure of information, web browsing and geolocation data collection, data analytics, cyber security and breach notification procedures.

Interpretation of these laws, rules and regulations and their application to our products and professional services in the United States and foreign jurisdictions is ongoing and cannot be fully determined at this time.

In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Electronic Communications Privacy Act, Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Gramm Leach Bliley Act and state breach notification laws, as well as regulator enforcement positions and expectations reflected in federal and state regulatory actions, settlements, consent decrees and guidance documents.

In June 2018, California enacted the California Consumer Privacy Act (CCPA), which took effect on January 1, 2020.

The CCPA requires a broad range of companies that do business in California to honor the requests of California residents to access and require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used and shared.

The CCPA provides for civil penalties of up to $7,500 for violations, and a private right of action for data breaches that allows private plaintiffs to seek the greater of actual damages or statutory damages of up to $750 per affected consumer per data breach.

These statutory remedies are expected to prompt an increase in data breach litigation and the cost to resolve it.

The CCPA has prompted a number of proposals for new federal and state privacy legislation in the United States that, if passed, could increase our potential liability, increase our compliance costs and adversely affect our business.

Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal frameworks with which we, and/or our customers, must comply, including the European Union's General Data Protection Regulation, (EU) 2016/679 (GDPR), which went into effect in May 2018 and is designed to update current privacy laws to better reflect the digital economy and to unify data protection within the European Union (EU) under a single law and laws implemented by EU member states which contain derogations from, or exemptions or authorizations for the purposes of, the GDPR, or which are otherwise intended to supplement the GDPR and any legislation that replaces or converts into domestic law the GDPR or any other law relating to data protection, the processing of personal data and privacy as a consequence of the United Kingdom (UK) leaving the EU (European Data Protection Laws).

The European Data Protection Laws present significantly greater risks, compliance burdens and costs for companies with users and operations in the EU and UK.

Under the GDPR, fines of up to 20 million euros or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed for significant non-compliance.

The European Data Protection Laws are broad in their application and apply when we

do business with EU- and UK-based customers and when our U.S.-based customers collect and use personal data that originates from individuals resident in the EU and UK.

They also apply to transfers of personal data between us and our EU- and UK-based subsidiaries, including employee information.

Further, many U.S.

federal and state and other foreign government bodies and agencies have introduced, and are currently considering, additional laws and regulations.

Non-compliance with these laws could result in penalties or significant legal liability.

We could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results of operations or financial condition.

European Data Protection Laws generally prohibit the transfer of personal data from the European Economic Area, the UK and Switzerland (Europe), to the United States and most other countries unless the parties to the transfer have implemented specific safeguards to protect the transferred personal data.

One of the primary safeguards used for transfers of personal data from Europe to the United States was the Privacy Shield framework which is administered by the U.S.

Department of Commerce.

To facilitate the transfer of both customer and employee personal data from Europe to the United States, we self-certified under the EU-US Privacy Shield framework on December 20, 2016.

However, this framework was recently invalidated by a decision of the European Union’s highest court and authorities in the United Kingdom and Switzerland have similarly invalidated use of the Privacy Shield as a vehicle for lawful data transfers from those countries to the United States.

The same decision also cast doubt on the ability to use one of the primary alternatives to the Privacy Shield, namely, the European Commission’s Standard Contractual Clauses, to lawfully transfer personal data from Europe to the United States and most other countries.

At present, there are few if any viable alternatives to the Privacy Shield and the Standard Contractual Clauses.

As such, our processing of personal data from Europe may not comply with European Data Protection Law.

This may increase our exposure to the GDPR’s heightened sanctions for violations of its cross-border data transfer restrictions, including injunctions against transferring personal data subject to the GDPR.

This may also reduce demand for our services from companies subject to European Data Protection Laws.

Loss of our ability to import personal data from Europe may also require us to increase our data processing capabilities in the EEA at significant expense.

Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of delivering our services and operating our business.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us.

Because the interpretation and application of privacy and data protection laws are still uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing practices or the features of our products.

We may also be subject to claims of liability or responsibility for the actions of third parties with whom we interact or upon whom we rely in relation to various services, including but not limited to vendors and business partners.

If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our products, which could have an adverse effect on our business.

Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business.

The costs of compliance with, and other burdens imposed by, the laws, rules, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our software.

Privacy or cyber security concerns, whether valid or not valid, may inhibit market adoption of our products particularly in certain industries and foreign countries.

Further, there are active legislative discussions regarding the implementation of laws or regulations that could restrict the manner in which security research is conducted and that could restrict or possibly bar the conduct of penetration testing and the use of exploits, which are an essential component of our Metasploit product and our business strategy more generally.

Our failure to comply with existing laws, rules or regulations, changes to existing laws or their interpretation, or the imposition of new laws, rules or regulations, could result in additional costs and may necessitate changes to our business practices and divergent operating models, which may have a material and adverse impact on our business, results of operations, and financial condition.

Organizations may be reluctant to purchase our cloud-based offerings due to the actual or perceived vulnerability of cloud solutions.

Some organizations have been reluctant to use cloud solutions for cyber security, such as our InsightVM, InsightIDR, InsightAppSec and InsightConnect, because they have concerns regarding the risks associated with the reliability or security of the technology delivery model associated with this solution.

