What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-07 · 159 added, 104 removed, 554 unchanged (32% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Current assets:

1 unchanged sentence

Short-term investments 114,284 138,839

Accounts receivable, net of allowance for doubtful accounts of $ 2,869 and $ 3,251 at March 31, 2021 and December 31, 2020, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 2,549 and $ 3,251 at June 30, 2021 and December 31, 2020, respectively

98,483 111,599

16 unchanged sentences

Deferred revenue, current portion 302,186 278,585

Convertible senior notes, current portion, net 44,730 —

Other current liabilities 303 —

Total current liabilities 414,200 353,734

Convertible senior notes, net 855,709 378,586

Convertible senior notes, non-current portion, net 810,093 378,586

Operating lease liabilities, non-current portion 71,691 75,737

4 unchanged sentences

Preferred stock, $ 0.01 par value per share;

10,000,000 shares authorized at March 31, 2021 and December 31, 2020;

0 shares issued at March 31, 2021 and December 31, 2020

10,000,000 shares authorized at June 30, 2021 and December 31, 2020;

0 shares issued at June 30, 2021 and December 31, 2020

Common stock, $ 0.01 par value per share;

100,000,000 shares authorized at March 31, 2021 and December 31, 2020;

55,578,120 and 52,712,084 shares issued at March 31, 2021 and December 31, 2020, respectively;

55,091,312 and 52,225,276 shares outstanding at March 31, 2021 and December 31, 2020, respectively

Treasury stock, at cost, 486,808 shares at March 31, 2021 and December 31, 2020

100,000,000 shares authorized at June 30, 2021 and December 31, 2020;

56,235,219 and 52,712,084 shares issued at June 30, 2021 and December 31, 2020, respectively;

55,748,411 and 52,225,276 shares outstanding at June 30, 2021 and December 31, 2020, respectively

Treasury stock, at cost, 486,808 shares at June 30, 2021 and December 31, 2020

( 4,764 ) ( 4,764 )

Additional paid-in-capital 562,652 692,603

Accumulated other comprehensive loss 112 454

Accumulated other comprehensive (loss) income ( 137 ) 454

Accumulated deficit ( 653,703 ) ( 617,279 )

4 unchanged sentences

(in thousands, except share and per share data)

Three Months Ended March 31,

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

2021 2020 2021 2020

Products $ 119,147 $ 92,430 $ 228,432 $ 179,979

24 unchanged sentences

(in thousands)

Three Months Ended March 31,

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

2021 2020 2021 2020

Net loss $ ( 34,164 ) $ ( 21,466 ) $ ( 64,009 ) $ ( 44,390 )

1 unchanged sentence

Change in fair value of investments ( 3 ) 128 ( 12 ) ( 107 )

Adjustments for net gains realized and included in net loss — ( 56 )

Total change in unrealized losses on investments ( 9 ) ( 291 )

Change in unrealized losses on cash flow hedges ( 129 ) —

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

Total change in unrealized (losses) gains on investments ( 3 ) 163 ( 12 ) ( 128 )

Change in fair value of cash flow hedges ( 72 ) — ( 201 ) —

Adjustments for net gains realized and included in net loss ( 174 ) — ( 378 ) —

Total change in unrealized losses on cash flow hedges ( 246 ) — ( 579 ) —

Total other comprehensive loss ( 342 ) ( 291 )

Total other comprehensive (loss) income ( 249 ) 163 ( 591 ) ( 128 )

Comprehensive loss $ ( 34,413 ) $ ( 21,303 ) $ ( 64,600 ) $ ( 44,518 )

8 unchanged sentences

stockholders’

Shares Amount Shares Amount

Balance, March 31, 2021 55,091 $ 551 487 $ ( 4,764 ) $ 542,415 $ 112 $ ( 619,539 ) $ ( 81,225 )

Stock-based compensation expense — — — — 22,487 — — 22,487

Vesting of restricted stock units 500 5 — — ( 5 ) — — —

Shares withheld for employee taxes ( 42 ) ( 1 ) — — ( 3,346 ) — — ( 3,347 )

Issuance of common stock upon exercise of stock options 109 1 — — 1,102 — — 1,103

Issuance of common stock in connection with conversion of convertible senior notes 23 — — — — — — —

