What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-26 · 311 added, 324 removed, 830 unchanged (43% of the section changed)

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Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( KPMG LLP , Boston, MA , Auditor Firm:

Consolidated Balance Sheets

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Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842).

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for convertible notes as of January 1, 2021 due to the adoption of Accounting Standards Update 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).

Basis for Opinions

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Short-term investments 58,850 138,839

Accounts receivable, net of allowance for doubtful accounts of $ 3,251 and $ 1,829 at December 31, 2020 and 2019, respectively

Accounts receivable, net of allowance for credit losses of $ 1,978 and $ 3,251 at December 31, 2021 and 2020, respectively

146,094 111,599

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Total assets $ 1,296,011 $ 913,122

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

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Total liabilities 1,422,006 841,586

Stockholders’ equity:

Stockholders’ equity (deficit):

Preferred stock, $ 0.01 par value per share;

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Additional paid-in-capital 615,032 692,603

Accumulated other comprehensive loss 454 213

Accumulated other comprehensive (loss) income ( 812 ) 454

Accumulated deficit ( 736,028 ) ( 617,279 )

Total stockholders’ equity 71,536 83,168

Total liabilities and stockholders’ equity $ 913,122 $ 664,913

Total stockholders’ equity (deficit) ( 125,995 ) 71,536

Total liabilities and stockholders’ equity (deficit) $ 1,296,011 $ 913,122

See accompanying notes to consolidated financial statements.

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Change in fair value of investments ( 86 ) ( 170 ) 244

Adjustment for net losses realized and included in net loss ( 21 ) — —

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

Total change in unrealized gains (losses) on investments ( 86 ) ( 191 ) 244

Change in unrealized gains on cash flow hedges 432 — —

Total other comprehensive income 241 244 8

Change in fair value of cash flow hedges ( 1,043 ) 432 —

Adjustment for net gains realized and included in net loss ( 137 ) — —

Total change in unrealized (gains)/losses on cash flow hedges ( 1,180 ) 432 —

Total other comprehensive (loss) income ( 1,266 ) 241 244

Comprehensive loss $ ( 147,600 ) $ ( 98,608 ) $ ( 53,601 )

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

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stockholders’

equity (deficit)

Shares Amount Shares Amount

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Stock-based compensation expense — — — — 40,664 — — 40,664

Cumulative-effect adjustment for the adoption of ASC 606

— — — — — — 25,873 25,873

Equity component of convertible senior notes, net — — — — 52,194 — — 52,194

Purchase of capped calls related to convertible senior notes — — — — ( 26,910 ) — — ( 26,910 )

Issuance of common stock related to secondary offering 1,500 15 — — 30,892 — — 30,907

Issuance of common stock under employee stock purchase plan 185 2 — — 5,519 — — 5,521

Vesting of restricted stock units 1,292 13 — — ( 13 ) — — —

Forfeiture of restricted stock awards ( 3 ) — — — — — — —

Shares withheld for employee taxes ( 134 ) ( 2 ) — — ( 6,950 ) — — ( 6,952 )

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Issuance of common stock upon exercise of stock options 784 8 — — 7,811 — — 7,819

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

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

Other comprehensive income — — — — — 241 — 241

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Issuance of common stock upon exercise of stock options 521 6 — — 4,300 — — 4,306

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

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

Other comprehensive income — — — — — 241 — 241

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

Issuance of common stock in connection with redemption, repurchase and conversion of convertible senior notes 2,897 29 — — ( 3,094 ) — — ( 3,065 )

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

Issuance of common stock related to acquisition 341 4 — — ( 4 ) — — —

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

Other comprehensive loss — — — — — ( 1,266 ) — ( 1,266 )

Net loss — — — — — — ( 146,334 ) ( 146,334 )

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Stock-based compensation expense 102,579 63,888 40,664

Provision for doubtful accounts 1,997 2,241 740

Deferred income taxes 466 737 ( 645 )

Foreign currency re-measurement loss 263 255 757

Other non-cash items 168 ( 1,889 ) ( 506 )

Induced conversion expense 2,740 — —

Other 1,920 2,428 607

Changes in assets and liabilities:

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Sales and maturities of investments 147,998 166,524 214,980

Other investments ( 3,000 ) — —

Net cash (used in) provided by investing activities ( 325,378 ) ( 156,287 ) 16,811

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes, net of issuance costs of $ 7,201 and $ 6,879 for the years ended December 31, 2020 and 2018, respectively

Proceeds from issuance of convertible senior notes, net of issuance costs of $ 14,976 and $ 7,201 for the year ended December 31, 2021 and 2020, respectively

585,024 222,799 —

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

Proceeds from follow-on public offering, net of offering costs of $ 608

Deferred business acquisition payment ( 150 ) — —

Payment of debt issuance costs ( 300 ) ( 440 ) —

Payments for redemption, repurchase and conversion of convertible senior notes ( 230,000 ) — —

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

Taxes paid related to net share settlement of equity awards ( 16,044 ) ( 8,921 ) ( 6,952 )

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Net cash provided by financing activities 264,133 200,925 8,788

Effect of exchange rate changes on cash and cash equivalents 679 ( 331 ) ( 694 )

Net increase in cash and cash equivalents 50,204 23,848 47,803

Cash and cash equivalents, beginning of period 123,413 99,565 51,762

Cash and cash equivalents, end of period $ 173,617 $ 123,413 $ 99,565

Effect of exchange rate changes on cash ,cash equivalents and restricted cash ( 1,272 ) 679 ( 331 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 8,600 ) 50,204 23,848

Cash, cash equivalents and restricted cash, beginning of period 173,617 123,413 99,565

Cash, cash equivalents and restricted cash, end of period $ 165,017 $ 173,617 $ 123,413

Supplemental cash flow information:

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Leasehold improvements acquired through tenant improvement allowance $ — $ — $ 14,016

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents $ 164,582 $ 173,617 $ 123,413

Restricted cash included in prepaid expenses and other assets 435 — —

Total cash, cash equivalents and restricted cash $ 165,017 $ 173,617 $ 123,413

See accompanying notes to consolidated financial statements.

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(1) Nature of the Business

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

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.

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The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

The management estimates include, but are not limited to the determination of the estimated economic life of perpetual licenses for revenue recognition, the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition and fulfillment costs, the useful lives and recoverability of long-lived assets, the valuation of allowance for doubtful accounts, the valuation of stock-based compensation, the fair value of assets acquired and liabilities assumed in business combinations, the incremental borrowing rate for operating leases, the fair value of the debt component of convertible senior notes and the valuation for deferred tax assets.

The management estimates include, but are not limited to the determination of the estimated economic life of perpetual licenses for revenue recognition, the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition and fulfillment costs, the useful lives and recoverability of long-lived assets, the valuation for credit losses, the valuation of stock-based compensation, the fair value of assets acquired and liabilities assumed in business combinations, the incremental borrowing rate for operating leases and the valuation for deferred tax assets.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable.

Actual results could differ from those estimates.

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

Our operational and financial performance for the year ended December 31, 2020 was negatively impacted by the slowdown in activity associated with the COVID-19 pandemic and we expect that to continue going forward.