If we or other cloud service providers experience security incidents, breaches of customer data, disruptions in service delivery or other problems, the market for cloud solutions as a whole may be negatively impacted, which could harm our business.

As a cyber security provider, we are a target of cyber attacks and other cyber risks that could adversely impact our reputation and operating results.

We sell cyber security and data analytics products.

As a result, we have been and will be a target of cyber attacks designed to impede the performance of our products, penetrate our network security or the security of our cloud platform or our internal systems, or that of our customers, misappropriate proprietary information and/or cause interruptions to our services.

For example, because Metasploit serves as an introduction to hacking for many individuals, a successful cyber attack on us may be perceived as a victory for the cyber attacker, thereby increasing the likelihood that we may be a target of cyber attacks, even absent financial motives.

Further, if our systems are breached as a result of third-party action, employee error or misconduct, attackers could learn critical information about how our products operate to help protect our customers’ IT infrastructures from cyber risk, thereby making our customers more vulnerable to cyber attacks.

In addition, if actual or perceived breaches of our network security occur, they could adversely affect the market perception of our products, negatively affecting our reputation, and may expose us to the loss of our proprietary information or information belonging to our customers, investigations or litigation and possible liability, including injunctive relief and monetary damages.

Such security breaches could also divert the efforts of our technical and management personnel.

In addition, such security breaches could impair our ability to operate our business and provide products to our customers.

If this happens, our reputation could be harmed, our revenue could decline and our business could suffer.

Additionally, we cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

We recognize a significant percentage of our revenue ratably over the term of our agreements with customers, and as a result, downturns or upturns in sales may not be immediately reflected in our operating results.

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Achieving the anticipated benefits of past or future acquisitions will depend in part upon whether we can integrate acquired operations, products and technology in a timely and cost-effective manner and successfully market and sell these as new product offerings, or as new features within our existing offerings.

For example, on May 1, 2020 we acquired DivvyCloud, a CSPM platform that enables visibility, automation, and continuous security governance across multi-cloud environments.

For example, on May 1, 2020 we acquired Divvy Cloud

Corporation (DivvyCloud), a cloud security posture management platform, and on January 28, 2021 we acquired Alcide.IO Ltd.

(Alcide), a Kubernetes cloud workload protection platform.

Some of our acquisitions could improve the capabilities of our existing offerings or platform, as opposed to becoming a new offering.

The acquisition of DivvyCloud is intended to extend the cloud security capabilities of our Insight Platform, helping security and DevOps teams understand and manage governance, risk and security in their growing cloud environments.

The integration of DivvyCloud and any other acquisition may prove to be difficult due to the necessity of coordinating geographically separate organizations and integrating personnel with disparate business backgrounds and accustomed to different corporate cultures.

The acquisitions of DivvyCloud and Alcide are intended to extend the cloud security capabilities of our Insight Platform, helping security and DevOps teams understand and manage governance, risk and security in their growing cloud environments, which may encounter difficulties or unforeseen expenditures.

The integration of Alcide and any other acquisition may prove to be difficult due to the necessity of coordinating geographically separate organizations and integrating personnel with disparate business backgrounds and accustomed to different corporate cultures and business operations and internal systems.

We may need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked sufficiently effective controls, procedures and policies.

The acquisition and integration processes are complex, expensive and time consuming, and may cause an interruption of, or loss of momentum in, product development, sales activities and operations of both companies.

Further, we may be unable to retain key personnel of an acquired company following the acquisition, including certain employees which we acquired in connection with our acquisition of DivvyCloud.

If we are unable to effectively execute or integrate acquisitions, our business, financial condition and operating results could be adversely affected.

Further, we may be unable to retain key personnel of an acquired company following the acquisition.

If we are unable to effectively execute or integrate acquisitions, the anticipated benefits of such acquisition, including sales or growth opportunities or targeted synergies may not be realized, and our business, financial condition and operating results could be adversely affected.

In addition, we may only be able to conduct limited due diligence on an acquired company’s operations or may discover that the products or technology acquired were not as capable as we thought based upon the initial or limited due diligence.

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Any unforeseen liability that is greater than these warranty and indemnity limitations could have a negative impact on our financial condition.

We may be unable to realize the anticipated benefits of the acquisition of DivvyCloud or those benefits may take longer to realize than expected.

The acquisition of DivvyCloud involves the combination of two companies that have historically operated independently.

In order to realize the anticipated benefits of such acquisition, we will be required to devote significant management attention and resources to align the business practices, supply chains, cultures and operations of each business.

We may encounter difficulties as we attempt to integrate the businesses in a manner that permits us to achieve the cost savings, synergies, business opportunities, growth prospects and other benefits anticipated to result from the acquisition of DivvyCloud.

Accordingly, the contemplated benefits of such acquisition may not be realized fully, or at all, or may take longer to realize than expected.

In addition, even if the DivvyCloud is integrated successfully, the anticipated benefits of such acquisition may not be realized, including the sales or growth opportunities that are anticipated.

Further, additional unanticipated costs may be incurred in the integration process.

DivvyCloud may underperform relative to our expectations.

We may not be able to maintain the growth rate, levels of revenue, earnings or operating efficiency that we and DivvyCloud have achieved or might achieve separately.

The business and financial performance of DivvyCloud are subject to certain risks and uncertainties.

Our failure to maintain the growth rate, levels of revenue, earnings or operating efficiency could have a material adverse effect on our financial condition and results of operations.