Issuance of common stock related to acquisition 67 1 — — ( 1 ) — — —

Other comprehensive loss — — — — — ( 249 ) — ( 249 )

Net loss — — — — — — ( 34,164 ) ( 34,164 )

Balance, June 30, 2021 55,748 $ 557 487 $ ( 4,764 ) $ 562,652 $ ( 137 ) $ ( 653,703 ) $ ( 95,395 )

Common stock Treasury stock Additional

paid-in-capital Accumulated

comprehensive

gain (loss) Accumulated

deficit Total

stockholders’

Shares Amount Shares Amount

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

Stock-based compensation expense — — — — 15,864 — — 15,864

Vesting of restricted stock units 415 4 — — ( 4 ) — — —

Shares withheld for employee taxes ( 42 ) — — — ( 1,917 ) — — ( 1,917 )

Issuance of common stock upon exercise of stock options 160 1 — — 2,163 — — 2,164

Other comprehensive gain — — — — — 163 — 163

Equity component of convertible senior notes, net — — — — 46,835 — — 46,835

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

Net loss — — — — — — ( 21,466 ) ( 21,466 )

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

Common stock Treasury stock Additional

paid-in-capital Accumulated

comprehensive

gain (loss) Accumulated

deficit Total

stockholders’

equity (deficit)

7 unchanged sentences

Purchase of capped calls related to convertible senior notes — — — — ( 76,020 ) — — ( 76,020 )

Issuance of common stock in connection with repurchase of convertible senior notes 2,177 22 — — ( 2,720 ) — — ( 2,698 )

Issuance of common stock in connection with repurchase and conversion of convertible senior notes 2,200 22 — — ( 2,720 ) — — ( 2,698 )

Issuance of common stock in connection with inducement of convertible senior notes 35 — — — 2,740 — — 2,740

Issuance of common stock related to acquisition 67 1 — — ( 1 ) — — —

Cumulative-effect adjustment for the adoption of ASU 2020-06 — — — — ( 99,026 ) 27,585 ( 71,441 )

1 unchanged sentence

Net loss — — — — — — ( 64,009 ) ( 64,009 )

Balance, March 31, 2021 55,091 $ 551 487 $ ( 4,764 ) $ 542,415 $ 112 $ ( 619,539 ) $ ( 81,225 )

Balance, June 30, 2021 55,748 $ 557 487 $ ( 4,764 ) $ 562,652 $ ( 137 ) $ ( 653,703 ) $ ( 95,395 )

Common stock Treasury stock Additional

12 unchanged sentences

Other comprehensive loss — — — — — ( 128 ) — ( 128 )

Equity component of convertible senior notes, net — — — — 46,835 — — 46,835

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

Net loss — — — — — — ( 44,390 ) ( 44,390 )

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

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

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

1 unchanged sentence

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

4 unchanged sentences

Stock-based compensation expense 44,676 29,793

Deferred income taxes 3,924 —

Induced conversion expense 2,740 —

16 unchanged sentences

Other ( 1,500 ) —

Net cash (used in) provided by investing activities ( 18,444 ) 85,422

Net cash used in investing activities ( 32,166 ) ( 35,334 )

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes, net of issuance costs paid of $ 12,900

Proceeds from issuance of convertible senior notes, net of issuance costs paid of $ 14,560 and $ 6,500 for the six months ended June 30, 2021 and 2020, respectively

585,440 223,500

Purchase of capped calls related to convertible senior notes ( 76,020 ) ( 27,255 )

Payments for repurchase of convertible senior notes ( 182,647 ) —

Payments of debt issuance costs — ( 248 )

Payments for repurchase and conversion of convertible senior notes ( 184,649 ) —

Payments related to business acquisition ( 2,431 ) —

26 unchanged sentences

All intercompany transactions and balances have been eliminated in consolidation.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Use of Estimates

4 unchanged sentences

The COVID-19 pandemic has resulted in a sustained global slowdown of economic activity that has decreased demand for a broad variety of goods and services, including from our customers.

While we have not experienced significant disruptions from the COVID-19 pandemic during the first quarter of fiscal 2021, we are unable to accurately predict the extent to which the COVID-19 pandemic may impact our business, results of operations and financial condition going forward.

While we have not experienced significant disruptions from the COVID-19 pandemic during the three and six months ended June 30, 2021, we are unable to accurately predict the extent to which the COVID-19 pandemic may impact our business, results of operations and financial condition going forward.

