What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 162 added, 103 removed, 610 unchanged (30% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Current assets:

1 unchanged sentence

Short-term investments 77,145 138,839

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

Accounts receivable, net of allowance for doubtful accounts of $ 2,187 and $ 3,251 at September 30, 2021 and December 31, 2020, respectively

96,775 111,599

26 unchanged sentences

Preferred stock, $ 0.01 par value per share;

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

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

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

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

Common stock, $ 0.01 par value per share;

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

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

56,928,272 and 52,712,084 shares issued at September 30, 2021 and December 31, 2020, respectively;

56,441,464 and 52,225,276 shares outstanding at September 30, 2021 and December 31, 2020, respectively

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

( 4,764 ) ( 4,764 )

7 unchanged sentences

(in thousands, except share and per share data)

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

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

2021 2020 2021 2020

25 unchanged sentences

(in thousands)

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

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

2021 2020 2021 2020

19 unchanged sentences

Shares Amount Shares Amount

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 )

Stock-based compensation expense — — — — 27,929 — — 27,929

Issuance of common stock under employee stock purchase plan 74 1 — — 4,808 — — 4,809

Vesting of restricted stock units 377 4 — — ( 4 ) — — —

1 unchanged sentence

Issuance of common stock upon exercise of stock options 77 1 — — 846 — — 847

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

Issuance of common stock related to acquisition 207 2 — — ( 2 ) — — —

1 unchanged sentence

Net loss — — — — — — ( 37,700 ) ( 37,700 )

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

Balance, September 30, 2021 56,441 $ 564 487 $ ( 4,764 ) $ 591,529 $ ( 929 ) $ ( 691,403 ) $ ( 105,003 )

Common stock Treasury stock Additional

5 unchanged sentences

Shares Amount Shares Amount

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

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

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

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

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

1 unchanged sentence

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

Other comprehensive gain — — — — — 163 — 163

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

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

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

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

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

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

Common stock Treasury stock Additional

19 unchanged sentences

Net loss — — — — — — ( 101,709 ) ( 101,709 )

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

Balance, September 30, 2021 56,441 $ 564 487 $ ( 4,764 ) $ 591,529 $ ( 929 ) $ ( 691,403 ) $ ( 105,003 )

Common stock Treasury stock Additional

15 unchanged sentences

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

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

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

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

1 unchanged sentence

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

Net loss $ ( 101,709 ) $ ( 69,931 )

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

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

Depreciation and amortization 23,513 16,347

12 unchanged sentences

Other liabilities 3,593 ( 915 )

Net cash provided by (used in) operating activities 29,781 ( 6,773 )

Net cash provided by operating activities 49,229 4,305

Cash flows from investing activities:

4 unchanged sentences

Sales/maturities of investments 124,838 155,599

Other ( 1,500 ) —

Other investments ( 3,000 ) —

Net cash used in investing activities ( 307,887 ) ( 90,469 )

Cash flows from financing activities:

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

Proceeds from issuance of convertible senior notes, net of issuance costs paid of $ 14,976 and $ 7,201 for the nine months ended September 30, 2021 and 2020, respectively

585,024 222,799

2 unchanged sentences

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

Payments related to business acquisition ( 2,431 ) —

Payments related to business acquisitions ( 12,118 ) ( 150 )

Taxes paid related to net share settlement of equity awards ( 11,372 ) ( 5,984 )

11 unchanged sentences

Cash and cash equivalents $ 227,104 $ 239,409

Restricted cash included in prepaid expenses and other current assets 37 $ 1,283

Restricted cash included in prepaid expenses and other assets 426 $ 300

Total cash, cash equivalents and restricted cash $ 227,530 $ 239,709

3 unchanged sentences

Description of Business

and subsidiaries (“we,” “us” or “our”) is advancing security with visibility, analytics, and automation delivered through our Insight Platform.

and subsidiaries (“we,” “us” or “our”) are advancing security with visibility, analytics, and automation delivered through our Insight Platform.

Our solutions simplify the complex, allowing security teams to work more effectively with IT and development to reduce vulnerabilities, monitor for malicious behavior, investigate and shut down attacks, and automate routine tasks.

5 unchanged sentences

All intercompany transactions and balances have been eliminated in consolidation.

The results of operations for the three and six months ended June 30, 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 nine months ended September 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 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.

While we have not experienced significant disruptions from the COVID-19 pandemic during the three and nine months ended September 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.

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.

Other than the impact of our early adoption of Financial Accounting Standards Board (FASB) 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):

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 and six months ended June 30, 2021 and 2020:

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

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

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

2021 2020 2021 2020

6 unchanged sentences

Subscriptions

Subscriptions consists of revenue from our cloud-based subscription, managed services offerings, term software licenses and content subscriptions maintenance and support associated with our software licenses.