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 year ended December 31, 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.

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Actual results could differ from those estimates and any such differences may be material to our financial statements.

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

For the year ended December 31, 2020, we have combined products and maintenance and support revenue as products revenue on our consolidated statement of operations as our customers continue to migrate from our on-premise products to our Insight Platform.

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

Prior periods have been adjusted to conform with this presentation.

(d) Revenue Recognition

We generate revenue primarily from:

(1) subscription revenue from the sale of cloud-based subscriptions, managed services and content subscriptions associated with our software licenses, (2) term and perpetual software licenses, (3) maintenance and support associated with the purchase of software licenses and (4) professional services from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services.

(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.

We recognize revenue when a customer obtains control of promised products or services.

The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these products or services.

To achieve the core principle of this standard, we apply the following five steps:

To achieve the core principle of this standard, we apply the following four steps:

1) Identify the contract with a customer

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Revenue for sales through our channel network is recorded net of any distributor or reseller margin.

4) Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (“SSP”).

The majority of our contracts with customers contain multiple performance obligations.

For these contracts, we account for individual performance obligations separately if they are distinct.

The transaction price is allocated to the separate performance obligations on a relative standalone selling price (SSP) basis.

We determine SSP of our products and services based on our overall pricing objectives using all information reasonably available to us, taking into consideration market conditions and other factors, including the geographic locations of our customers, negotiated discounts from price lists and selling method (i.e., partner or direct).

When available, we use directly observable stand-alone transactions to determine SSP.

When not regularly sold on a stand-alone basis, we estimate SSP for our products and services utilizing historical sales data, including discounts from list price.

The historical data is aggregated and analyzed by geographic location and selling method to establish a median or average price.

Once SSP is established it is applied consistently to all transactions including that product or service utilizing a portfolio approach.

4) Recognize revenue when or as we satisfy a performance obligation

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Revenue is recognized when control of the products or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those products or services.

Subscription Revenue

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

Subscriptions

Subscriptions consists of revenue from our cloud-based subscription, term software licenses, managed services offerings, 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.

These arrangements do not provide the customer with the right to take possession of our software operating on our cloud platform at any time.

These arrangements do not provide the customer with the right to take possession of our software operating on our cloud

platform at any time.

Instead, customers are granted continuous access to our cloud platform over the contractual period.

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Our managed services offerings generally have annual or multi-year contractual terms which are billed in advance of the annual subscription period and are non-cancellable.

• For our term software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, we recognize the license revenue over the contractual term of the content subscription.

For our term software licenses which are not dependent on the continued delivery of content subscriptions, the license is considered distinct from the maintenance and support, and we therefore recognize revenue attributable to the license at the time of delivery.

• Content subscriptions and our maintenance and support services are sold with our perpetual and term software licenses.

Revenue related to our content subscriptions associated with our software licenses is recognized ratably over the contractual period.

Term and Perpetual Software Licenses

Maintenance and support services are distinct from the perpetual and term software license and revenue attributable to maintenance and support services is recognized ratably over the contractual period.

Perpetual Software Licenses

For our perpetual software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, the content subscription renewal options result in a material right with respect to the perpetual software license.

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We estimated this period of benefit by taking into consideration several factors, including the terms and conditions of our customer contracts and renewals and the expected useful life of our technology.

For our term software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, we recognize the license revenue over the contractual term of the arrangement as a material right does not exist.

For our term and perpetual software licenses which are not dependent on the continued delivery of content subscriptions, the license is considered distinct from the maintenance and support, and we therefore recognize revenue attributable to the license at the time of delivery.

Maintenance and Support

Maintenance and support services are sold with our perpetual and term software licenses.

As maintenance and support services are distinct from the perpetual and term software license, revenue attributable to maintenance and support services is recognized ratably over the contractual period.

Professional Services

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For the majority of these arrangements, 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

The majority of our contracts with customers contain multiple performance obligations.

For these contracts, we account for individual performance obligations separately if they are distinct.

The transaction price is allocated to the separate performance obligations on a relative standalone selling price (SSP) basis.

When available, we use directly observable stand-alone transactions to determine SSP.

When not regularly sold on a stand-alone basis, we estimate SSP for our products and services utilizing historical sales

data, including discounts from list price.

The historical data is aggregated and analyzed by geographic location and selling method to establish a median or average price.

Once SSP is established it is applied consistently to all transactions including that product or service utilizing a portfolio approach.

Contract Balances

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

As of December 31, 2020 and 2019, unbilled receivables of $ 1.2 million and $ 0.8 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

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

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

(e) Cash and Cash Equivalents

(d) Cash and Cash Equivalents

We consider all highly liquid instruments with original maturities of three months or less at the date of purchase to be cash equivalents.

Cash and cash equivalents are recorded at cost, which approximates fair value.

(e) Restricted Cash

As of December 31, 2021, we had $ 0.4 million of restricted cash on our balance sheet in other assets, which is related to collateral for an office space lease.

(f) Investments

Our investments consist of commercial paper, corporate bonds, agency bonds, U.S.

Government agencies and asset-backed securities.

Our investments consist of commercial paper, corporate bonds, U.S.

Government agencies and agency bonds.

We classify our investments as available-for-sale and record these investments at fair value.

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We do not invest in any securities with contractual maturities greater than 24 months.

(g) Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts for any potential uncollectible amounts.

We maintain an allowance for doubtful accounts for estimated credit losses resulting from the inability of our customers to make required payments.

(g) Accounts Receivable and Allowance for Credit Losses

Accounts receivable are recorded at the invoiced amount, net of allowances for credit losses for any potential uncollectible amounts.

We maintain an allowance for estimated credit losses resulting from the inability of our customers to make required payments.

Management regularly reviews the adequacy of the allowance based upon historical collection experience, the age of the receivable, an evaluation of each customer's expected ability to pay and current and future economic and market conditions.

Accounts receivable are charged against the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered remote.

Additions to the allowance for doubtful accounts are recorded in general and administrative expense in the consolidated statement of operations.

Accounts receivable are charged against the allowance for credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

Additions to the allowance for credit losses are recorded in general and administrative expense in the consolidated statement of operations.

We do not have any off-balance sheet credit exposure related to our customers.

The following table displays the changes in our allowance for doubtful accounts:

(in thousands)

Balance at December 31, 2017 $ 1,478

Additions, net of recoveries 740

Less write-offs ( 594 )

Balance at December 31, 2018 1,624

Additions, net of recoveries 2,241

Less write-offs ( 2,036 )

Balance at December 31, 2019 1,829

Additions, net of recoveries 1,997

Less write-offs ( 575 )

Balance at December 31, 2020 $ 3,251

(h) Concentration of Credit Risk

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These costs are recorded as deferred contract acquisition costs on the consolidated balance sheets.

Costs to obtain a contract for a new customer, up-sell or cross-sell are amortized on a straight-line basis over an estimated period of benefit of five years as sales commissions on initial sales are not commensurate with sales commissions on contract renewals.