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

4 unchanged sentences

Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no changes to the significant accounting policies during the three-month period ended March 31, 2021.

Other than the impact of our early adoption of Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 (ASU 2020-06) on January 1, 2021, as further detailed in Note 10, Debt , there have been no additional changes to the significant accounting policies during the three and six-month periods ended June 30, 2021.

Recent Accounting Pronouncements

16 unchanged sentences

(1) subscriptions from the sale of cloud-based subscriptions, managed services, term software licenses, content subscriptions and maintenance and support associated with our software licenses, (2) perpetual software licenses, and (3) professional services from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services.

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2021 and 2020:

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

2021 2020 2021 2020

(in thousands)

2 unchanged sentences

Professional services 7,274 6,482 15,440 13,273

Other 97 203 101 434

Total revenue $ 126,421 $ 98,912 $ 243,872 $ 193,252

25 unchanged sentences

For the majority of these contracts, revenue is recognized over time based upon the proportion of work performed to date.

Other revenue primarily includes revenue from delivery of appliances and other miscellaneous revenue.

Contracts with Multiple Performance Obligations

10 unchanged sentences

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

For the three months ended March 31, 2021 and 2020, we recognized revenue of $ 101.9 million and $ 83.4 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

For the three months ended June 30, 2021 and 2020, we recognized revenue of $ 108.2 million and $ 84.8 million, respectively, and for the six months ended June 30, 2021 and 2020, we recognized revenue of $ 181.3 million and $ 149.3 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

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

2 unchanged sentences

Unbilled receivables include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced.

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

As of March 31, 2021 and December 31, 2020, unbilled receivables of $ 1.1 million and $ 1.2 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of March 31, 2021 and December 31, 2020, we had no contract assets recorded on our consolidated balance sheet.

If the right to

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

As of June 30, 2021 and December 31, 2020, unbilled receivables of $ 0.9 million and $ 1.2 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of June 30, 2021 and December 31, 2020, we had no contract assets recorded on our consolidated balance sheet.

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2021.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of June 30, 2021.

The estimated revenues do not include unexercised contract renewals.

4 unchanged sentences

Professional services 14,101 1,142

Business Combination

Business Combinations

On April 12, 2021, we acquired Velocidex Enterprises Pty Ltd (Velocidex), a leading open-source technology and community used for endpoint monitoring, digital forensics, and incident response.

The purchase price consisted of $ 2.7 million paid in cash and $ 0.3 million in deferred cash payments.

The purchase price was allocated to developed technology intangible asset which has an estimated useful life of 6 years.

Alcide.IO Ltd.

21 unchanged sentences

Following the acquisition, certain retained employees of Alcide received an aggregate of 96,127 restricted stock units (RSUs), which will vest over a maximum of three years .

The vesting of the RSUs are subject to the employee's continued service with

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

Accordingly, stock-based compensation expense associated with the RSUs will be expensed as incurred in our post-acquisition financial statements.

In the three months ended March 31, 2021, we recorded $ 0.9 million of acquisition-related costs related to the acquisition of Alcide, of which $ 0.8 million was recorded to general and administrative expense and $ 0.1 million was recorded to sales and marketing expense.

Proforma results of operations have not been included, as the acquisition of Alcide was not material to our results of operations for any periods presented.

In the six months ended June 30, 2021, we recorded $ 0.9 million of acquisition-related costs related to the acquisition of Alcide, of which $ 0.8 million was recorded to general and administrative expense and $ 0.1 million was recorded to sales and marketing expense.

During the three months ended June 30, 2021, we sold acquired intellectual property through an intercompany transaction, which resulted in $ 5.0 million of current tax expense and $ 3.9 million of deferred tax expense in Israel.

Pro forma results of operations have not been included, as the acquisition of Alcide was not material to our results of operations for any periods presented.

Divvy Cloud Corporation

5 unchanged sentences

The acquired goodwill and intangible asset were not deductible for tax purposes.

Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of our operations and DivvyCloud, on a pro forma basis, as though we had acquired DivvyCloud on January 1, 2019.