Subscriptions consists of revenue from our cloud-based subscription, managed services offerings, term software licenses, content subscriptions and maintenance and support associated with our software licenses.

• We generate cloud-based subscription revenue primarily from sales of subscriptions to access our cloud platform, together with related support services to our customers.

34 unchanged sentences

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

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.

For the three months ended September 30, 2021 and 2020, we recognized revenue of $ 117.5 million and $ 90.4 million, respectively, and for the nine months ended September 30, 2021 and 2020, we recognized revenue of $ 237.5 million and $ 197.4 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.

4 unchanged sentences

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.

As of September 30, 2021 and December 31, 2020, unbilled receivables of $ 1.6 million and $ 2.0 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of September 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 June 30, 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 September 30, 2021.

The estimated revenues do not include unexercised contract renewals.

4 unchanged sentences

Professional services 16,088 1,412

Total $ 359,134 $ 105,728

Business Combinations

On July 16, 2021, we acquired IntSights Cyber Intelligence Ltd.

(IntSights), a provider of contextualized external threat intelligence and proactive threat remediation, for a purchase price with an aggregate fair value of $ 322.2 million.

The purchase consideration consisted of $ 319.2 million in cash paid at closing, $ 5.6 million in deferred cash payments and a $ 2.6 million receivable for estimated purchase price adjustments.

The deferred cash payments will be held by us to satisfy indemnification obligations and certain post-closing purchase price adjustments payable within eighteen months of the acquisition date.

Additionally, we issued an aggregate of 206,608 shares of our common stock to the founders of IntSights with a fair value of $ 21.0 million.

The 206,608 shares of common stock will be accounted for as stock-based compensation expense over a 30 -month period as continued service was required.

In the three months ended September 30, 2021, we recognized stock-based compensation expense related to such shares in the amount of $ 1.8 million.

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

Consideration:

Cash $ 319,194

Deferred cash consideration 5,575

Estimated purchase price adjustment receivable ( 2,595 )

Fair value of total consideration transferred $ 322,174

Recognized amount of identifiable assets acquired and liabilities assumed:

Cash, cash equivalents and restricted cash 13,194

Accounts receivable 6,352

Prepaid and other current assets 1,271

Operating lease right-of-use assets 1,261

Property and equipment, net 565

Other assets 268

Accounts payable and other current liabilities ( 9,069 )

Operating lease liabilities ( 1,261 )

Deferred revenue ( 9,469 )

Deferred tax liabilities ( 7,017 )

Intangible assets 65,200

Total identifiable net assets assumed 61,295

Goodwill 260,879

Total purchase price allocation $ 322,174

These preliminary amounts are subject to subsequent adjustment as we obtain additional information.

The fair value of identifiable intangible assets was based on valuations using the income approach.

The estimated fair value and useful life of identifiable intangible assets are as follows:

Amount Weighted Average Life

(in thousands) (in years)

Developed technology $ 54,700 6

Customer relationships 9,300 4

Trade name 1,200 2

Total identifiable intangible assets $ 65,200

The excess of the purchase price over the tangible assets acquired, identifiable intangible assets acquired and assumed liabilities was recorded as goodwill.

We believe the goodwill is attributable to expanded product offerings resulting from the integration of the technology acquired with our existing product offerings and increased opportunities to successfully market and sell these new products and features to our customer base.

The goodwill was allocated to our one reporting unit.

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

Following the acquisition, we granted to certain retained employees of IntSights restricted stock units (RSUs) for an aggregate of 194,466 shares of our common stock, which will vest over a maximum three-year period subject to such employees' continued service with us.

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

In the three and nine months ended September 30, 2021, we recorded acquisition-related transaction costs of $ 4.9 million and $ 5.9 million, respectively, related to the acquisition of IntSights to general and administrative expense.

Our revenue and net loss attributable to the IntSights business for the three months ended September 30, 2021 was $ 3.8 million and $ 11.0 million, respectively.

Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of our operations and IntSights, on a pro forma basis, as though we had acquired IntSights on January 1, 2020.

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

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

2021 2020 2021 2020

(in thousands)

Revenue $ 143,785 $ 109,515 $ 400,619 $ 309,406

Net loss ( 32,116 ) ( 36,030 ) ( 119,183 ) ( 110,849 )

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.

23 unchanged sentences

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

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 us.

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

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.

Following the acquisition, certain retained employees of Alcide received an aggregate of 96,127 RSUs, which will vest over a maximum of three-year period, subject to such employees' continued service with us.

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

In the nine months ended September 30, 2021, we recorded $ 0.8 million of acquisition-related transaction costs related to the acquisition of Alcide to general and administrative expense.