We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause our stock price to decline.

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It can be expected that some or all of the assumptions, estimates and expectations of any guidance we furnished will not materialize or will vary significantly from actual results.

our guidance is only an estimate of what management believes is realizable as of the date of release of such guidance.

Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release of such guidance.

Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a consensus about our future performance.

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We anticipate that we will continue to rely on these partners in order to help facilitate sales of our offerings as part of larger purchases in the United States and to grow our business internationally.

For 2019, 2018 and 2017, we derived approximately 43%, 39%, and 37%, respectively, of our revenue from sales of products and professional services through channel partners, and the percentage of revenue derived from channel partners may increase in future periods.

Our agreements with our channel partners are non-exclusive and do not prohibit them from working with our competitors or offering competing solutions, and some of our channel partners may have more established relationships with our competitors.

For the years ended December 31, 2020, 2019 and 2018, we derived approximately 47%, 43%, and 39%, respectively, of our revenue from sales of products and professional services through channel partners, and the percentage of revenue derived from channel partners may increase in future periods.

Our agreements with our channel partners are non-exclusive and do not prohibit them from working with our competitors or offering competing solutions, and some of our

channel partners may have more established relationships with our competitors.

If our channel partners choose to place greater emphasis on products of their own or those offered by our competitors or do not effectively market and sell our products and professional services, our ability to grow our business and sell our products and professional services, particularly in key international markets, may be adversely affected.

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We use third-party software and data that may be difficult to replace or that may cause errors or failures of our solutions, which could lead to lost customers or harm to our reputation and our operating results.

We license third-party software and security and compliance data from various third parties that are used in our solutions in order to deliver our offerings.

We license third-party software and security and compliance data from various third parties that are used in our solutions in

order to deliver our offerings.

In the future, this software or data may not be available to us on commercially reasonable terms, or at all.

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Disclosing our proprietary source code could allow our competitors to create similar products with lower development effort and time and ultimately, could result in a loss of sales for us.

Disclosing the source code of our proprietary

software could also make it easier for cyber attackers and other third parties to discover vulnerabilities in or to defeat the protections of our products, which could result in our products failing to provide our customers with the security they expect.

Disclosing the source code of our proprietary software could also make it easier for cyber attackers and other third parties to discover vulnerabilities in or to defeat the protections of our products, which could result in our products failing to provide our customers with the security they expect.

Any of these events could have a material adverse effect on our business, operating results and financial condition.

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In addition, while we believe that entering into technology alliance partnerships with certain of our actual or potential competitors is currently beneficial to our competitive position in the market, such partnerships may also give our competitors insight into our offerings that they may not otherwise have, thereby allowing them to compete more effectively against us.

The continued utility of Metasploit depends in part on the continued contributions from security researchers.

Our Metasploit product relies on information provided by an active community of security researchers who contribute new exploits, attacks and vulnerabilities.

We expect that the continued contributions from these third parties will both enhance the robustness of Metasploit and also support our sales and marketing efforts.

However, to the extent that the information provided by these third parties is inaccurate or malicious, the potential for false indications of security vulnerabilities and susceptibility to attack increases, which could adversely impact market acceptance of our products and professional services and could result in negative publicity, loss of customers and sales and increased costs to remedy any problem.

Further, to the extent that our community of third parties is reduced in size or participants become less active, we may lose valuable insight into the dynamic threat landscape and our ability to quickly respond to new exploits, attacks and vulnerabilities may be reduced.

If our products fail to help our customers achieve and maintain compliance with regulations and/or industry standards, our revenue and operating results could be harmed.

We generate a portion of our revenue from our vulnerability management offerings that help organizations achieve and maintain compliance with regulations and industry standards both domestically and internationally.

For example, many of our customers subscribe to our vulnerability management offerings to help them comply with the security standards developed and maintained by the Payment Card Industry Security Standards Council (the PCI Council), which apply to companies that process, transmit or store cardholder data.

For example, many of our customers subscribe to our vulnerability management offerings to help them comply with the security standards developed and

maintained by the Payment Card Industry Security Standards Council (the PCI Council), which apply to companies that process, transmit or store cardholder data.

In addition, our vulnerability management offerings are used by customers in the health care industry to help them comply with numerous federal and state laws and regulations related to patient privacy.

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Any failure by us or our channel partners to safeguard and maintain the confidentiality of such information could subject us to liability and reputational harm, which could materially and adversely affect our results of operations and financial performance.

The phaseout of LIBOR, or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.

On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021.

It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted.

Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs.

This could materially and adversely affect our results of operations, cash flows and liquidity.

We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks.

We may need to renegotiate our senior secured credit facility or incur other indebtedness, and changes in the method of calculating LIBOR, or the use of an alternative rate or benchmark, may negatively impact the terms of such indebtedness.

If changes are made to the method of calculating LIBOR or LIBOR ceases to exist, we may need to amend certain contracts, including our senior secured credit facility, and we cannot predict what alternative rate or benchmark would be negotiated.

This may result in an increase to our interest expense.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

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dollar and we generate a majority of our revenue in U.S.

However, for each of the nine months ended September 30, 2020 and 2019 we incurred 13% of our expenses outside of the United States in foreign currencies, primarily the British pound sterling and euro, principally with respect to salaries and related personnel expenses associated with our sales and research and development operations.