Costs to obtain a contract for a new customer, upsell or cross-sell are

amortized on a straight-line basis over an estimated period of benefit of five years as sales commissions on initial sales are not commensurate with sales commissions on contract renewals.

We determined the estimated period of benefit by taking into consideration the contractual term and expected renewals of customer contracts, our technology and other factors, including the fact that commissions paid on renewals are not commensurate with commissions paid on initial sales transactions.

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These capitalized costs consist of internal compensation related costs and external direct costs.

Costs related to software developed for internal use are amortized over an useful life of 3 years.

Costs related to software developed for internal use are amortized over an estimated useful life of 3 years.

We capitalized $ 9.9 million, $ 6.1 million and $ 6.1 million of costs related to software developed for internal use in the years ended December 31, 2021, 2020 and 2019, respectively.

Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

We determine whether an arrangement is or contains a lease at inception based on the unique facts and circumstances present.

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Operating leases are recognized on the consolidated balance sheet as right-of-use (ROU) assets, lease liabilities and, if applicable, long-term lease liabilities.

Operating lease ROU assets represent our right to use an underlying asset for the lease term.

Operating lease liabilities represent our obligation to make payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at the present value of future lease payments at the lease commencement date.

The implicit rate within our operating leases are generally not determinable and therefore we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments.

The determination of our incremental borrowing rate requires judgment.

determination of our incremental borrowing rate requires judgment.

We determine our incremental borrowing rate for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease.

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(n) Business Combinations

We account for business combinations by recognizing the fair value of acquired assets and liabilities.

The excess of the purchase price for acquisitions over the fair value of the net assets acquired, including other intangible assets, is recorded as goodwill.

Determining the fair value of assets and liabilities assumed requires management to make significant estimates and assumptions, especially with respect to intangible assets.

While we use our best estimates and assumptions as part of the purchase price allocation to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement.

We allocate the fair value of purchase consideration to the tangible asset acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair value these identifiable assets and liabilities is recorded as goodwill.

Determining the fair value of the tangible assets acquired, liabilities assumed and intangible assets requires management to make significant estimates and assumptions, especially with respect to intangible assets.

Significant estimates in valuing certain intangible assets include, but are not limited to, cash flows that an asset is expected to generate in the future, technology migration curves, discount rates, and useful lives.

While we use our best estimates and judgements, our estimates are inherently uncertain and subject to refinement.

During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these assets acquired and liabilities assumed with the corresponding offset to goodwill.

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Foreign currency transaction and re-measurement gains and losses are included in other income (expense), net.

In 2020, 2019 and 2018, foreign currency transactional gains (losses) and foreign currency re-measurement gains (losses) were not material.

In 2021, foreign currency transaction losses and foreign currency re-measurement losses were $ 0.3 million and $ 1.7 million,

respectively.

In 2020 and 2019, foreign currency transaction gains (losses) and foreign currency re-measurement gains (losses) were not material.

(q) Derivative and Hedging Activities

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

Our cash flow hedges have contractual maturities of eighteen months or less, and as of December 31, 2021, outstanding forward contracts had a total notional value of $ 34.7 million.

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

During the year ended December 31, 2021, all cash flow hedges were considered effective.

Refer to Note 6, Fair Value Measurements, for the fair values of our outstanding derivative instruments.

(r) Stock-Based Compensation

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We calculate basic net loss per share by dividing our net loss by the weighted-average number of common shares outstanding during the period.

Diluted net loss per share is computed by giving effect to all potentially dilutive securities, including stock options, RSUs, PSUs, the impact of our ESPP and the impact of the conversion spread of our convertible senior notes (Notes).

Diluted net loss per share is computed by giving effect to all potentially dilutive securities, including stock options, RSUs, PSUs, the impact of our ESPP, common shares issued in connection with acquisitions and the impact of our convertible senior notes (Notes).

We intend to settle any conversion of our Notes in cash, shares, or a combination thereof.

As a result of our adoption of ASU 2020-06 on January 1, 2021, the dilutive impact of the Notes for our calculation of diluted net loss per share is considered using the if-converted method.

For periods prior to our January 1, 2021 adoption of ASU 2020-06, we considered the impact of the Notes on our diluted net 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.

Basic and diluted net loss per share was the same for all periods presented as the inclusion of all potentially dilutive securities outstanding was anti-dilutive.

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Accounting Pronouncements Recently Adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

We adopted this standard on January 1, 2020 using the prospective adoption approach.

The impact to our consolidated financial statements as a result of the adoption was not material.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , which eliminates, modifies and adds disclosure requirements for fair value measurements.

In August 2020, the 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), which simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

We early adopted this standard on January 1, 2021 under the modified retrospective basis.

Refer to Note 10, Debt, for further details of the impact the adoption of this standard had on our consolidated balance sheet.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

This standard is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities.

We adopted this standard on January 1, 2021 and there was no impact to our consolidated financial statements as a result of the adoption.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments , which introduced a new methodology for accounting for credit losses on financial instruments.

The standard establishes a new forward looking expected loss model that requires entities to estimate current expected credit losses on accounts receivable and other financial instruments by using all practical and relevant information.

We adopted this standard in the first quarter of 2020.

The impact to our consolidated financial statements as a result of the adoption was not material.

Accounting Pronouncements Not Yet Effective

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

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

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

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

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

We plan to adopt this standard in the first quarter of 2021 under the modified retrospective basis.

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.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which clarified the accounting for acquired revenue contracts with customers in a business combination.

ASU 2021-08 requires acquirers to measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606.

As a result, it is generally expected that an acquirer will recognize and measure contract assets and liabilities in a manner consistent with how they were recognized by the acquiree in its preacquisition financial statements.

This standard is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted.

We plan to early adopt this standard on January 1, 2022.

This guidance will be applied prospectively to all business combinations that occur on or after January 1, 2022.

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

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The impact to our consolidated financial statements from the adoption of this standard is expected to be immaterial.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The new standard will be effective for us in the first quarter of 2021.

Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

(3) Revenue from Contracts with Customers

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(in thousands)

Subscription revenue $ 304,737 $ 220,589 $ 137,442

Term and perpetual software licenses 45,959 38,931 28,200

Maintenance and support 31,567 36,778 42,223

Subscriptions $ 492,608 $ 371,975 $ 284,956

Perpetual software licenses 7,658 10,288 11,342

Professional services 34,561 28,564 29,050

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(in thousands)

Subscription revenue $ 242,115 $ 64,433

Term and perpetual software licenses 33,041 12,851

Maintenance and support 18,011 4,222

The amounts presented in the table above primarily consist of fixed fees which are typically recognized ratably as the performance obligation is satisfied.

As of December 31, 2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied associated with professional services was $ 15.3 million.

We will recognize this revenue as the professional services are completed, which is expected to occur within the next 12 months or less.

Subscriptions $ 399,209 $ 128,290

Perpetual software licenses 3,693 585

Professional services 15,828 1,877

Total $ 418,730 $ 130,752

(4) Business Combinations

DivvyCloud Corporation

On May 1, 2020, we acquired Divvy Cloud Corporation (DivvyCloud), a Cloud Security Posture Management (CSPM) company, for a purchase price with an aggregate fair value of $ 137.8 million.

