What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 151 added, 302 removed, 470 unchanged (49% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Current assets:

1 unchanged sentence

Short-term investments 93,155 58,850

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

Accounts receivable, net of allowance for credit losses of $ 1,879 and $ 1,978 at March 31, 2022 and December 31, 2021, respectively

107,320 146,094

16 unchanged sentences

Deferred revenue, current portion 378,338 372,067

Convertible senior notes, current portion, net 44,804 —

Other current liabilities 1,264 842

7 unchanged sentences

Preferred stock, $ 0.01 par value per share;

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

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

10,000,000 shares authorized at March 31, 2022 and December 31, 2021;

0 shares issued at March 31, 2022 and December 31, 2021

Common stock, $ 0.01 par value per share;

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

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

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

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

100,000,000 shares authorized at March 31, 2022 and December 31, 2021;

58,728,035 and 58,181,816 shares issued at March 31, 2022 and December 31, 2021, respectively;

58,241,227 and 57,695,008 shares outstanding at March 31, 2022 and December 31, 2021, respectively

Treasury stock, at cost, 486,808 shares at March 31, 2022 and December 31, 2021

( 4,764 ) ( 4,764 )

Additional paid-in-capital 650,710 615,032

Accumulated other comprehensive (loss) income ( 929 ) 454

Accumulated other comprehensive loss ( 2,052 ) ( 812 )

Accumulated deficit ( 781,027 ) ( 736,028 )

4 unchanged sentences

(in thousands, except share and per share data)

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

2021 2020 2021 2020

Three Months Ended March 31,

Products $ 149,025 $ 109,285

24 unchanged sentences

(in thousands)

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

2021 2020 2021 2020

Three Months Ended March 31,

Net loss $ ( 44,999 ) $ ( 29,845 )

Other comprehensive income (loss):

Change in fair value of investments ( 10 ) ( 20 ) ( 22 ) ( 127 )

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

Total change in unrealized (losses) gains on investments ( 10 ) ( 20 ) ( 22 ) ( 148 )

Change in fair value of cash flow hedges ( 898 ) ( 129 )

Adjustments for net gains realized and included in net loss ( 8 ) — ( 386 ) —

Adjustments for net gains (losses) realized and included in net loss 316 ( 204 )

Total change in unrealized losses on cash flow hedges ( 582 ) ( 333 )

Total other comprehensive (loss) income ( 792 ) ( 108 ) ( 1,383 ) ( 236 )

Change in unrealized (losses) gains on investments ( 658 ) ( 9 )

Total other comprehensive loss ( 1,240 ) ( 342 )

Comprehensive loss $ ( 46,239 ) $ ( 30,187 )

9 unchanged sentences

Shares Amount Shares Amount

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

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

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

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

Shares withheld for employee taxes ( 42 ) ( 1 ) — — ( 4,700 ) — — ( 4,701 )

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

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

Other comprehensive loss — — — — — ( 792 ) — ( 792 )

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

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

Common stock Treasury stock Additional

paid-in-capital Accumulated

comprehensive

gain (loss) Accumulated

deficit Total

stockholders’

Shares Amount Shares Amount

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

Balance, December 31, 2021 57,695 $ 577 487 $ ( 4,764 ) $ 615,032 $ ( 812 ) $ ( 736,028 ) $ ( 125,995 )

Stock-based compensation expense — — — — 32,475 — — 32,475

4 unchanged sentences

Other comprehensive loss — — — — — ( 1,240 ) — ( 1,240 )

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

Net loss — — — — — — ( 44,999 ) ( 44,999 )

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

Balance, March 31, 2022 58,242 $ 582 487 $ ( 4,764 ) $ 650,710 $ ( 2,052 ) $ ( 781,027 ) $ ( 136,551 )

Common stock Treasury stock Additional

13 unchanged sentences

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

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

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

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

Issuance of common stock related to acquisition 274 3 — — ( 3 ) — — —

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

1 unchanged sentence

Net loss — — — — — — ( 29,845 ) ( 29,845 )