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

Three Months Ended March 31, 2020

(in thousands)

Revenue $ 97,221

Net loss $ ( 27,566 )

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

As of March 31, 2021

As of June 30, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

3 unchanged sentences

Corporate bonds 29,218 11 ( 1 ) 29,228

Asset-backed securities 2,403 — — 2,403

Total $ 119,649 $ 13 $ ( 1 ) $ 119,661

8 unchanged sentences

Total $ 148,941 $ 35 $ ( 13 ) $ 148,963

As of March 31, 2021, our available-for-sale investments had maturities ranging from 1 to 13 months.

As of June 30, 2021, our available-for-sale investments had maturities ranging from 1 to 18 months.

As of December 31, 2020, our available-for-sale investments had maturities ranging from 1 to 16 months.

For all of our investments for which the amortized cost basis was greater than the fair value at March 31, 2021 and December 31, 2020, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity.

For all of our investments for which the amortized cost basis was greater than the fair value at June 30, 2021 and December 31, 2020, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity.

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

10 unchanged sentences

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

As of March 31, 2021

As of June 30, 2021

Level 1 Level 2 Level 3 Total

4 unchanged sentences

Corporate bonds — 29,228 — 29,228

Asset-backed securities — 2,403 — 2,403

Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets) — 159 — 159

13 unchanged sentences

Total $ 236,157 $ 65,808 $ — $ 301,965

As of March 31, 2021, the fair value of our 1.25 % , 2.25 % and 0.25 % convertible senior notes due 2023, 2025 and 2027, as further described in Note 10, Debt , was $ 86.8 million, $ 325.9 million and $ 583.9 million, respectively, based upon quoted market prices.

As of June 30, 2021, the fair value of our 1.25 %, 2.25 % and 0.25 % convertible senior notes due 2023, 2025 and 2027, as further described in Note 10, Debt , was $ 102.7 million, $ 381.7 million and $ 665.6 million, respectively, based upon quoted market prices.

We consider the fair value of the Notes to be a Level 2 measurement due to limited trading activity of the Notes.

1 unchanged sentence

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

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

(in thousands)

5 unchanged sentences

Property and equipment, net $ 49,431 $ 53,114

Depreciation expense was $ 3.0 million and $ 2.7 million for the three months ended March 31, 2021 and 2020, respectively.

Depreciation expense was $ 3.1 million and $ 2.7 million for the three months ended June 30, 2021 and 2020, respectively, and $ 6.0 million and $ 5.4 million for the six months ended June 30, 2021 and 2020, respectively.

Goodwill and Intangible Assets

Goodwill was $ 253.3 million and $ 213.6 million as of March 31, 2021 and December 31, 2020, respectively.

Goodwill was $ 254.4 million and $ 213.6 million as of June 30, 2021 and December 31, 2020, respectively.

The following table displays the changes in the gross carrying amount of goodwill:

2 unchanged sentences

Alcide acquisition 40,817

Balance at March 31, 2021 $ 253,324

Balance at June 30, 2021 $ 254,418

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

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

Life (years) Gross Carrying

11 unchanged sentences

Total intangible assets $ 92,181 $ ( 38,002 ) $ 54,179 $ 74,576 $ ( 30,280 ) $ 44,296

Amortization expense was $ 3.7 million and $ 2.1 million for the three months ended March 31, 2021 and 2020, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of March 31, 2021 was as follows (in thousands):

2021 (for the remaining nine months) $ 10,929

Amortization expense was $ 4.0 million and $ 2.8 million for the three months ended June 30, 2021 and 2020, respectively, and $ 7.7 million and $ 5.0 million for the six months ended June 30, 2021 and 2020, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of June 30, 2021 was as follows (in thousands):

2021 (for the remaining six months) $ 7,551

2026 and thereafter 3,629

Total $ 45,778

The table above excludes the impact of $ 7.0 million of capitalized internal-use software costs for projects that have not been completed as of March 31, 2021, and therefore, we have not determined the useful life of the software, nor have all the costs associated with these projects been incurred.

The table above excludes the impact of $ 8.4 million of capitalized internal-use software costs for projects that have not been completed as of June 30, 2021, and therefore, we have not determined the useful life of the software, nor have all the costs associated with these projects been incurred.

Deferred Contract Acquisition and Fulfillment Costs

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

(in thousands)

5 unchanged sentences

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

These forward contracts have contractual maturities of thirteen months or less, and as of March 31, 2021 and December 31, 2020, outstanding forward contracts had a total notional value of $ 19.9 million and $ 12.5 million, respectively.