The purchase consideration consisted of $ 130.8 million in cash paid at closing, $ 7.4 million in deferred cash payments and $ 0.1 million in working capital and other purchase price adjustments.

The deferred cash payments will be held by us to satisfy indemnification obligations and certain post-closing purchase price adjustments.

The deferred cash payments for post-closing purchase price adjustments was payable three months from the acquisition date in the amount of $ 0.2 million and the remaining $ 7.2 million is payable on the fifteenth month anniversary of the acquisition date.

We have determined the fair value of the deferred cash payments was $ 6.9 million as of the acquisition date.

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

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

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

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

In the year ended December 31, 2020, we recorded $ 1.1 million of acquisition-related costs in general and administrative expense.

IntSights Cyber Intelligence Ltd.

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 year ended December 31, 2021, we recognized stock-based compensation expense related to such shares in the amount of $ 3.9 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):

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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 and cash equivalents 5,039

Cash, cash equivalents and restricted cash 13,194

Accounts receivable 6,197

Prepaid and other current assets 1,272

Operating lease right-of-use assets 1,261

Property and equipment, net 565

Other assets 268

Deferred revenue ( 4,779 )

Accounts payable and other current liabilities ( 9,069 )

Operating lease liabilities ( 1,261 )

Other liabilities ( 1,642 )

Deferred revenue ( 9,469 )

Deferred tax liabilities ( 6,858 )

Intangible assets 65,200

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Net purchase price $ 322,174

These preliminary amounts are subject to subsequent adjustment as we obtain additional information to finalize certain components of working capital and deferred income taxes.

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

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

These preliminary amounts are subject to subsequent adjustment as we obtain additional information to finalize certain components of working capital.

Following the acquisition, we granted to certain retained employees of DivvyCloud restricted stock units (RSUs) for an aggregate of 153,643 shares of our common stock, which will vest over three years subject to continued service.

In addition, we granted certain retained employees of DivvyCloud performance-based restricted stock units (PSUs) for an aggregate of 109,760 shares of our common stock, which will vest over a maximum of three years based upon achievement of certain performance conditions and continued service.

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

Our revenue and net loss attributable to the DivvyCloud business for the year ended December 31, 2020 was $ 6.3 million and $ 18.5 million, respectively.

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 year ended December 31, 2021, we recorded acquisition-related transaction costs of $ 5.9 million related to the acquisition of IntSights to general and administrative expense.

Our revenue and net loss attributable to the IntSights business in the year ended December 31, 2021 was $ 9.5 million and $ 23.0 million, respectively.

Pro Forma Financial Information

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

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.

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Net loss $ ( 162,462 ) $ ( 151,003 )

NetFort Technologies Limited

On April 1, 2019, we acquired NetFort Technologies Limited (NetFort), a provider of end-to-end network traffic visibility and analytics across cloud, virtual and physical platforms for a purchase price of $ 16.1 million.

The $ 16.1 million purchase price was funded with cash.

We expensed the related acquisition costs of $ 0.5 million in general and administrative expense.

Velocidex Enterprises Pty Ltd

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.

On January 28, 2021, we acquired Alcide.IO Ltd.

(Alcide), a leading provider of Kubernetes security, for a purchase consideration of $ 50.5 million, which was funded in cash.

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

Purchase price $ 50,538

Recognized amount of identifiable assets acquired and liabilities assumed:

Cash and cash equivalents 818

Other current assets 163

Deferred tax asset, long-term 1,655

Other assets 208

Accounts payable and other current liabilities ( 3,489 )

Intangible assets 10,400

Total identifiable net assets assumed 9,755

Goodwill 40,783

Total purchase price allocation $ 50,538

We identified developed technology as the sole acquired intangible asset.

The estimated fair value of the developed technology intangible asset was $ 10.4 million which was based on a valuation using the income approach.

The estimated useful life of the developed technology is 6 years.

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

We believe that the amount of goodwill reflects the expected synergistic benefits of being able to leverage the integration of the technology acquired with our existing product offerings and being able to successfully market and sell these new 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, 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 year ended December 31, 2021, we recorded $ 0.8 million of acquisition-related transaction costs related to the acquisition of Alcide to general and administrative expense.

In the year ended December 31, 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

On May 1, 2020, we acquired Divvy Cloud Corporation (DivvyCloud), a Cloud Security Posture Management (CSPM) company, for a purchase price with an aggregate fair value of $ 137.8 million.

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

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The goodwill was allocated to our one reporting unit.

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

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

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

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

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

tCell.io, Inc.

On October 15, 2018, we acquired tCell.io, Inc.

(tCell) for total cash consideration of $ 15.4 million.

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

NetFort Technologies Limited

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

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The goodwill was allocated to our one reporting unit.

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

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

(5) Investments

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(in thousands)

Government agencies $ 83,596 $ 3 $ ( 12 ) $ 83,587

Corporate bonds 24,162 31 ( 1 ) 24,192

Commercial paper $ 37,778 $ — $ — $ 37,778

Corporate bonds 32,059 — ( 32 ) 32,027

Government agencies 22,396 — ( 31 ) 22,365

Agency bonds 749 — ( 1 ) 748

Asset-backed securities 2,419 — — 2,419

Total $ 92,982 $ — $ ( 64 ) $ 92,918

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

As of December 31, 2020 and 2019, our available-for-sale investments had maturities ranging from 1 to 16 months and from 3 months to 2 years, respectively .

As of December 31, 2021 and 2020, our available-for-sale investments had maturities ranging from 2 to 23 months.

For all of our investments for which the amortized cost basis was greater than the fair value at December 31, 2021 and 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 recovery.

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Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.

We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.

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

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Money market funds $ 86,835 $ — $ — $ 86,835

Government agencies 83,587 — — 83,587

Commercial paper — 37,778 — 37,778

Corporate bonds — 32,027 — 32,027

Government agencies — 22,365 — 22,365

Agency bonds — 748 — 748

Asset-backed securities — 2,419 — 2,419

Foreign currency forward contracts designated as cash flow hedges — 432 — 432

Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets) — 73 — 73

Total assets $ 86,835 $ 92,991 $ — $ 179,826

Foreign currency forward contracts designated as cash flow hedges (other current liabilities) $ — $ 843 $ — $ 843

Total liabilities $ — $ 843 $ — $ 843

As of December 31, 2020

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Asset-backed securities — 2,419 — 2,419

Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets) — 432 — 432

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

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Property and equipment, net $ 50,225 $ 53,114

In 2020, we disposed of $ 3.6 million, $ 0.7 million and $ 0.4 million of computer equipment and software, leasehold improvements and furniture and fixtures, respectively, of fully depreciated assets which were no longer in use.

We recorded depreciation expense of $ 12.3 million, $ 11.0 million and $ 9.0 million in 2021, 2020 and 2019, respectively.