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

Common stock Treasury stock Additional

paid-in-capital Accumulated

comprehensive

gain (loss) Accumulated

deficit Total

stockholders’

Shares Amount Shares Amount

Balance, December 31, 2019 49,911 $ 499 487 $ ( 4,764 ) $ 605,650 $ 213 $ ( 518,430 ) $ 83,168

Stock-based compensation expense — — — — 45,449 — — 45,449

Issuance of common stock under employee stock purchase plan 234 2 — — 7,080 — — 7,082

Vesting of restricted stock units 1,092 11 — — ( 11 ) — — —

Shares withheld for employee taxes ( 112 ) — — — ( 5,984 ) — — ( 5,984 )

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

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

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

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

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

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

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

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

1 unchanged sentence

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization 10,169 6,740

Amortization of debt discount and issuance costs 2,886 12,213

Amortization of debt issuance costs 979 658

Stock-based compensation expense 28,922 20,862

Deferred income taxes 3,924 —

Induced conversion expense — 2,740

18 unchanged sentences

Cash flows from financing activities:

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

585,024 222,799

Proceeds from issuance of convertible senior notes, net of issuance costs paid of $ 12,900 for the three months ended March 31, 2021

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

Payments of debt issuance costs — ( 411 )

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

5 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 800 ) ( 500 )

Net increase in cash, cash equivalents and restricted cash 53,913 116,296

Net (decrease) increase in cash, cash equivalents and restricted cash ( 23,100 ) 330,223

Cash, cash equivalents and restricted cash, beginning of period 165,017 173,617

19 unchanged sentences

All intercompany transactions and balances have been eliminated in consolidation.

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

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Use of Estimates

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 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.

1 unchanged sentence

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

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

While we have not experienced significant disruptions from the COVID-19 pandemic during the three months ended March 31, 2022, we are unable to accurately predict the extent to which the ongoing COVID-19 pandemic may impact our business, results of operations and financial condition going forward.

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

4 unchanged sentences

Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Other than the impact of our early adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06) on January 1, 2021, as further detailed in Note 10, Debt , there have been no additional changes to the significant accounting policies during the three and nine-month periods ended September 30, 2021.

There have been no changes to the significant accounting policies during the three-month period ended March 31, 2022.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

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 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 early adopted this standard on January 1, 2022.

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

Accounting Pronouncements Not Yet Effective

6 unchanged sentences

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

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

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

2021 2020 2021 2020

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

2 unchanged sentences

Professional services 8,359 8,166

Other 152 191 253 625

Total revenue $ 157,384 $ 117,451

7 unchanged sentences

• Managed services offerings consist of fees generated when we operate our software and provide our capabilities on behalf of our customers.

Revenue is recognized on a ratable basis over the contract term beginning on the date that our

service is made available to the customer.

Revenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer.

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 arrangement as a material right does not exist.

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.

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.

12 unchanged sentences

Contracts with Multiple Performance Obligations

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

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

9 unchanged sentences

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

For the three months ended September 30, 2021 and 2020, we recognized revenue of $ 117.5 million and $ 90.4 million, respectively, and for the nine months ended September 30, 2021 and 2020, we recognized revenue of $ 237.5 million and $ 197.4 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

For the three months ended March 31, 2022 and 2021, we recognized revenue of $ 137.3 million and $ 101.9 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

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

2 unchanged sentences

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

If the right to

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

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

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

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

As of March 31, 2022 and December 31, 2021, unbilled receivables of $ 1.1 million and $ 1.2 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of March 31, 2022 and December 31, 2021, we had no contract assets recorded on our consolidated balance sheet.

Transaction price allocated to the remaining performance obligations

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

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2022.

The estimated revenues do not include unexercised contract renewals.

8 unchanged sentences

(“IntSights”), a provider of contextualized external threat intelligence and proactive threat remediation, for a purchase price with an aggregate fair value of $ 322.3 million.