Additionally, for the nine months ended September 30, 2020 and 2019, 8% and 7%, respectively, of our revenue was generated in foreign currencies.

However, for the three months ended March 31, 2021 and 2020 we incurred 14%, and 12%, respectively, of our expenses outside of the United States in foreign currencies, primarily the British pound sterling and euro, principally with respect to salaries and related personnel expenses associated with our sales and research and development operations.

Additionally, for the three months ended March 31, 2021 and 2020, 9% and 8%, respectively, of our revenue was generated in foreign currencies.

Accordingly, changes in exchange rates may have an adverse effect on our business, operating results and financial condition.

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dollar could increase the cost in local currency of our products and services to customers outside the United States, which could adversely affect our business, results of operations, financial condition and cash flows.

W e implemented a hedging program during the third quarter of 2020 and have entered into forward contracts designated as cash flow hedges in order to mitigate our exposure to foreign currency fluctuations resulting from certain operating expenses denominated in certain foreign currencies.

W e implemented a hedging program during 2020 and have entered into forward contracts designated as cash flow hedges in order to mitigate our exposure to foreign currency fluctuations resulting from certain operating expenses denominated in certain foreign currencies.

These forward contracts and other hedging strategies such as options and foreign exchange swaps related to transaction exposures that we may implement to mitigate this risk in the future may not eliminate our exposure to foreign exchange fluctuations.

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If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.

Any debt financing that we may secure in the future could involve

restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

We may not be able to obtain additional financing on terms favorable to us, if at all.

For example, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

Although we expect that current cash and cash equivalent balances, including the proceeds from the issuance our 2.25% convertible senior notes due 2025 (2025 Notes) and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months, if we are unable to obtain adequate financing or financing on terms satisfactory to us if and when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.

Risks Related to Intellectual Property, Litigation, Government Regulation, Data Collection and Catastrophic Events

Although we expect that current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months, if we are unable to obtain adequate financing or financing on terms satisfactory to us if and when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.

Risks Related to Intellectual Property, Litigation and Government Regulation

Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and operating results.

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Such litigation could result in substantial costs and diversion of resources and could result in impairment or loss of portions of our intellectual property.

Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights.

Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property

Our failure to secure, protect and enforce our intellectual property rights could negatively affect our brand and adversely impact our business, operating results and financial condition.

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We are periodically involved in disputes brought by non-practicing entities alleging patent infringement and we may, from time to time, be involved in other such disputes in the ordinary course of our business.

Some companies, including some of our competitors, own large numbers of patents, copyrights

and trademarks, which they may use to assert claims against us.

Some companies, including some of our competitors, own large numbers of patents, copyrights and trademarks, which they may use to assert claims against us.

Many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights.

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Changes in export or import laws and regulations, shifts in the enforcement or scope of existing laws and regulations, or changes in the countries, governments, persons, products or services targeted by such laws and regulations, could also result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers.

A decreased use of our products or limitation on our ability to export or sell our products could adversely affect our business, financial condition and results of operations.

A decreased use of our products or limitation on our ability to export or sell our

products could adversely affect our business, financial condition and results of operations.

We also incorporate encryption technology into our products.

These encryption products may be exported outside of the United States only with the required export authorizations, including by a license, a license exception or other appropriate government authorizations, including the filing of a product classification request.

In addition, various countries regulate the import and domestic use of certain encryption technology, including through import permitting and licensing requirements, and have

enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries.

In addition, various countries regulate the import and domestic use of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries.

Governmental regulation of encryption technology and regulation of imports or exports of encryption products, or our failure to obtain required import or export approval for our products, when applicable, could harm our international sales and adversely affect our revenue.

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authorities, those authorities decided to not bring enforcement actions against or impose penalties on us.

Finally, in recent years, there have been multinational efforts to impose additional restrictions on certain cyber security products that could include commercial versions of Metasploit.

Such restrictions have been imposed by individual countries, but are not currently in effect in the United States.

The implementation of such restrictions could adversely affect our business, financial condition and results of operations.

We are closely monitoring these efforts and are prepared to work with interested parties and/or stakeholders with respect to the implementation of restrictions potentially applicable to our products.

Failure to comply with governmental laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local and foreign governments.

In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States.

Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions or other collateral consequences.

If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially adversely affected.

In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.

Enforcement actions and sanctions could harm our business, reputation, results of operations and financial condition.

Our intercompany relationships are subject to complex transfer pricing regulations, which may be challenged by taxing authorities.

We generally conduct our international operations through wholly-owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions.

Our intercompany relationships are and will continue to be subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions.

The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions.

If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.

Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

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Section 382 of the Internal Revenue Code imposes limitations on a company’s ability to use NOLs if a company experiences a more-than-50-percentage point ownership change over a three-year testing period.

Based upon our analysis as of December 31, 2019, we determined that although a limitation on our historical NOLs exists, we do not expect this limitation to impair our ability to use our NOLs prior to expiration.

Based upon our historical analysis, we determined that although a limitation on our historical NOLs exists, we do not expect this limitation to impair our ability to use our NOLs prior to expiration.

However, if changes in our ownership occur in the future, our ability to use our NOLs may be further limited.

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federal, state, local and sales taxes in the United States and foreign income taxes, withholding taxes and transaction taxes in numerous foreign jurisdictions.