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Balance at December 31, 2019 $ 97,866

NetFort acquisition 9,446

Balance at December 31, 2019 $ 97,866

DivvyCloud acquisition 115,735

Balance at December 31, 2020 $ 213,601

Alcide acquisition 40,783

IntSights acquisition 260,874

Balance at December 31, 2021 $ 515,258

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

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Trade names 3.1 2,619 ( 1,094 ) 1,525 1,419 ( 639 ) 780

Non-compete agreements 2.0 40 ( 40 ) — 40 ( 40 ) —

Total acquired intangible assets 137,214 ( 43,722 ) 93,492 58,614 ( 26,417 ) 32,197

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Intangible assets are expensed on a straight-line basis over the useful life of the asset.

We recorded amortization expense of $ 11.6 million, $ 7.5 million and $ 4.6 million in 2020, 2019 and 2018, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of December 31, 2020 is as follows (in thousands):

Amortization expense was $ 21.2 million, $ 11.6 million and $ 7.5 million in 2021, 2020 and 2019, respectively.

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

2022 $ 25,943

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Ending balance $ 87,165 $ 64,639

(10) Derivatives and Hedging Activities

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

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

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

During the year ended December 31, 2020, all cash flow hedges were considered effective.

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

Consolidated Balance Sheet Location As of December 31, 2020

Derivative assets:

Foreign currency forward contracts designated as cash flow hedges Prepaid expenses and other current assets $ 432

Total derivative assets $ 432

During the year ended December 31, 2020, amounts reclassified from accumulated other comprehensive income (loss) on our consolidated balance sheet to the financial statement line item associated with the underlying hedged transaction on our consolidated statement of operations for our cash flow hedges were not material.

Convertible Senior Notes

In August 2018, we issued $ 230.0 million aggregate principal amount of convertible senior notes due August 1, 2023 (the 2023 Notes) and in May 2020, we issued $ 230.0 million aggregate principal amount of convertible senior notes due May 1, 2025 (the 2025 Notes) (collectively, the Notes).

The 2023 Notes bear interest at a fixed rate of 1.25 % per annum, payable semi-annually in arrears on February 1 and August 1 of each year.

The 2025 Notes bear interest at a fixed rate of 2.25 % per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2020.

The 2023 Notes and the 2025 Notes mature on August 1, 2023 and May 1, 2025, respectively unless earlier converted, redeemed or repurchased.

The 2023 Notes and 2025 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by an indenture between the Company, as issuer, and U.S.

Bank National Association, as trustee (the 2023 Indenture and the 2025 Indenture, respectively).

The total net proceeds from the 2023 Notes and the 2025 Notes offerings, after deducting initial purchase discounts and estimated debt issuance costs, were $ 223.1 million and $ 222.8 million, respectively.

Terms of the 2023 Notes and the 2025 Notes

In August 2018, we issued $ 230.0 million aggregate principal amount of convertible senior notes due August 1, 2023 (the 2023 Notes), in May 2020, we issued $ 230.0 million aggregate principal amount of convertible senior notes due May 1, 2025 (the 2025 Notes) and in March 2021, we issued $ 600.0 million aggregate principal amount of convertible senior notes due March 15, 2027 (the 2027 Notes) (collectively, the Notes).

Further details of the Notes are as follows:

Issuance Maturity Date Interest Rate First Interest Payment Date Effective Interest Rate Semi-Annual Interest Payment Dates Initial Conversion Rate per $1,000 Principal Initial Conversion Price Number of Shares (in millions)

2023 Notes August 1, 2023 1.25 % February 1, 2019 1.86 % February 1 and August 1 24.0460 $ 41.59 1.1

2025 Notes May 1, 2025 2.25 % November 1, 2020 2.88 % May 1 and November 1 16.3875 $ 61.02 3.8

2027 Notes March 15, 2027 0.25 % September 15, 2021 0.67 % March 15 and September 15 9.6734 $ 103.38 5.8

Terms of the Notes

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:

• during any calendar quarter commencing after the calendar quarter ending on December 31, 2018 for the 2023 Notes and September 30, 2020 for the 2025 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 (measurement period) in which the trading price (as defined in the Indenture) 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;

• 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;

• if we call any or all of the respective Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the respective redemption date;

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

During the three months ended December 31, 2020, the conversion feature of the 2023 Notes was triggered as the last reported price of our common stock was more than or equal to 130 % of the conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, and therefore the 2023 Notes are currently convertible, in whole or in part, at the option of the holders from January 1, 2021 through March 31, 2021.

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

As of December 31, 2021, the conversion features of 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 2025 Notes were convertible, in whole or in part, at the option of the holders from January 1, 2022 through March 31, 2022.

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.

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

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 December 31, 2021.

As of December 31, 2021, the 2027 Notes are not convertible at the option of the holder.

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

Initial Conversion Price per $1,000 Principal Initial Conversion Price Initial Number of Shares

2023 Notes 24.0460 $ 41.59 5.5

2025 Notes 16.3875 $ 61.02 3.8

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

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in the manner and subject to the terms and conditions provided in the Indenture.

The holders may convert the 2025 Notes and the 2027 Notes at any time on or after 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.

If we undergo a fundamental change (as set forth in the Indentures) at any time prior to the maturity date, holders of the Notes will have the right, at their option, to require us to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

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 or 2025 Notes prior to August 6, 2021 and May 6, 2023 (Redemption Dates), respectively.

On or after the respective Redemption Dates, we may redeem for cash all or any portion of the 2023 Notes or 2025 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 or 2025 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Accounting for the 2023 Notes and the 2025 Notes

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

The 2025 Notes and the 2027 Notes are redeemable after 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 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 2025 Notes or the 2027 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

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).

The 2023 Notes Repurchase Transaction was accounted for as an induced conversion in accordance with Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20) .

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.

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.

Redemption of the 2023 Notes

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

Pursuant to the redemption notice, on November 30, 2021 we paid $ 43.4 million in cash and issued 697,262 shares of our common stock to the holders of the 2023 Notes who submitted conversion notices, and the remaining $ 2.0 million of 2023 Notes were redeemed in cash, plus accrued and unpaid interest.

Accounting for the Notes

Prior to the Adoption of ASU 2020-06

Prior to our January 1, 2021 adoption of ASU 2020-06, the 2023 Notes and the 2025 Notes were separated into liability and equity components.

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

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

The equity components were recorded as an increase to additional paid-in capital and are not remeasured as long as they continue to meet the conditions for equity classification.

The excess of

the principal amount of the 2023 Notes and the 2025 Notes over their respective carrying amount of the liability component, or debt discount, are amortized to interest expense using the effective interest method over the contractual terms of the respective Notes.

In accounting for the debt issuance costs of $ 6.9 million and $ 7.2 million related to the 2023 Notes and the 2025 Notes, respectively, we allocated the total amount incurred to the liability and equity components of the 2023 Notes and 2025 Notes based on their relative values.

Issuance costs attributable to the liability component were $ 5.3 million and $ 5.7 million, for the 2023 Notes and the 2025 Notes, respectively, and will be amortized to interest expense using the effective interest method over the contractual term of the 2023 Notes and 2025 Notes, respectively.