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

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

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

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

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

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

Consideration:

Cash $ 319,194

Deferred cash consideration 5,575

Estimated purchase price adjustment receivable ( 2,595 )

Fair value of total consideration transferred $ 322,174

Recognized amount of identifiable assets acquired and liabilities assumed:

Cash, cash equivalents and restricted cash 13,194

Accounts receivable 6,352

Prepaid and other current assets 1,271

Operating lease right-of-use assets 1,261

Property and equipment, net 565

Other assets 268

Accounts payable and other current liabilities ( 9,069 )

Operating lease liabilities ( 1,261 )

Deferred revenue ( 9,469 )

Deferred tax liabilities ( 7,017 )

Intangible assets 65,200

Total identifiable net assets assumed 61,295

Goodwill 260,879

Total purchase price allocation $ 322,174

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

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

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

Amount Weighted Average Life

(in thousands) (in years)

Developed technology $ 54,700 6

Customer relationships 9,300 4

Trade name 1,200 2

Total identifiable intangible assets $ 65,200

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

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

The purchase consideration consisted of $ 319.2 million in cash paid at closing, $ 3.4 million in deferred cash payments and a $ 0.3 million receivable for purchase price adjustments.

The deferred cash payments will be held by us to satisfy indemnification obligations payable within eighteen months of the acquisition date.

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

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

The fair value of net assets acquired, goodwill and intangible assets were $ 61.3 million, $ 260.9 million and $ 65.2 million, respectively.

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 goodwill was allocated to our one reporting unit.

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

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

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

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

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

Our revenue and net loss attributable to the IntSights business for the three months ended March 31, 2022 was $ 6.9 million and $ 10.9 million, respectively.

Pro Forma Financial Information

1 unchanged sentence

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

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

2021 2020 2021 2020

Three Months Ended March 31, 2021

(in thousands)

1 unchanged sentence

Net loss ( 41,020 )

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.

4 unchanged sentences

(“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 preliminary 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 1,621

Other assets 208

Accounts payable and other current liabilities ( 3,489 )

Intangible assets 10,400

Total identifiable net assets assumed 9,721

Goodwill 40,817

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

In the second quarter of 2021, we sold acquired intellectual property through an intercompany transaction, which resulted in $ 5.0 million of current tax expense and $ 3.9 million of deferred tax expense in Israel.

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

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.

4 unchanged sentences

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

As of September 30, 2021

As of March 31, 2022

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

(in thousands)

government agencies $ 51,912 $ — $ ( 433 ) $ 51,479

Commercial paper 34,997 — — 34,997

Corporate bonds 34,513 — ( 270 ) 34,243

government agencies 20,057 — — 20,057

Agency bonds $ 750 $ — $ ( 19 ) $ 731

Total $ 122,172 $ — $ ( 722 ) $ 121,450

2 unchanged sentences

(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

U.S 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

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

As of March 31, 2022, our available-for-sale investments had maturities ranging from 1 to 20 months.

As of December 31, 2021, 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 September 30, 2021 and December 31, 2020, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity.

For all of our investments for which the amortized cost basis was greater than the fair value at March 31, 2022 and December 31, 2021, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity.

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

8 unchanged sentences

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

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 we 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.

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 and liabilities measured and recorded at fair value on a recurring basis using the above input categories:

As of September 30, 2021

As of March 31, 2022

Level 1 Level 2 Level 3 Total

4 unchanged sentences

Corporate bonds — 34,243 — 34,243

Agency bonds — 731 — 731

Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets) — 13 — 13

Total $ 100,615 $ 69,984 $ — $ 170,599

Foreign currency forward contracts designated as cash flow hedges (other current liabilities) $ — $ 941 $ — $ 941

Foreign currency forward contracts designated as cash flow hedges (other current liabilities and other liabilities) $ — $ 1,345 $ — $ 1,345

Total $ — $ 1,345 $ — $ 1,345

3 unchanged sentences

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 (prepaid expenses and other current assets) — 73 — 73

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

As of September 30, 2021, the fair value of our 1.25 %, 2.25 % and 0.25 % convertible senior notes due 2023, 2025 and 2027, as further described in Note 10, Debt , was $ 123.2 million, $ 446.6 million and $ 747.5 million, respectively, based upon quoted market prices.