Our intercompany relationships are and will continue to be subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions.

Significant judgment is required in evaluating our tax positions and our worldwide provision for taxes.

During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain.

During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain and the relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions.

In addition, our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities.

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Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have a material adverse effect on our operating results or cash flows in the period for which a determination is made.

Our business is subject to the risks of pandemics, earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by manmade problems such as terrorism.

A significant public health crisis, epidemic or pandemic (including the ongoing COVID-19 pandemic), or a natural disaster, such as an earthquake, fire or a flood, or a significant power outage could have a material adverse impact on our business, operating results and financial condition.

In addition, public health crises or natural disasters could affect our channel partners’ ability to perform services for us on a timely basis.

In the event we or our channel partners are hindered by any of the events discussed above, our ability to provide our products or professional services to customers could be delayed.

In addition, our facilities and those of our third-party data centers and hosting providers are vulnerable to damage or interruption from human error, intentional bad acts, pandemics, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events.

The occurrence of a public health crisis, natural disaster, power failure or an act of terrorism, vandalism or other misconduct, a decision by a third party to close a facility on which we rely without adequate notice, or other unanticipated problems could result in lengthy interruptions in provision or delivery of our products, potentially leaving our customers vulnerable to cyber attacks.

The occurrence of any of the foregoing events could damage our systems and hardware or could cause them to fail completely, and our insurance may not cover such events or may be insufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business, that may result from interruptions in our service as a result of system failures.

All of the aforementioned risks may be exacerbated if our disaster recovery plans or the disaster recovery plans established for our third-party data centers and hosting providers prove to be inadequate.

To the extent that any of the above results in delayed or reduced customer sales, our business, financial condition and results of operations could be adversely affected.

Risks Related to Data Privacy and Cybersecurity

Real or perceived failures, errors or defects in our solutions could adversely affect our brand and reputation, which could

have an adverse effect on our business and results of operations.

There is no guarantee that our products or professional services will detect all vulnerabilities and threats, especially in light of the rapidly changing security landscape to which we must respond, including the constantly evolving techniques used by attackers to access or sabotage data.

If we fail to update our solutions in a timely or effective manner to respond to these threats, our customers could experience security breaches.

Many federal, state and foreign governments have enacted laws requiring companies to notify individuals of data security breaches involving their personal data.

An actual or perceived security breach or theft of sensitive data of one of our customers, regardless of whether the breach is attributable to the failure of our products or professional services, could adversely affect the market’s perception of our offerings and subject us to legal claims.

Additionally, our products may falsely detect vulnerabilities or threats that do not actually exist.

For example, our Metasploit offering relies on information provided by an active community of security researchers who contribute new exploits, attacks and vulnerabilities.

We expect that the continued contributions from these third parties will both enhance the robustness of Metasploit and also support our sales and marketing efforts.

However, to the extent that the information from these third parties is inaccurate or malicious, the potential for false indications of security vulnerabilities and susceptibility to attack increases.

Our products may also contain undetected errors or defects.

Errors or defects may be more likely when a product is first introduced or as new versions are released, or when we introduce an acquired company's products.

Defects may cause our products to be vulnerable to attacks, cause them to fail to detect vulnerabilities or threats, or temporarily interrupt customers’ networking traffic.

Any errors, defects, disruptions in service or other performance problems with our products may damage our customers’ businesses and could hurt our reputation.

If our products or professional services fail to detect vulnerabilities or threats for any reason, we may incur significant costs, the attention of our key personnel could be diverted, our customers may delay or withhold payment to us or elect not to renew or other significant customer relations problems may arise.

We may also be subject to liability claims for damages related to errors or defects in our products.

A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our products may harm our business and operating results.

Limitation of liability provisions in our standard terms and conditions and our other agreements may not adequately or effectively protect us from any claims related to errors or defects in our solutions, including as a result of federal, state or local laws or ordinances or unfavorable judicial decisions in the United States or other countries.

Our brand, reputation and ability to attract, retain and serve our customers are dependent in part upon the reliable performance of our products and network infrastructure.

In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.

We utilize third-party data centers located in North America, Europe, Australia and Asia, in addition to operating and maintaining certain elements of our own network infrastructure.

Some elements of our complex infrastructure are operated by third parties that we do not control and that could require significant time to replace.

We expect this dependence on third parties to continue.

More specifically, certain of our products, in particular our cloud-based products, are hosted on cloud providers such as Amazon Web Services, which provides us with computing and storage capacity.

Prolonged delays or unforeseen difficulties in connection with adding capacity or upgrading our network architecture when required may cause our service quality to suffer.

Problems with the reliability or security of our systems or third-party systems on which we rely could harm our reputation.

Damage to our reputation and the cost of remedying these problems could negatively affect our business, financial condition, and operating results.

Any disruptions or other performance problems with our products could harm our reputation and business and may damage our customers’ businesses.

If we or our third party service providers experience a security breach or unauthorized parties otherwise obtain access to our customers’ data, our reputation may be harmed, demand for our solutions may be reduced and we may incur significant liabilities.

We sell cyber security and data analytics products.

In addition, with so many of our employees now working remotely due to the global COVID-19 pandemic, we may face an increased risk of attempted security breaches and incidents.