Issuance costs attributable to the equity component of $ 1.6 million and $ 1.5 million for the 2023 Notes and the 2025 Notes, respectively, were netted with the equity component in additional paid-in capital.

The effective interest rates for the 2023 Notes and the 2025 Notes were 7.36 % and 7.85 %, respectively.

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

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

The equity components were recorded as an increase to additional paid-in capital and were not remeasured as long as they continued to meet the conditions for equity classification.

The excess of the principal amount of the 2023 Notes and the 2025 Notes over their respective carrying amount of the liability component, or debt discount, was amortized to interest expense using the effective interest method over the contractual terms of the respective convertible senior notes.

In addition, prior to the adoption of ASU 2020-06, the debt issuance costs of $ 6.9 million and $ 7.2 million related to the 2023 Notes and the 2025 Notes, respectively, were allocated to the liability and equity components of the 2023 Notes and 2025 Notes based on their relative values.

Debt issuance costs attributable to the liability component were $ 5.3 million and $ 5.7 million, for the 2023 Notes and the 2025 Notes, respectively, and were amortized to interest expense using the effective interest method over the contractual term of the 2023 Notes and 2025 Notes, respectively.

Debt issuance costs attributable to the equity component of $ 1.6 million and $ 1.5 million for the 2023 Notes and the 2025 Notes, respectively, were netted with the equity component in additional paid-in capital.

Impact of the Adoption of ASU 2020-06

On January 1, 2021, we early adopted ASU 2020-06 on a modified retrospective basis.

Under ASU 2020-06, we no longer separate the convertible senior notes into liability and equity components.

We recognized the cumulative effect of initially applying this new standard as of January 1, 2021.

Comparative prior year periods were not adjusted.

As a result of applying the modified retrospective method to adopt this standard, the following adjustments were made to the consolidated balance sheet as of January 1, 2021 (in thousands):

As Reported Adjustments Adjusted Under ASU 2020-06

December 31, 2020 Transfer Equity Component of the Debt to Liabilities Reverse Equity Component of Debt Issuance Costs Reverse Debt Discount Amortization Record Debt Issuance Costs Amortization Total January 1, 2021

Liabilities and Stockholders' Equity:

Convertible senior notes, net $ 378,586 $ 102,166 $ ( 3,140 ) $ ( 28,811 ) $ 1,226 $ 71,441 $ 450,027

Total liabilities $ 841,586 $ 102,166 $ ( 3,140 ) $ ( 28,811 ) $ 1,226 $ 71,441 $ 913,027

Stockholders' Equity:

Additional paid-in capital $ 692,603 $ ( 102,166 ) $ 3,140 $ — $ — $ ( 99,026 ) $ 593,577

Accumulated deficit $ ( 617,279 ) $ — $ — $ 28,811 $ ( 1,226 ) $ 27,585 $ ( 589,694 )

Total stockholders' equity $ 71,536 $ ( 102,166 ) $ 3,140 $ 28,811 $ ( 1,226 ) $ ( 71,441 ) $ 95

Total liabilities and stockholders' equity $ 913,122 $ — $ — $ — $ — $ — $ 913,122

Post Adoption of ASU 2020-06

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

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

2023 Notes 2025 Notes Total 2023 Notes

2025 Notes 2027 Notes Total 2023 Notes 2025 Notes Total

Principal $ 230,000 $ 600,000 $ 830,000 $ 230,000 $ 230,000 $ 460,000

Unamortized debt discount — — — ( 30,425 ) ( 42,930 ) ( 73,355 )

Unamortized issuance costs ( 3,009 ) ( 5,050 ) ( 8,059 ) ( 4,032 )

Net carrying amount $ 196,566 $ 182,020 $ 378,586 $ 185,200

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

2023 Notes 2025 Notes Total

Debt discount for conversion option $ 53,820 $ 48,346 $ 102,166

Issuance costs ( 1,626 ) ( 1,514 ) ( 3,140 )

Unamortized debt issuance costs ( 4,905 ) ( 13,032 ) ( 17,937 ) ( 3,009 ) ( 5,050 ) ( 8,059 )

Net carrying amount $ 225,095 $ 586,968 $ 812,063 $ 196,566 $ 182,020 $ 378,586

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

Year Ended December 31, 2020 Year Ended December 31, 2019

2023 Notes 2025 Notes Total 2023 Notes 2025 Notes Total

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

Year Ended December 31,

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

Contractual interest expense $ 950 $ 5,175 $ 1,164 $ 7,289 $ 2,875 $ 3,450 $ 6,325

Amortization of debt discount — — — — 10,342 5,417 15,759

Amortization of issuance costs 1,023 637 1,660 946 — 946

Amortization of debt issuance costs 498 1,384 1,948 3,830 1,023 637 1,660

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

Total interest expense $ 4,188 $ 6,559 $ 3,112 $ 13,859 $ 14,240 $ 9,504 $ 23,744

The future payments of the principal and contractual interest related to the Notes as of December 31, 2020 are as follows (in thousands):

Principal Interest Total

2021 $ — $ 8,050 $ 8,050

2022 — 8,050 8,050

2023 230,000 8,050 238,050

2024 — 5,175 5,175

2025 230,000 2,588 232,588

Total $ 460,000 $ 31,913 $ 491,913

In connection with the offering of the 2023 Notes and the 2025 Notes, we entered into privately negotiated capped call transactions with certain counterparties (the 2023 Capped Calls and 2025 Capped Calls).

The initial strike prices for the 2023 Capped Calls and the 2025 Capped Calls are $ 41.59 and $ 61.02 per share, respectively, subject to certain adjustments, which correspond to the initial conversion price of the 2023 Notes and the 2025 Notes.

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

certain adjustments.

In connection with the offering of the 2023 Notes, the 2025 Notes and the 2027 Notes, we entered into privately negotiated capped call transactions with certain counterparties (the 2023 Capped Calls, 2025 Capped Calls and 2027 Capped Calls).

The initial strike prices for the 2023 Capped Calls, the 2025 Capped Calls and the 2027 Capped Calls are $ 41.59 , $ 61.02 and $ 103.38 per share, respectively, subject to certain adjustments, which correspond to the initial conversion price of the 2023 Notes, the 2025 Notes and the 2027 Notes.

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

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

The 2023 Capped Calls and the 2025 Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives.

Accordingly, the cost of $ 26.9 million and $ 27.3 million, respectively, for the 2023 Capped Calls and 2025 Capped Calls was recorded as a reduction to additional paid-in capital.

The net impact to our stockholders' equity, included in additional paid-in capital, of the above components of the 2023 Notes and the 2025 Notes was as follows (in thousands):

2023 Notes 2025 Notes

Conversion option $ 53,820 $ 48,346

Purchase of capped calls ( 26,910 ) ( 27,255 )

Issuance costs ( 1,626 ) ( 1,514 )

Total $ 25,284 $ 19,577

The 2023 Capped Calls were not 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.

The 2023 Capped Calls, the 2025 Capped Calls and the 2027 Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives.