Total assets $ 109,200 $ 70,626 $ — $ 179,826

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

Total liabilities $ — $ 843 $ — $ 843

As of March 31, 2022, the fair value of our 2.25 % and 0.25 % convertible senior notes due 2025 and 2027, as further described in Note 10, Debt , was $ 435.1 million and $ 669.7 million, respectively, based upon quoted market prices.

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

1 unchanged sentence

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

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

As of March 31, 2022 As of December 31, 2021

(in thousands)

5 unchanged sentences

Property and equipment, net $ 49,804 $ 50,225

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

Depreciation expense was $ 3.3 million and $ 3.0 million for the three months ended March 31, 2022 and 2021, respectively .

Goodwill and Intangible Assets

Goodwill was $ 515.3 million and $ 213.6 million as of September 30, 2021 and December 31, 2020, respectively.

Goodwill was $ 515.3 million as of March 31, 2022 and December 31, 2021.

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

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Balance at December 31, 2021 $ 515,258

Alcide acquisition 40,817

IntSights acquisition 260,879

Balance at September 30, 2021 $ 515,297

IntSights acquisition purchase receivable adjustment 75

Balance at March 31, 2022 $ 515,333

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

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

As of March 31, 2022 As of December 31, 2021

Life (years) Gross Carrying

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Total intangible assets $ 166,552 $ ( 58,306 ) $ 108,246 $ 163,031 $ ( 51,440 ) $ 111,591

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

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

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

Amortization expense was $ 6.9 million and $ 3.7 million for the three months ended March 31, 2022 and 2021, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of March 31, 2022 was as follows (in thousands):

2022 (for the remaining nine months) $ 19,395

2027 and thereafter 5,206

Total $ 94,853

The table above excludes the impact of $ 8.5 million of capitalized internal-use software costs for projects that have not been completed as of September 30, 2021, and therefore, we have not determined the useful life of the software, nor have all the costs associated with these projects been incurred.

The table above excludes the impact of $ 13.4 million of capitalized internal-use software costs for projects that have not been completed as of March 31, 2022, and therefore, we have not determined the useful life of the software, nor have all the costs associated with these projects been incurred.

Deferred Contract Acquisition and Fulfillment Costs

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

Nine Months Ended September 30,

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

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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 fourteen months or less, and as of September 30, 2021 and December 31, 2020, outstanding forward contracts had a total notional value of $ 32.9 million and $ 12.5 million, respectively.

These forward contracts have contractual maturities of nineteen months or less, and as of March 31, 2022 and December 31, 2021, outstanding forward contracts had a total notional value of $ 48.2 million and $ 34.7 million, respectively.

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

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

During the three months ended March 31, 2022, all cash flow hedges were considered effective.

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

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

Convertible Senior Notes

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).

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

The 2023 Notes, the 2025 Notes and the 2027 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by indentures between the Company, as issuer, and U.S.

The 2025 Notes and the 2027 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by indentures between the Company, as issuer, and U.S.

Bank National Association, as trustee (the “Indentures”).

The total net proceeds from the 2023 Notes, the 2025 Notes and the 2027 Notes offerings, after deducting initial purchase discounts and estimated debt issuance costs, were $ 223.1 million, $ 222.8 million and $ 585.0 million, respectively.

The total net proceeds from the 2025 Notes and the 2027 Notes offerings, after deducting initial purchase discounts and estimated debt issuance costs, were $ 222.8 million and $ 585.0 million, respectively.

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, 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;

• during any calendar quarter commencing after the calendar quarter ending on 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 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 Indentures).