Also, as more of our customers move to working remotely for extended periods of time during the global COVID-19 pandemic we expect there will be an increased amount of personal, confidential and proprietary information that is stored in our solutions, which increases the exposure and risk of cyberattacks and other malicious internet-based activity.

While we have taken steps to protect such information that we have access to, including information we may obtain through our customer support services or customer usage of our offerings, our security measures or those of our third-party service providers could be breached or otherwise fail to prevent unauthorized access to or disclosure, modification, misuse, loss or destruction of such information.

Computer malware, viruses, social engineering (phishing attacks), and increasingly sophisticated network attacks have become more prevalent in our industry, particularly against cloud services.

Further, if our systems or those of our third-party service providers are breached as a result of third-party action, employee error or misconduct, attackers could learn critical information about how our products operate to help protect our customers’ IT infrastructures from cyber risk, thereby making our customers more vulnerable to cyber attacks.

We also process, store and transmit our own data as part of our business and operations.

This data may include personal, confidential or proprietary information.

We make use of third-party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, credit card processing, human resources services, customer relationship management, enterprise risk planning and other functions.

Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches and incidents, and to reduce the impact of a security breach or incident at a third-party vendor, such measures cannot provide absolute security.

There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats.

While we maintain measures designed to protect the integrity, confidentiality and security of our data, our security measures could fail and those of our third-party service providers have failed and could fail, any of which could result in unauthorized access to or disclosure, modification, misuse, loss or destruction of such data.

Any security breach or other security incident, or the perception that one has occurred, could result in a loss of customer confidence in the security of our offerings and damage to our brand, reduce the demand for our offerings, disrupt normal business operations, require us to spend material resources to investigate or correct the breach and to prevent future security breaches and incidents, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and adversely affect our revenues and operating results.

These risks may increase as we continue to grow the number and scale of our cloud services, and process, store, and transmit increasing amounts of data.

Additionally, we cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, that insurance will cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

If Metasploit were to be used by attackers to exploit vulnerabilities in the cyber security infrastructures of third parties, our reputation and business could be harmed.

Although Metasploit is a penetration testing tool that is intended to allow organizations to test the effectiveness of their cyber security programs, Metasploit has in the past and may in the future be used to exploit vulnerabilities in the cyber security infrastructures of third parties.

Further, the identification of new exploits and vulnerabilities by the Metasploit community may enhance the knowledge base of cyber attackers or enable them to undertake new forms of attacks.

If any of the foregoing were to occur, we could suffer negative publicity and loss of customers and sales, as well as possible legal claims.

We, and our customers, are subject to a number of domestic and international laws and regulations that apply to online services and the internet generally.

In June 2018, California enacted the California Consumer Privacy Act (CCPA), which took effect on January 1, 2020.

These statutory remedies are expected to prompt an increase in data breach litigation and the cost to resolve it.

Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal frameworks with which we, and/or our customers, must comply, including the European Union's General Data Protection Regulation, (EU) 2016/679 (GDPR), laws implemented by European Union (EU) member states which contain derogations from, or exemptions or authorizations for the purposes of, the GDPR, or which are otherwise intended to supplement the GDPR and, following the withdrawal of the United Kingdom (UK) from the EU on January 31, 2020 and the expiry of the transitional arrangements agreed to between the UK and EU on December 31, 2020, the so-called ‘UK GDPR’ (i.e., the GDPR as it continues to form part of UK law by virtue of section 3 of the European Union (Withdrawal) Act 2018, as amended (including by the various Data Protection, Privacy and Electronic Communications (Amendments etc) (EU Exit) Regulations) (European Data Protection Laws).

The European Data Protection Laws present significantly greater risks, compliance burdens and costs for companies with users and operations in the EU and UK.

Under the GDPR, fines of up to 20 million euros or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed for significant non-compliance and similar levels of fines could also be imposed under the UK GDPR.

The European Data Protection Laws are broad in their application and apply when we do business with EU- and UK-based customers and when our U.S.-based customers collect and use personal data that originates from individuals resident in the EU and UK.

They also apply to transfers of personal data between us and our EU- and UK-based subsidiaries, including employee information.

Further, many U.S.

federal and state and other foreign government bodies and agencies have introduced, and are currently considering, additional laws and regulations.

Non-compliance with these laws could result in penalties or significant legal liability.

We could be adversely affected if legislation or regulations are expanded to require changes in our business

practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results of operations or financial condition.

European Data Protection Laws generally prohibit the transfer of personal data from the European Economic Area (EEA), the UK and Switzerland (Europe), to the United States and most other countries unless the parties to the transfer have implemented specific safeguards to protect the transferred personal data.

One of the primary safeguards used for transfers of personal data from Europe to the United States was the Privacy Shield framework which is administered by the U.S.

Department of Commerce.

To facilitate the transfer of both customer and employee personal data from Europe to the United States, we self-certified under the EU-US Privacy Shield framework on December 20, 2016.

However, this framework was recently invalidated by a decision of the EU’s highest court in July 2020 and authorities in the UK and Switzerland have similarly invalidated use of the Privacy Shield as a vehicle for lawful data transfers from those countries to the United States.

The same decision also cast doubt on the ability to use one of the primary alternatives to the Privacy Shield, namely, the European Commission’s Standard Contractual Clauses (SCCs), to lawfully transfer personal data from Europe to the United States and most other countries.

At present, there are few if any viable alternatives to the SCCs.