These forward contracts have contractual maturities of eighteen months or less, and as of June 30, 2021 and December 31, 2020, outstanding forward contracts had a total notional value of $ 23.4 million and $ 12.5 million, respectively.

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

During the three months ended March 31, 2021, all cash flow hedges were considered effective.

During the three months ended June 30, 2021, all cash flow hedges were considered effective.

Refer to Note 5, Fair Value Measurements , for the fair values of our outstanding derivative instruments.

For the three months ended March 31, 2021, we reclassified realized gains of $ 0.2 million from accumulated other comprehensive income (loss) on our consolidated balance sheet to the financial statement line item associated with the underlying hedged transaction on our consolidated statement of operations.

For the three and six months ended June 30, 2021, we reclassified realized gains of $ 0.2 million and $ 0.4 million, respectively, from accumulated other comprehensive income (loss) on our consolidated balance sheet to the financial statement line item associated with the underlying hedged transaction on our consolidated statement of operations.

Convertible Senior Notes

10 unchanged sentences

The holders of the Notes may convert their respective Notes at their option at any time prior to the close of business on the business day immediately preceding their respective convertible dates only under the following circumstances:

quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price of the respective Notes on each applicable trading day;

• during any calendar quarter commencing after the calendar quarter ending on December 31, 2018 for the 2023 Notes, September 30, 2020 for the 2025 Notes and March 20, 2024 for the 2027 Notes (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price of the respective Notes on each applicable trading day;

• during the five business day period after any five consecutive trading day period for the 2023 Notes and the 2025 Notes and any ten consecutive trading day period for the 2027 Notes (measurement periods) in which the trading price (as defined in the Indentures) per $1,000 principal amount of the applicable series of Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate of the respective Notes on each such trading day;

1 unchanged sentence

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

As of March 31, 2021, the conversion feature of the 2023 Notes was triggered as the last reported price of our common stock was greater than or equal to 130 % of the conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, and therefore the 2023 Notes were convertible, in whole or in part, at the option of the holders from April 1, 2021 through June 30, 2021.

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

Since we may elect to repay the 2023 Notes in cash, shares of our common stock, or a combination of both, we have continued to classify the 2023 Notes as long-term debt on our consolidated balance sheet as of March 31, 2021.

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

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.

No additional conversion requests for the 2023 Notes have been received.

As of June 30, 2021, the conversion features of the 2023 Notes and the 2025 Notes were triggered as the last reported price of our common stock was greater than or equal to 130 % of the conversion prices for at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, and therefore the 2023 Notes and the 2025 Notes were convertible, in whole or in part, at the option of the holders from July 1, 2021 through September 30, 2021.

Whether the 2023 Notes or the 2025 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future.

Since we may elect to repay the 2025 Notes in cash, shares of our common stock, or a combination of both, we have continued to classify the 2025 Notes as long-term debt on our consolidated balance sheet as of June 30, 2021.

We have classified the 2023 Notes as a current liability on our consolidated balance sheet as of June 30, 2021 as we expect to repay these 2023 Notes in a combination of cash and shares of our common stock within a year.

As of June 30, 2021, the 2027 Notes are not convertible at the option of the holder.

The holders may convert the 2023 Notes, the 2025 Notes and the 2027 Notes at any time on or after February 1, 2023, November 1, 2024 and December 15, 2026, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the circumstances set forth above.

4 unchanged sentences

On or after the respective Redemption Dates, we may redeem for cash all or any portion of the 2023 Notes, the 2025 Notes or the 2027 Notes, at our option, if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including the trading day immediately preceding, the date on which we provide the redemption notice at a redemption price equal to 100 % principal amount of the 2023 Notes, the 2025 Notes or the 2027 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Partial Repurchase of the 2023 Notes

Partial Repurchase and Conversion of the 2023 Notes

On March 16, 2021, we used a portion of the proceeds from the issuance of the 2027 Notes, together with 2.2 million shares of our common stock, to repurchase and retire $ 182.6 million aggregate principal amount of the 2023 Notes, and paid accrued and unpaid interest thereon (the 2023 Notes Repurchase Transaction).