In the second quarter of 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.

7 unchanged sentences

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

As of June 30, 2021

As of September 30, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

(in thousands)

government agencies 35,204 2 — 35,206

Commercial paper $ 40,256 $ — $ — $ 40,256

Corporate bonds 22,196 3 ( 3 ) 22,196

government agencies 20,057 — — 20,057

Total $ 82,509 $ 3 $ ( 3 ) $ 82,509

8 unchanged sentences

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

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

As of September 30, 2021, our available-for-sale investments had maturities ranging from 1 to 15 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 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.

For all of our investments for which the amortized cost basis was greater than the fair value at September 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 June 30, 2021

As of September 30, 2021

Level 1 Level 2 Level 3 Total

19 unchanged sentences

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

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.

As of September 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 $ 123.2 million, $ 446.6 million and $ 747.5 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 June 30, 2021 As of December 31, 2020

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

(in thousands)

5 unchanged sentences

Property and equipment, net $ 49,034 $ 53,114

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.

Depreciation expense was $ 3.2 million and $ 2.7 million for the three months ended September 30, 2021 and 2020, respectively, and $ 9.2 million and $ 8.1 million for the nine months ended September 30, 2021 and 2020, respectively.

Goodwill and Intangible Assets

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

Goodwill was $ 515.3 million and $ 213.6 million as of September 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 June 30, 2021 $ 254,418

IntSights acquisition 260,879

Balance at September 30, 2021 $ 515,297

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

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

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

Life (years) Gross Carrying

11 unchanged sentences

Total intangible assets $ 160,338 $ ( 44,592 ) $ 115,746 $ 74,576 $ ( 30,280 ) $ 44,296

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

Amortization expense was $ 6.6 million and $ 3.2 million for the three months ended September 30, 2021 and 2020, respectively, and $ 14.3 million and $ 8.2 million for the nine months ended September 30, 2021 and 2020, respectively.

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

2021 (for the remaining three months) $ 6,832

2026 and thereafter 17,683

Total $ 107,207

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.

The table above excludes the impact of $ 8.5 million of capitalized internal-use software costs for projects that have not been completed as of September 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 six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

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

Nine Months Ended September 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 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.

These forward contracts have contractual maturities of fourteen months or less, and as of September 30, 2021 and December 31, 2020, outstanding forward contracts had a total notional value of $ 32.9 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 June 30, 2021, all cash flow hedges were considered effective.

During the three months ended September 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 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.

For the three and nine months ended September 30, 2021, the realized gains reclassified from accumulated other comprehensive income (loss) on our consolidated balance sheet to the financial statement line item associated with the underlying hedged transaction on our consolidated statement of operations were no minal and $ 0.4 million, respectively.

Convertible Senior Notes

14 unchanged sentences

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

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.

As of September 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 October 1, 2021 through December 31, 2021.

Whether 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.

As of September 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.

2 unchanged sentences

In addition, following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, in each case as described in the Indentures, we will increase the conversion rate for a holder of the Notes who elects to convert its Notes in connection with such a corporate event or during the related redemption period in certain circumstances.

We may not redeem the 2023 Notes, the 2025 Notes or the 2027 Notes prior to August 6, 2021, May 6, 2023 and March 20, 2024 (Redemption Dates), respectively.

The 2023 Notes, the 2025 Notes and the 2027 Notes are redeemable after August 6, 2021, May 6, 2023 and March 20, 2024 (Redemption Dates), respectively.

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.

On September 16, 2021, we issued a redemption notice for all $ 45.4 million aggregate principal amount outstanding of the 2023 Notes.

Pursuant to the redemption notice, on the redemption date of November 30, 2021, we will redeem any 2023 Notes that have not been converted prior to such date at a redemption price in cash equal to 100 % of the principal amount of such notes, plus accrued and unpaid interest, if any, from August 1, 2021 to, but not including, the redemption date.

We have classified the 2023 Notes as a current liability on our consolidated balance sheet as of September 30, 2021 as we expect to redeem these 2023 Notes on the November 30, 2021 redemption date.

Partial Repurchase and Conversion of the 2023 Notes

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Post Adoption of ASU 2020-06

In accounting for the issuance of the 2027 Notes, the principal of $ 600.0 million less estimated debt issuance costs of $ 15.0 million was recorded as long-term debt on our consolidated balance sheet.

In accounting for the issuance of the 2027 Notes, the principal of $ 600.0 million less debt issuance costs of $ 15.0 million was recorded as long-term debt on our consolidated balance sheet.