As such, our processing of personal data from Europe may not comply with European Data Protection Law.

This may increase our exposure to the GDPR’s and UK GDPR’s heightened sanctions for violations of its cross-border data transfer restrictions, including injunctions against transferring personal data subject to the GDPR.

This may also reduce demand for our services from companies subject to European Data Protection Laws.

Loss of our ability to import personal data from Europe may also require us to increase our data processing capabilities in the EEA at significant expense.

Although by virtue of the UK GDPR, the GDPR applies in the UK in substantially unvaried form, going forward there will be increasing scope for divergence in application, interpretation and enforcement of the data protection law as between the UK and the EEA.

under the post-Brexit Trade and Cooperation Agreement between, on the one hand, the EU and the European Atomic Energy Community and, on the other, the UK, it has been agreed that transfers of personal data to the UK from EU member states will not be treated as “restricted transfers” to a non-EEA country for a period of up to four months from January 1, 2021, plus a potential further two months extension (the adequacy assessment period).

This will also apply to transfers to the UK from EEA member states, assuming those states accede to the relevant provision of the Trade and Cooperation Agreement.

This adequacy assessment period may end sooner, if the European Commission adopts an adequacy decision in respect of the UK.

On February 19, 2021, the European Commission issued a draft an ‘adequacy decision’ in respect of the UK for a period of four years.

This decision is expected to be formally adopted prior to the expiry of the adequacy assessment period.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us.

Privacy or cyber security concerns, whether valid or not valid, may inhibit market adoption of our products particularly in certain industries and foreign countries.

Organizations may be reluctant to purchase our cloud-based offerings due to the actual or perceived vulnerability of cloud solutions.

Some organizations have been reluctant to use cloud solutions for cyber security, such as our InsightVM, InsightIDR, InsightAppSec, InsightConnect and DivvyCloud, because they have concerns regarding the risks associated with the reliability or security of the technology delivery model associated with this solution.

Risks Related to our Common Stock

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The market price of our common stock may be highly volatile and may fluctuate substantially as a result of a variety of factors, some of which are related in complex ways.

Since shares of our common stock were sold in our initial public offering, or IPO, in July 2015 at a price of $16.00 per share, our stock price has ranged from an intraday low of $9.05 to an intraday high of $67.76 through October 31, 2020.

Factors that may affect the market price of our common stock include:

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We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future.

We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes.

We anticipate that we will retain all of our future earnings for use in the development of our business and for

general corporate purposes.

Any determination to pay dividends in the future will be at the discretion of our board of directors.

Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

We are obligated to maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We have been and are required, pursuant to Section 404 of the Sarbanes-Oxley Act (Section 404), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting on an annual basis.

This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.

While we have established certain procedures and control over our financial reporting processes, we cannot assure you that these efforts will prevent restatements of our financial statements in the future.

Our independent registered public accounting firm is also required, pursuant to Section 404, to report annually on the effectiveness of our internal control over financial reporting.

This assessment is required to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

For future reporting periods, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion.

If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion that our internal controls over financial reporting are effective, investors could lose confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we could be subject to sanctions or investigations by regulatory authorities, including the SEC and Nasdaq.

Failure to remediate any material weakness in our internal control over financial reporting, or to maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Future sales of our common stock or equity-linked securities in the public market could lower the market price for our common stock and adversely impact the trading price of the Notes.

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The issuance and sale of substantial amounts of common stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the trading price of the Notes and the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change in control or changes in our management.

Among other things, our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:

• authorize our board of directors to issue preferred stock without further stockholder action and with voting liquidation, dividend and other rights superior to our common stock;

• require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent, and limit the ability of our stockholders to call special meetings;

• establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for director nominees;

• establish that our board of directors is divided into three classes, with directors in each class elected prior to our 2021 annual meeting serving three-year staggered terms;

• prior to June 30, 2022 require the approval of holders of two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our amended and restated bylaws or amend or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors and the ability of stockholders to take action by written consent or call a special meeting;

• prohibit cumulative voting in the election of directors;

• provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.

Any of the foregoing provisions could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our amended and restated certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or (4) any action asserting a claim governed by the internal affairs doctrine.

Our amended and restated certificate of incorporation further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provision.

The forum selection clause in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Risks Related to our Indebtedness

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We may not have sufficient cash flow from our business to pay our substantial debt when due.

As of December 31, 2019, we had $230.0 million aggregate principal amount of indebtedness under the convertible senior notes due 2023 (the 2023 Notes) and we issued an additional $230.0 million aggregate principal amount of indebtedness under the 2025 Notes on May 1, 2020 (collectively, the Notes).

In August 2018, we issued $230.0 million aggregate principal amount of the 2023 Notes, in May 2020, we issued $230.0 million aggregate principal amount of 2025 Notes and in March 2021, we issued $600.0 million aggregate principal amount of 2027 Notes (collectively, the Notes).

In March 2021, concurrently with the issuance of the 2027 Notes, we used $182.6 million of the proceeds from the issuance of the 2027 Notes to repurchase and retire $182.6 million aggregate principal amount of the 2023 Notes.

In addition, we may also incur indebtedness under our senior secured credit facility.

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If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

Any such event of default under our senior secured credit facility would give the lenders the right to terminate their commitments to provide additional loans under our senior secured credit facility and to declare any and all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.