As of September 30, 2021, the conversion features of the 2023 Notes and the 2025 Notes were triggered as the last reported price of our common stock was greater than or equal to 130 % of the conversion prices for at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, and therefore the 2023 Notes and the 2025 Notes were convertible, in whole or in part, at the option of the holders from October 1, 2021 through December 31, 2021.

As of March 31, 2022, 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 April 1, 2022 through June 30, 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.

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 September 30, 2021.

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

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

As of March 31, 2022, the 2027 Notes are not convertible at the option of the holder.

As of March 31, 2022, an immaterial principal amount of the 2025 Notes was requested for conversion, which is expected to be settled during the quarter ended June 30, 2022.

No additional conversion requests for the Notes have been received.

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.

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 Indentures.

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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.

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

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

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

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

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

Partial Repurchase and Conversion of the 2023 Notes

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.

The 2025 Notes and the 2027 Notes are redeemable after May 6, 2023 and March 20, 2024 (the “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.

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 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.

In accounting for the issuance of the Notes, the principal less debt issuance costs are recorded as 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 Notes.

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

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

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

Principal $ 45,351 $ 230,000 $ 600,000 $ 875,351 $ 230,000 $ 230,000 $ 460,000

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

Unamortized debt issuance costs ( 547 ) ( 5,269 ) ( 13,663 ) ( 19,479 ) ( 3,009 ) ( 5,050 ) ( 8,059 )

Net carrying amount $ 44,804 $ 224,731 $ 586,337 $ 855,872 $ 196,566 $ 182,020 $ 378,586

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

Three Months Ended September 30,

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

Contractual interest expense $ 146 $ 1,293 $ 375 $ 1,814 $ 718 $ 1,293 $ 2,011

Amortization of debt discount — — — — 2,627 2,041 4,668

The net carrying amount of the Notes as of March 31, 2022 and December 31, 2021 was as follows (in thousands):

2025 Notes 2027 Notes

Principal Unamortized debt issuance costs Total Principal Unamortized debt issuance costs Total

Net Carrying Amount at December 31, 2021 $ 230,000 $ ( 4,905 ) $ 225,095 $ 600,000 $ ( 13,032 ) $ 586,968

Amortization of debt issuance costs — 330 330 — 602 602

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

Nine Months Ended September 30,

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

Net Carrying Amount at March, 31, 2022 $ 230,000 $ ( 4,575 ) $ 225,425 $ 600,000 $ ( 12,430 ) $ 587,570

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

Three Months Ended March 31,

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

Contractual interest expense $ 1,294 $ 375 $ 1,669 $ 558 $ 1,294 $ 50 $ 1,902

Amortization of debt discount — — — — 7,666 3,334 11,000

Amortization of debt issuance costs 330 602 932 221 319 80 620

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Total interest expense $ 1,624 $ 977 $ 2,601 $ 3,519 $ 1,613 $ 130 $ 5,262

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

During the first quarter of 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.

In addition, 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.

During the fourth quarter of 2021, we redeemed the remaining $ 45.4 million aggregate principal amount outstanding of the 2023 Notes.

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.

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”) (collectively, the “Capped Calls”).

The Capped Calls are expected to reduce potential dilution to our common stock upon conversion of a given series of notes and/or offset any cash payments that we are required to make in excess of the principal amount of converted notes of such series, as the case may be, with such reduction and/or offset subject to a cap.

The Capped Calls are subject to adjustment upon the occurrence of certain specified extraordinary events affecting us, including merger events, tender offers and announcement events.

In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions.

The following table sets forth other key terms and premiums paid for the Capped Calls related to each series of Notes:

Capped Calls Entered into in Connection with the Issuance of the 2023 Notes Capped Calls Entered into in Connection with the Issuance of the 2025 Notes Capped Calls Entered into in Connection with the Issuance of the 2027 Notes

Initial strike price, subject to certain adjustments $ 41.59 $ 61.02 $ 103.38

Cap price, subject to certain adjustments $ 63.98 $ 93.88 $ 159.04

Total premium paid (in thousands) $ 26,910 $ 27,255 $ 76,020

The 2023 Capped Calls were not redeemed with the repayment of the 2023 Notes and remain outstanding.