Accordingly, the cost of $ 26.9 million, $ 27.3 million and $ 76.0 million, respectively, for the 2023 Capped Calls, the 2025 Capped Calls and the 2027 Capped Calls was recorded as a reduction to additional paid-in capital at the time of each transaction.

Credit Agreement

On April 23, 2020, we entered into a Credit and Security Agreement (the Credit Agreement), with KeyBank National Association that provides for a $ 30.0 million revolving credit facility, with a letter of credit sublimit of $ 15.0 million and an accordion feature under which we can increase the credit facility to up to $ 70.0 million.

In April 2020, we entered into a Credit and Security Agreement (the Credit Agreement), with KeyBank National Association that provided for a $ 30.0 million revolving credit facility, with a letter of credit sublimit of $ 15.0 million and an accordion feature under which we could increase the credit facility to up to $ 70.0 million.

In May 2020, we utilized the accordion feature to increase the credit facility to $ 50.0 million.

In December 2021, we entered into an Amendment Agreement (the Amendment) in respect of our Credit and Security Agreement (as amended, the Credit Agreement), with KeyBank National Association, to, among other things, increase the credit facility from $ 50.0 million to $ 100.0 million and extend the maturity date to December 22, 2024.

The Credit Agreement provides for a $ 100.0 million revolving credit facility, with a letter of credit sublimit of $ 15.0 million, and an accordion feature under which we can increase the credit facility to up to $ 150.0 million.

We incurred fees of $ 0.4 million in connection with entering into the Credit Agreement.

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The commitment fee of 0.2 % per annum on the unused portion of the credit facility is expensed as incurred and included within interest expense on the consolidated statement of operations.

The Credit Agreement matures on April 23, 2023 and contains certain financial covenants including a requirement that we maintain specified minimum recurring revenue and liquidity amounts.

In May 2020, we utilized the accordion feature to increase the credit facility to $ 50.0 million.

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.

The Credit Agreement contains certain financial covenants including a requirement that we maintain specified minimum recurring revenue and liquidity amounts.

The borrowings under the Credit Agreement bear interest, at our option, at a rate equal to either (i) term SOFR plus a credit spread adjustment of 0.10 % per annum plus a margin of 2.50 % per annum or (ii) the alternate base rate (subject to a floor), plus an applicable margin equal to 0 % per annum.

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

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2022 $ 15,518

Thereafter 41,958

2027 and thereafter 44,112

Total lease payments $ 126,021

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The 2015 Plan also provides that (i) any shares subject to awards granted under the 2011 Plan that would have otherwise returned to the 2011 Plan (such as upon the expiration or termination of a stock award prior to vesting) will be added to, and available for issuance under, the 2015 Plan and (ii) the number of shares reserved and available for issuance under the 2015 Plan automatically increases each January 1, beginning on January 1, 2016, by 4 % of the outstanding number of shares of our common stock on the immediately preceding December 31 (known as the “evergreen” provision) or such lesser number of shares as determined by our board of directors.

Additionally, on October 8, 2015, our board

of directors amended, effective as of the acquisition of Logentries, the 2015 Plan to reserve an additional 1,500,000 shares of our common stock for issuance of inducement awards.

In February 2020, March 2019, March 2018, March 2017 and March 2016, we registered the increase in the number of shares authorized to be issued under the 2015 Plan by 1,996,444 , 1,904,017 1,762,149 , 1,702,187 and 1,661,616 shares, respectively, which represents the amount automatically added pursuant to the annual evergreen provision contained therein.

Additionally, on October 8, 2015, our board of directors amended, effective as of the acquisition of Logentries, the 2015 Plan to reserve an additional 1,500,000 shares of our common stock for issuance of inducement awards.

As of December 31, 2021, the shares of common stock authorized to be issued under the 2015 Plan totaled 17,877,553 and there were 3,102,969 shares of common stock available for grant.

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Total stock-based compensation expense $ 102,579 $ 63,888 $ 40,664

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

For the year ended December 31, 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $ 2.5 million, based on the performance attainment of the pre-established corporate financial objectives as of December 31, 2020.

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

The number of shares underlying such awards shall be 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.

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).

years ended December 31, 2021 and 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $ 4.7 million and $ 2.5 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of December 31, 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.

In 2021, we accelerated the vesting of a stock award which was deemed a modification of the original award resulting in $ 6.9 million of incremental stock-based compensation which we recorded in the year ended December 31, 2021.

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

27 unchanged sentences

Outstanding as of December 31, 2018 3,713,179 $ 10.32

Granted 107,850 24.44

Exercised ( 968,057 ) 10.55 $ 39,526

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Vested and exercisable as of December 31, 2021 1,405,646 $ 10.68 3.35 $ 150,414

As of December 31, 2020, the unrecognized compensation cost related to our unvested stock options expected to vest was $ 0.5 million.

This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 0.5 years.

As of December 31, 2021, the unrecognized compensation cost related to our unvested stock options expected to vest was not material and will be recognized over an estimated weighted-average amortization period of 0.1 years.

The total fair value of stock options vested in 2021, 2020 and 2019 was $ 0.6 million, $ 2.2 million and $ 3.7 million, respectively.

The weighted-average grant date fair value per share of stock options granted in 2018 was $ 11.86 per share.

(d) Employee Stock Purchase Plan

On July 17, 2015, we filed a registration statement on Form S-8 with the Securities and Exchange Commission registering 800,000 shares of our common stock reserved under our 2015 Employee Stock Purchase Plan (ESPP).

In February 2020, February 2019, March 2018, March 2017 and March 2016, we increased the number of shares to be authorized under the ESPP by 499,111 , 476,004 , 440,537 , 425,547 and 415,404 shares, respectively, which represents the amount automatically added pursuant to the annual evergreen provision of the ESPP.

The number of shares reserved and available for issuance under the ESPP automatically increases each January 1, beginning on January 1, 2016, by 1 % of the outstanding number of shares of our common stock on the immediately preceding December 31 (known as the “evergreen” provision) or such lesser number of shares as determined by our board of directors.

As of December 31, 2021, the shares of common stock authorized to be issued under the ESPP totaled 3,578,855 and there were 2,125,686 shares of common stock available for grant.

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$ 14.17 – 17.94

On March 15, 2018, we issued 123,607 shares of common stock to employees, with purchase prices of $ 12.96 and $ 14.78 per share, for aggregate proceeds of $ 1.6 million.

On September 14, 2018, we issued 96,108 shares of common stock to employees, with purchase prices of $ 21.96 and $ 14.78 per share, for aggregate proceeds of $ 2.0 million.

On March 15, 2019, we issued 110,822 shares of common stock to employees, with purchase prices of $ 30.46 and $ 21.96 per share, for aggregate proceeds of $ 2.6 million.

On September 13, 2019, we issued 74,221 shares of common stock to employees, with purchase prices of $ 30.46 and $ 42.22 per share, for aggregate proceeds of $ 2.9 million.

On March 15, 2020, we issued 101,806 shares of common stock to employees, with a purchase price of $ 32.87 per share, for aggregate proceeds of $ 3.3 million.