1 unchanged sentence

The total fair value of the additional common stock issued to induce the conversion of $ 2.7 million was recognized as an inducement expense and classified as a component of interest expense in our consolidated statement of operations.

Notes retired, including unamortized debt issuance cost of $ 2.7 million, and the cash consideration paid and the par amount of the common stock issued, was recorded in additional paid-in capital.

The remaining cash and common stock consideration issued under the original terms of the 2023 Notes was accounted for under the general conversion accounting guidance where the difference between the carrying amount of the 2023 Notes retired, including unamortized debt issuance cost of $ 2.7 million, and the cash consideration paid and the par amount of the common stock issued, was recorded in additional paid-in capital.

During the first quarter of 2021, holders of the 2023 Notes elected to convert Notes with a principal amount of $ 2.0 million.

Cash was paid for the principal and the excess conversion spread was paid in 23,123 shares of our common stock.

Accounting for the Notes

27 unchanged sentences

The debt issuance costs are amortized to interest expense using the effective interest method over the contractual term of the 2027 Notes.

The net carrying amount of the Notes as of March 31, 2021 and December 31, 2020 was as follows (in thousands):

As of March 31, 2021 As of December 31, 2020

The net carrying amount of the Notes as of June 30, 2021 and December 31, 2020 was as follows (in thousands):

As of June 30, 2021 As of December 31, 2020

2023 Notes 2025 Notes 2027 Notes Total 2023 Notes 2025 Notes Total

4 unchanged sentences

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

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020

2023 Notes 2025 Notes 2027 Notes Total 2023 Notes Total

Three Months Ended June 30,

2023 Notes 2025 Notes 2027 Notes Total 2023 Notes 2025 Notes Total

Contractual interest expense $ 148 $ 1,294 $ 375 $ 1,817 $ 719 $ 863 $ 1,582

1 unchanged sentence

Amortization of debt issuance costs 153 341 602 1,096 251 152 403

Total interest expense $ 301 $ 1,635 $ 977 $ 2,913 $ 3,513 $ 2,308 $ 5,821

Six Months Ended June 30,

2023 Notes 2025 Notes 2027 Notes Total 2023 Notes 2025 Notes Total

Contractual interest expense $ 706 $ 2,588 $ 425 $ 3,719 $ 1,438 $ 863 $ 2,301

Amortization of debt discount — — — — 5,039 1,293 6,332

Amortization of debt issuance costs 374 660 682 1,716 498 152 650

Induced conversion expense 2,740 — — 2,740 — — —

15 unchanged sentences

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

As of March 31, 2021, we did not have any outstanding borrowings and we were in compliance with all covenants under the Credit Agreement.

As of March 31, 2021, we had a total of $ 7.6 million in letters of credit outstanding as collateral for certain office space leases and corporate credit card programs which reduce the amount of borrowing available under our Credit Agreement.

As of June 30, 2021, we did not have any outstanding borrowings and we were in compliance with all covenants under the Credit Agreement.

As of June 30, 2021, we had a total of $ 7.6 million in letters of credit outstanding as collateral for certain office space leases and corporate credit card programs which reduce the amount of borrowing available under our Credit Agreement.

Our leases primarily relate to office facilities that have remaining terms of up to 9.4 years, some of which include one or more options to renew with renewal terms of up to 5 years and some of which include options to terminate the leases within the next 6.2 years.

1 unchanged sentence

The components of lease expense were as follows:

Three Months Ended March 31,

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

2021 2020 2021 2020

(in thousands)

4 unchanged sentences

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

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

Weighted average remaining lease term (in years) - operating leases 7.5 7.9

1 unchanged sentence

Supplemental cash flow information related to leases was as follows:

Three Months Ended March 31,

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

2021 2020 2021 2020

(in thousands)

1 unchanged sentence

ROU assets obtained in exchange for new lease obligations $ 909 $ 11,607 $ 1,061 $ 15,597

Maturities of operating lease liabilities as of March 31, 2021 were as follows (in thousands):

2021 (for the remaining nine months) $ 11,022

Maturities of operating lease liabilities as of June 30, 2021 were as follows (in thousands):

2021 (for the remaining six months) $ 7,469

2026 and thereafter 41,697

4 unchanged sentences

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

Three Months Ended March 31,

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

2021 2020 2021 2020

(in thousands)

7 unchanged sentences

Our Compensation Committee adopted and approved the performance goals, targets and payout formulas for our 2021 and 2020 bonus plans, including permitting our executive officers and certain other employees the opportunity to receive payment of their earned bonuses in the form of common stock (in lieu of cash).

During the three months ended March 31, 2021 and 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $ 1.0 million and $ 0.4 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of March 31, 2021 and 2020.

During the three months ended June 30, 2021 and 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $ 1.3 million and $ 0.4 million, respectively, and during the six months ended June 30, 2021 and 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $ 2.3 million and $ 0.8 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of June 30, 2021 and 2020.

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

1 unchanged sentence

(b) Restricted Stock Units and Performance-Based Restricted Stock Units

RSUs and PSUs activity during the three months ended March 31, 2021 was as follows:

RSUs and PSUs activity during the six months ended June 30, 2021 was as follows:

Shares Weighted-Average

3 unchanged sentences

Forfeited ( 176,261 ) 59.86

Unvested balance as of March 31, 2021 3,953,263 $ 62.61

As of March 31, 2021, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 228.8 million.

Unvested balance as of June 30, 2021 3,488,275 $ 65.34

As of June 30, 2021, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 213.4 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 2.7 years.

Stock option activity during the three months ended March 31, 2021 was as follows:

Stock option activity during the six months ended June 30, 2021 was as follows:

Shares Weighted

6 unchanged sentences

Forfeited/cancelled ( 300 ) 7.73

Outstanding as of March 31, 2021 1,763,007 $ 10.24 3.9 $ 113,492

Vested and exercisable as of March 31, 2021 1,736,419 $ 10.04 3.8 $ 112,127

As of March 31, 2021, the unrecognized compensation expense related to our unvested stock options was $ 0.3 million.

Outstanding as of June 30, 2021 1,653,897 $ 10.24 3.6 $ 139,567

Vested and exercisable as of June 30, 2021 1,634,425 $ 10.09 3.6 $ 138,180

As of June 30, 2021, the unrecognized compensation expense related to our unvested stock options was $ 0.2 million.

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

The total fair value of stock options vested in the three months ended March 31, 2021 was $ 0.4 million.

The total fair value of stock options vested in the six months ended June 30, 2021 was $ 0.5 million.

(d) Employee Stock Purchase Plan

4 unchanged sentences

Net Loss per Share

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the three and six months ended June 30, 2021 and 2020:

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

2021 2020 2021 2020

(in thousands, except share and per share data)

5 unchanged sentences

For periods prior to our January 1, 2021 adoption of ASU 2020-06, we considered the impact of the Notes on our diluted net income (loss) per share calculation based on applying the treasury stock method as we had the ability, and intent, to settle any conversions of the Notes solely in cash at that time.

For the three months ended March 31, 2021 and 2020, the shares underlying the Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive under each respective method.

For the three and six months ended June 30, 2021 and 2020, the shares underlying the Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive under each respective method.

In connection with the issuance of the 2023 Notes, the 2025 Notes and the 2027 Notes, we entered into 2023 Capped Calls, 2025 Capped Calls and 2027 Capped Calls, which were not included for the purpose of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive:

Three Months Ended March 31,

Three and Six Months Ended June 30,

Options to purchase common stock 1,653,897 2,404,012

Unvested restricted stock units 3,488,275 3,639,708

Common shares to be issued to DivvyCloud founders 133,730 200,596

Shares to be issued under ESPP 50,382 77,926

25 unchanged sentences

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

Three Months Ended March 31,

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

2021 2020 2021 2020

(in thousands)

3 unchanged sentences

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

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

(in thousands)

2 unchanged sentences

Total $ 49,431 $ 53,114

Subsequent Event

On July 16, 2021, we acquired all of the issued capital of IntSights Cyber Intelligence Ltd., a provider of contextualized external threat intelligence and proactive threat remediation, for consideration of approximately $ 321.0 million, an aggregate of 206,608 shares of Rapid7's common stock to be issued to the founders of IntSights in three installments over a thirty-month period following the close date and $ 5.6 million in deferred cash payments.

As part of the acquisition, we acquired $ 12.7 million in cash resulting in a net cash outflow of $ 308.3 million at closing.

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

What changed 10-Q

Item 1. Financial Statements