Any such event of default under our senior secured credit facility would give the lenders

the right to terminate their commitments to provide additional loans under our senior secured credit facility and to declare any and all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.

In addition, the lenders under our senior secured credit facility would have the right to proceed against the collateral in which we granted a security interest to them, which consists of substantially all our assets.

If the debt under our senior secured credit

facility were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately materially and adversely affect our cash flows, business, results of operations, financial condition and our ability to make payments under our indebtedness, including the Notes, when due.

If the debt under our senior secured credit facility were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately materially and adversely affect our cash flows, business, results of operations, financial condition and our ability to make payments under our indebtedness, including the Notes, when due.

Further, the terms of any new or additional financing may be on terms that are more restrictive or on terms that are less desirable to us.

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If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation in cash, which could adversely affect our liquidity.

As disclosed in Note 8 to our consolidated financial statements, the conditional conversion feature of the 2023 Notes was triggered as of September 30, 2020, and the 2023 Notes are currently convertible at the option of the holders, in whole or in part, between October 1, 2020 and December 31, 2020.

As disclosed in Note 10 to our unaudited consolidated financial statements, the conditional conversion feature of the 2023 Notes was triggered as of March 31, 2021, and the 2023 Notes are convertible at the option of the holders, in whole or in part, between April 1, 2021 and June 30, 2021.

As of March 31, 2021, an immaterial principal amount of the 2023 Notes was requested for conversion, which is expected to be settled during the quarter ended June 30, 2021.

In addition, from April 1, 2021 to the date of this filing, we have not received any additional conversion requests for the 2023 Notes.

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

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

As of March 31, 2021, the 2025 Notes and the 2027 Notes are not convertible at the option of the holder.

In addition, even if holders of Notes do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost.

The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the Notes.

As a result, we will be required to record non-cash interest expense through the amortization of the excess of the face amount over the carrying amount of the expected life of the Notes.

We will report larger net losses (or lower net income) in our financial results because ASC 470-20 requires interest to include both the amortization of the debt discount and the instrument’s cash coupon interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the Notes.

In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash may be accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of such Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such Notes exceeds their principal amount.

Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are included in the denominator for purposes of calculating diluted earnings per share.

We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method.

For example, 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 changes the accounting for the convertible debt instruments described above.

Under this new standard, an entity is no longer required to separately account for the liability and equity components of convertible debt instruments.

Adopting this guidance will reduce non-cash interest expense, and thereby increase net income, in our consolidated financial statements.

Additionally, the treasury stock method for calculating earnings per share will no longer be allowed for convertible debt instruments whose principal amount may be settled using shares.

Rather, the if-converted method will be required.

Application of the “if converted” method may reduce our reported diluted earnings per share.

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 evaluating whether this standard will have a material impact on our consolidated financial statements.

We cannot be sure whether other changes may be made to the current accounting standards related to the Notes, or otherwise, that could have an adverse impact on our financial statements.

The phaseout of LIBOR, or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.

On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021.

It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted.

Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs.

This could materially and adversely affect our results of operations, cash flows and liquidity.

We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks.

This may result in an increase to our interest expense.

The capped call transactions may affect the value of the Notes and our common stock.

In connection with the pricing of the Notes and the exercise by the initial purchasers of their option to purchase additional Notes, we entered into capped call transactions with certain counterparties (Capped Calls).

The Capped Calls cover, subject to

customary adjustments, the number of shares of our common stock initially underlying the Notes.

The Capped Calls cover, subject to customary adjustments, the number of shares of our common stock initially underlying the Notes.

The Capped Calls are expected to offset the potential dilution as a result of conversion of the Notes.

In connection with establishing their initial hedge of the capped call transactions, the counterparties or their respective affiliates entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricings of the Notes, including with certain investors in the Notes.

The counterparties and/or or their respective affiliates may modify or unwind their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes (and are likely to do so on each exercise date of the capped call transactions, which are scheduled to occur during the applicable observation period relating to any conversion of the 2023 Notes on or after February 1, 2023, or relating to any conversion of the 2025 Notes on or after November 1, 2024, in each case that is not in connection with a redemption).

The counterparties and/or or their respective affiliates may modify or unwind their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes (and are likely to do so on each exercise date of the capped call transactions, which are scheduled to occur during the applicable observation period relating to any conversion of the 2023 Notes on or after February 1, 2023, relating to any conversion of the 2025 Notes on or after November 1, 2024 or relating to any conversion of the 2027 Notes on or after December 15, 2026, in each case that is not in connection with a redemption).

We cannot make any prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the prices of the Notes or the shares of our common stock.

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The conversion of some or all of the Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares of our common stock upon conversion of any of the Notes.

As disclosed in Note 9 to our consolidated financial statements, the conditional conversion feature of the 2023 Notes was triggered as of September 30, 2020, and the 2023 Notes are currently convertible at the option of the holders, in whole or in part, between October 1, 2020 and December 31, 2020.

As disclosed in Note 10 to our consolidated financial statements, the conditional conversion feature of the 2023 Notes was triggered as of March 31, 2021, and the 2023 Notes are convertible at the option of the holders, in whole or in part, between April 1, 2021 and June 30, 2021.

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

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

As of March 31, 2021, the 2025 Notes and the 2027 Notes are not convertible at the option of the holder.

Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.

In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

General Risks