On September 15, 2020, we issued 131,585 shares of common stock to employees, with a purchase price of the shares was $ 28.39 per share, for aggregate proceeds of $ 3.7 million.

The following table provides the number of common shares issued to employees, the purchase prices and aggregate proceeds for the purchase dates in the years ended December 31, 2021, 2020 and 2019:

September 15, 2021 March 15, 2021 September 15, 2020 March 15, 2020 September 15, 2019 March 15, 2019

Common shares issued 73,676 147,837 131,585 101,806 74,221 110,822

Purchase prices $ 52.60 and $ 67.59

$ 28.39 and $ 52.60

$ 30.46 and $ 42.22

$ 30.46 and $ 21.96

Aggregate proceeds $ 4.8 million $ 4.5 million $ 3.7 million $ 3.3 million $ 2.9 million $ 2.6 million

(13) Income Taxes

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Change in valuation allowance ( 36.7 ) ( 30.0 ) ( 41.0 )

Excess officers' compensation ( 5.9 ) ( 3.3 ) ( 2.2 )

Tax rate change 11.2 — —

Tax reserves ( 3.8 ) — —

Capital gain on sale ( 7.0 ) — —

Other ( 1.2 ) ( 0.8 ) 0.7

26 unchanged sentences

In assessing whether the deferred tax assets are realized, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Due to our history of generating losses in the United States, the United Kingdom and Ireland, we continue to record a full valuation allowance against our deferred tax assets in these jurisdictions.

Due to our history of generating losses in the United States, the United Kingdom and Ireland, we continue to record a full valuation allowance against our deferred tax assets in

these jurisdictions.

If we achieve future profitability, a significant portion of these deferred tax assets could be available to offset future income taxes.

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The statute of limitations for these jurisdictions is generally three to seven years .

However, to the extent we utilize net operating losses or other similar

carryforward attributes such as credits, the statute remains open to the extent of the net operating losses or credits that are utilized.

We have no tax returns under examination as of December 31, 2020.

As of December 31, 2020 and 2019, we had no reserves for unrecognized tax benefits.

However, to the extent we utilize net operating losses or other similar carryforward attributes such as credits, the statute remains open to the extent of the net operating losses or credits that are utilized.

We currently are under examination in Israel for tax years 2016 through 2019.

We have established reserves to provide for additional income taxes that management believes will more likely than not be due in future years.

The reserves have been established based upon our assessment of the potential exposure.

Changes in our reserve for unrecognized income tax benefits for the year ended December 31, 2021 was as follows (in thousands):

Balance as of December 31, 2020 $ —

Additions based on current year tax positions 5,041

Balance as of December 31, 2021 $ 5,041

We recorded $ 0.1 million of interest in 2021 related to uncertain tax positions.

During the next twelve months, the Company does not expect any change to its uncertain tax positions other than the accrual of interest in the normal course of business.

(14) Net Loss Per Share

6 unchanged sentences

Net loss per share, basic and diluted $ ( 2.65 ) $ ( 1.94 ) $ ( 1.10 )

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

Based on the initial conversion prices, the entire outstanding principal amount of the 2023 Notes and the 2025 Notes as of December 31, 2020 would have been convertible into approximately 5.5 million and 3.8 million shares, respectively.

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

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

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

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

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

We intend to settle any conversion of our 2025 Notes and 2027 Notes in cash, shares, or a combination thereof.

As a result of our adoption of ASU 2020-06 on January 1, 2021, the dilutive impact of the Notes for our calculation of diluted net income (loss) per share is considered using the if-converted method.

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 years ended December 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.

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.

As further described in Note 10, Debt, t he 2023 Capped Calls were not redeemed with the redemption of the 2023 Notes.

As of December 31, 2021, the conversion features of the 2025 Notes was 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 2025 Notes were convertible, in whole or in part, at the option of the holders from January 1, 2022 through March 31, 2022.

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

4 unchanged sentences

Options to purchase common stock 1,411,387 1,933,013 2,705,458

Unvested restricted stock — — 21,677

Unvested restricted stock units 2,778,877 2,941,914 2,936,924

Common stock to be issued to DivvyCloud founders 66,865 200,596 —

Common stock issued to IntSights founders 206,608 — —

Shares to be issued under ESPP 36,831 101,658 53,167

6 unchanged sentences

2022 $ 58,862

2026 and thereafter 16

Total $ 65,194

5 unchanged sentences

In the complaint, Finjan sought unspecified damages, attorneys' fees and injunctive relief.

We intend to vigorously contest Finjan's claims.

intend to vigorously contest Finjan's claims.

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

31 unchanged sentences

Total $ 50,225 $ 53,114

(19) Subsequent Event

On January 28, 2021, we acquired Alcide.IO Ltd., a leading provider of Kubernetes security for a total purchase price of approximately $ 50 million in cash, subject to certain adjustments.

Supplementary Data

The following table sets forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters presented.

We have prepared the quarterly financial data on the same basis as the audited consolidated financial statements included in this Annual Report on Form 10-K.

In our opinion, the quarterly financial data reflects all adjustments, consisting only of normal recurring adjustment that we consider necessary for a fair presentation of this data.

This quarterly financial data should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Our historical results are not necessarily indicative of the results to be expected in the future.

Three Months Ended

December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019

(in thousands, unaudited)

Consolidated Statements of Operations Data:

Products $ 104,384 $ 98,559 $ 92,430 $ 87,549 $ 82,997 $ 76,476 $ 72,579 $ 65,845

Professional services 8,775 6,516 6,482 6,791 8,651 6,679 6,380 7,340

Total revenue 113,159 105,075 98,912 94,340 91,648 83,155 78,959 73,185

Cost of revenue:

Products 27,295 25,196 23,118 21,256 19,470 17,703 16,637 14,369

Professional services 6,399 5,832 5,963 6,458 5,892 5,927 5,544 5,604

Total cost of revenue 33,694 31,028 29,081 27,714 25,362 23,630 22,181 19,973

Operating expenses:

Research and development 29,737 28,509 26,120 24,202 21,719 20,154 19,626 17,865

Sales and marketing 54,429 48,448 44,959 48,145 44,508 39,904 38,172 35,138

General and administrative 15,930 15,006 14,484 14,099 12,374 11,223 11,160 9,953

Total operating expense 100,096 91,963 85,563 86,446 78,601 71,281 68,958 62,956

Loss from operations (20,631) (17,916) (15,732) (19,820) (12,315) (11,756) (12,180) (9,744)

Interest income 111 87 208 1,048 1,253 1,448 1,582 1,731

Interest expense (7,429) (7,328) (5,917) (3,462) (3,449) (3,399) (3,312) (3,229)

Other income (expense), net 12 143 210 (447) 294 (492) (29) (206)

Loss before income taxes (27,937) (25,014) (21,231) (22,681) (14,217) (14,199) (13,939) (11,448)

Provision for (benefit from) income taxes 981 527 235 243 129 207 (519) 225

Net loss $ (28,918) $ (25,541) $ (21,466) $ (22,924) $ (14,346) $ (14,406) $ (13,420) $ (11,673)

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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-K

Item 8. Financial Statements and Supplementary Data