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 June 30, 2021 and December 31, 2020 was as follows (in thousands):

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

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

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

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

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

Three Months Ended June 30,

Three Months Ended September 30,

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

3 unchanged sentences

Total interest expense $ 221 $ 1,654 $ 995 $ 2,870 $ 3,605 $ 3,575 $ 7,180

Six Months Ended June 30,

Nine Months Ended September 30,

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

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The initial cap prices for the 2023 Capped Calls, the 2025 Capped Calls and the 2027 Capped Calls are $ 63.98 , $ 93.88 and $ 159.04 per share, respectively, subject to certain adjustments.

The 2023 Capped Calls, the 2025 Capped Calls and the 2027 Capped Calls are expected to offset potential dilution to our common stock upon conversion of the respective 2023 Notes, the 2025 Notes or the 2027 Notes, with such offset subject to a cap based on the cap price.

The 2025 Capped Calls and the 2027 Capped Calls are expected to offset potential dilution to our common stock upon conversion of the respective 2025 Notes or the 2027 Notes, with such offset subject to a cap based on the cap price.

The 2023 Capped Calls are not expected to be redeemed with the redemption of the 2023 Notes.

For accounting purposes, the 2023 Capped Calls, the 2025 Capped Calls and the 2027 Capped Calls are separate transactions, and not part of the terms of the 2023 Notes, the 2025 Notes and the 2027 Notes.

9 unchanged sentences

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

As of June 30, 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.

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

As of September 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 9.3 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 6.0 years.

1 unchanged sentence

The components of lease expense were as follows:

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

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

2021 2020 2021 2020

5 unchanged sentences

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

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

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

Weighted average remaining lease term (in years) - operating leases 7.3 7.9

1 unchanged sentence

Supplemental cash flow information related to leases was as follows:

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

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

2021 2020 2021 2020

2 unchanged sentences

ROU assets obtained in exchange for new lease obligations $ 1,290 $ 456 $ 2,351 $ 16,053

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

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

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

2021 (for the remaining three months) $ 2,974

2026 and thereafter 41,137

3 unchanged sentences

Stock-Based Compensation Expense

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 June 30, Six Months Ended June 30,

Stock-based compensation expense for RSUs, performance-based 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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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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 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.

During the three months ended September 30, 2021 and 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $ 1.3 million and $ 0.5 million, respectively, and during the nine months ended September 30, 2021 and 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $ 3.6 million and $ 1.5 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of September 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.

The number of shares underlying such awards is determined by dividing the dollar value of the actual bonus award payment by the closing price per share of our common stock on the date of grant.

During the three months ended September 30, 2021, we accelerated the vesting of a stock award.

The accelerated vesting was deemed a modification of the original award resulting in $ 6.9 million of incremental stock-based compensation expense.

In the three and nine months ended September 30, 2021, we recorded $ 3.1 million of stock-based compensation expense related to this modification.

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

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

RSUs and PSUs activity during the nine months ended September 30, 2021 was as follows:

Shares Weighted-Average

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Forfeited ( 316,711 ) 63.22

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.

Unvested balance as of September 30, 2021 3,240,668 $ 70.60

As of September 30, 2021, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 212.3 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 2.6 years.

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

Stock option activity during the nine months ended September 30, 2021 was as follows:

Shares Weighted

6 unchanged sentences

Forfeited/cancelled ( 300 ) 7.73

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.

Outstanding as of September 30, 2021 1,577,125 $ 10.20 3.4 $ 162,154

Vested and exercisable as of September 30, 2021 1,564,768 $ 10.10 3.4 $ 161,050

As of September 30, 2021, the unrecognized compensation expense related to our unvested stock options was $ 0.1 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 0.4 years.

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

The total fair value of stock options vested in the nine months ended September 30, 2021 was $ 0.6 million.

(d) Employee Stock Purchase Plan

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On March 15, 2021, we issued 147,837 shares of common stock to employees, with purchase prices of $ 28.39 or $ 52.60 per share, for aggregate proceeds of $ 4.5 million.

On September 15, 2021, we issued 73,676 shares of common stock to employees, with purchase prices of $ 52.60 or $ 67.59 per share, for aggregate proceeds of $ 4.8 million.

Net Loss per Share

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

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

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

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

2021 2020 2021 2020

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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 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.

For the three and nine months ended September 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 and Six Months Ended June 30,

Three and Nine Months Ended September 30,

Options to purchase common stock 1,577,125 2,066,749

Unvested restricted stock units 3,240,668 3,261,623

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

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

Common stock issued to IntSights founders 206,608 —

Shares to be issued under ESPP 10,084 23,805

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

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

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

2021 2020 2021 2020

4 unchanged sentences

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

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

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

(in thousands)

2 unchanged sentences

Total $ 49,034 $ 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