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

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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 by the Amendment, 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.

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

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

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

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 March 31, 2022, we did not have any outstanding borrowings and we were in compliance with all covenants under the Credit Agreement.

As of March 31, 2022, we had a total of $ 9.3 million in letters of credit outstanding as collateral for certain office space leases and corporate credit card programs which reduce the amount of borrowing available under our Credit Agreement.

Our leases primarily relate to office facilities that have remaining terms of up to 10.0 years, some of which include one or more options to renew with renewal terms of up to 5 years and some of which include options to terminate the leases within the next 5.5 years.

1 unchanged sentence

The components of lease expense were as follows:

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

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands)

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

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

As of March 31, 2022 As of December 31, 2021

Weighted average remaining lease term (in years) - operating leases 7.1 7.2

1 unchanged sentence

Supplemental cash flow information related to leases was as follows:

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

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands)

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ROU assets obtained in exchange for new lease obligations $ 8,864 $ 152

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

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

Maturities of operating lease liabilities as of March 31, 2022 were as follows (in thousands):

2022 (for the remaining nine months) $ 12,812

2027 and thereafter 49,066

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

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

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands)

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Our Compensation Committee adopted and approved the performance goals, targets and payout formulas for our 2022 and 2021 bonus plans, including permitting our executive officers and certain other employees the opportunity to receive payment of their earned bonuses in the form of common stock (in lieu of cash).

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

During each of the three months ended March 31, 2022 and 2021, we recognized stock-based compensation expense related to such bonuses in the amount of $ 1.0 million, based on the probable expected performance against the pre-established corporate financial objectives as of March 31, 2022 and 2021.

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

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

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

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

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

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

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

RSUs and PSUs activity during the three months ended March 31, 2022 was as follows:

Shares Weighted-Average

3 unchanged sentences

Forfeited ( 190,751 ) 77.52

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

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

Unvested balance as of March 31, 2022 3,947,377 $ 86.65

As of March 31, 2022, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 319.5 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 3.0 years.

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

Stock option activity during the three months ended March 31, 2022 was as follows:

Shares Weighted

6 unchanged sentences

Forfeited/cancelled — —

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

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

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

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

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

Outstanding as of March 31, 2022 1,312,604 $ 10.81 3.2 $ 131,818

Vested and exercisable as of March 31, 2022 1,312,604 $ 10.81 3.2 $ 131,818

The total fair value of stock options vested in the three months ended March 31, 2022 was $ 0.1 million.

(d) Employee Stock Purchase Plan

3 unchanged sentences

On March 15, 2022, we issued 80,747 shares of common stock to employees, with purchase prices of $ 67.59 or $ 81.37 per share, for aggregate proceeds of $ 5.7 million.

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

Net Loss per Share

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

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

2021 2020 2021 2020

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands, except share and per share data)

2 unchanged sentences

Net loss per share, basic and diluted $ ( 0.78 ) $ ( 0.56 )

We intend to settle any conversion of our 2023 Notes, 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 three and nine months ended September 30, 2021 and 2020, the shares underlying the Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive under each respective method.

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

The dilutive impact of the Notes for our calculation of diluted net income (loss) per share is considered using the if-converted method.

For the three months ended March 31, 2022 and 2021, 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.

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 , the 2023 Capped Calls were not redeemed with the redemption of the 2023 Notes.

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

Three and Nine Months Ended September 30,

Three Months Ended March 31,

Options to purchase common stock 1,312,604 1,763,007

29 unchanged sentences

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

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

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands)

3 unchanged sentences

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

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

As of March 31, 2022 As of December 31, 2021

(in thousands)

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements