What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-24 · 170 added, 306 removed, 835 unchanged (36% of the section changed)

6 unchanged sentences

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Changes Stockholders' Equity

Consolidated Statements of Changes Stockholders' Equity (Deficit)

Consolidated Statements of Cash Flows

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Rapid7, Inc.

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

2 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in Accounting Principle

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

14 unchanged sentences

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;

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

6 unchanged sentences

Evaluation of standalone selling prices of revenue performance obligations

As discussed in Note 2 to the consolidated financial statements, the Company recognized products revenue of $500.8 million and professional services revenue of $34.6 million for the year ended December 31, 2021.

As discussed in Notes 2 and 3 to the consolidated financial statements, the Company recognized products revenue of $647.5 million and professional services revenue of $37.6 million for the year ended December 31, 2022.

The Company allocates value to each distinct performance obligation on a relative standalone selling price basis.

52 unchanged sentences

Additional paid-in-capital 746,249 615,032

Accumulated other comprehensive (loss) income ( 812 ) 454

Accumulated other comprehensive loss ( 1,411 ) ( 812 )

Accumulated deficit ( 860,745 ) ( 736,028 )

35 unchanged sentences

Net loss $ ( 124,717 ) $ ( 146,334 ) $ ( 98,849 )

Other comprehensive income (loss):

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

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

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

Other comprehensive (loss) income:

Change in fair value of cash flow hedges ( 3,874 ) ( 86 ) ( 170 )

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

Adjustment for net losses (gains) realized on cash flow hedges and included in net loss 4,053 — ( 21 )

Total change in unrealized gains (losses) on cash flow hedges 179 ( 86 ) ( 191 )

Change in unrealized (losses) gains on investments ( 778 ) ( 1,043 ) 432

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

Total change in unrealized (losses) gains on investments ( 778 ) ( 1,180 ) 432

Total other comprehensive (loss) income ( 599 ) ( 1,266 ) 241

17 unchanged sentences

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

6 unchanged sentences

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 )

5 unchanged sentences

Issuance of common stock upon exercise of stock options 480 5 — — 3,313 — — 3,318

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 in connection with conversion of convertible senior notes — — — — ( 3 ) — — ( 3 )

Issuance of common stock related to acquisition 33 — — — — — — —

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

Repurchase of common stock issued in relation to acquisition ( 83 ) ( 1 ) — — 1 — — —

Other comprehensive loss — — — — — ( 599 ) — ( 599 )

8 unchanged sentences

Net loss $ ( 124,717 ) $ ( 146,334 ) $ ( 98,849 )

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

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

Depreciation and amortization 41,038 33,501 22,631

12 unchanged sentences

Other liabilities 2,493 3,729 ( 425 )

Net cash provided by (used in) operating activities 53,917 4,887 ( 1,420 )

Net cash provided by operating activities 78,204 53,917 4,887

Cash flows from investing activities:

5 unchanged sentences

Other investments ( 1,000 ) ( 3,000 ) —

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

Net cash used in by investing activities ( 39,988 ) ( 325,378 ) ( 156,287 )

Cash flows from financing activities:

10 unchanged sentences

Effect of exchange rate changes on cash ,cash equivalents and restricted cash ( 2,845 ) ( 1,272 ) 679

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

Net increase (decrease) in cash, cash equivalents and restricted cash 42,787 ( 8,600 ) 50,204

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

3 unchanged sentences

Cash paid for income taxes, net of refunds $ 1,571 $ 3,305 $ 312

Non-cash investing activities:

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

Reconciliation of cash, cash equivalents and restricted cash:

14 unchanged sentences

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 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.

The management estimates include, but are not limited to the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition 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 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.

As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, assumptions and judgments or revise the carrying value of our assets or liabilities.

These estimates may change as new events occur and additional information is obtained and will be recognized in the consolidated financial statements as soon as they become known.

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

We generate revenue primarily from:

(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.

(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 and (2) 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.

30 unchanged sentences

• 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.

9 unchanged sentences

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.

As a result, the revenue attributable to the perpetual software license is recognized ratably over the customer’s estimated economic life of five years , which represents a longer period of time in comparison to the initial contractual period of maintenance and support.

The estimated economic life of five years represents the period which the customer is expected to benefit from the material right.

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 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.

Professional Services

11 unchanged sentences

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, 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, 2022 and 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 December 31, 2022 and 2021, we have no contract assets recorded on our consolidated balance sheet.

2 unchanged sentences

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, U.S.

Government agencies and agency bonds.

(e) Investments

Our investments consist of U.S.

government agencies, corporate bonds, commercial paper and agency bonds.

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

4 unchanged sentences

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

(g) Accounts Receivable and Allowance for Credit Losses

(f) 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 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.

Management regularly reviews the adequacy of the allowance for credit loss 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.

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

of operations.

Accounts receivable deemed uncollectible are charged against the allowance for credit losses.

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

(h) Concentration of Credit Risk

Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, short-term and long-term investments and derivative financial instruments.

(g) Concentration of Credit Risk

Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, investments and derivative financial instruments.

We invest only in high-quality credit instruments and our cash and cash equivalents and available for sale investments consist primarily of fixed income securities.

Management believes that the financial institutions that hold our investments are financially sound and, accordingly, are subject to minimal credit risk.

6 unchanged sentences

We mitigate this credit risk by transacting with major financial institutions with high credit ratings.

(i) Deferred Contract Acquisition and Fulfillment Costs

We capitalize commission expenses paid to internal sales personnel and partner referral fees that are incremental costs to obtaining customer contracts.

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

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.

Commissions paid relating to contract renewals are deferred and amortized on a straight-line basis over the related renewal period.

Costs to obtain a contract for professional services arrangements are expensed as incurred in accordance with the practical expedient as the contractual period of our professional services arrangements are one year or less.

We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit.

(h) Deferred Contract Acquisition Costs

We defer contract costs that are recoverable and incremental to obtaining customer contracts.

Contract costs, which primarily consist of sales commissions, are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates.

Contract costs 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 sales commissions paid on renewals are not commensurate with commissions paid on initial sales transactions.

Contract costs relating to contract renewals are deferred and amortized on a straight-line basis over the related renewal period.

Contract costs for professional services arrangements are expensed as incurred in accordance with the practical expedient as the contractual period of our professional services arrangements are one year or less.

We classify deferred contract costs as short-term or long-term based on when we expect to recognize the expense.

Amortization expense associated with deferred contract acquisition costs is recorded to sales and marketing expense in our consolidated statements of operations.

We capitalize costs incurred to fulfill our contracts that relate directly to the contract, are expected to generate resources that will be used to satisfy our performance obligations and are expected to be recovered through revenue generated under the contract.

Contract fulfillment costs are amortized on a straight-line basis over the estimated period of benefit and recorded as cost of products in our consolidated statement of operations.

(j) Property and Equipment

We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit.

(i) Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method.

4 unchanged sentences

Repairs and maintenance costs are expensed as incurred.

(k) Software Development Costs

(j) Software Development Costs

Software development costs associated with the development of products for sale are recorded to research and development expense until technological feasibility has been established for the product.

9 unchanged sentences

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.

We determine whether an arrangement is or contains a lease at inception.

We evaluate the classification of a lease at inception and, as necessary, at modification.

4 unchanged sentences

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.

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.

The operating lease ROU asset also includes any lease prepayments and initial direct costs, offset by lease incentives.

Operating lease cost is recognized on a straight-line basis over the lease term.

Certain of our leases include options to extend or terminate the lease.

1 unchanged sentence

An option to terminate is considered unless it is reasonably certain we will not exercise the option.

We have elected not to recognize on the balance sheet leases with terms of one year or less.

For contracts with lease and non-lease components, we have elected not to allocate the contract consideration and to account for the lease and non-lease components as a single lease component.

(m) Impairment of Long-Lived Assets

We account for lease and non-lease components as a single lease component and do not recognize operating lease ROU assets and lease liabilities for leases with a term of one year or less.

(l) Impairment of Long-Lived Assets

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable.

When such events or changes in circumstances occur, recoverability of these assets is measured by a comparison of the carrying value of the assets to the future net undiscounted cash flows directly associated with the assets.

If such assets are considered to be impaired, the impairment recognized is the amount by which the carrying value exceeds the fair value of the assets.

For the year ended December 31, 2021, there was no impairment of our long-lived assets.

(n) Business Combinations

When such events or changes in circumstances occur, recoverability of these assets or asset groups is measured by a comparison of the carrying value of the assets to the future net undiscounted cash flows directly associated with the assets.

If such assets or asset groups are considered to be impaired, the impairment recognized is the amount by which the carrying value exceeds the fair value of the assets or asset groups.

For the year ended December 31, 2022, there was no material impairment of our long-lived assets.

(m) Business Combinations

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.

6 unchanged sentences

Acquisition-related transaction costs are expensed as incurred.

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.

Goodwill is not amortized but is tested for impairment at least annually or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred.

We perform an annual goodwill impairment test on the last day of each fiscal year and whenever events or changes in circumstances indicate that the carrying amount of this asset may exceed its fair value.

5 unchanged sentences

Based upon our assessment performed as of December 31, 2022, we concluded the fair value of our single reporting unit exceeded its' carrying value and there was no impairment of goodwill.

(p) Foreign Currency

(o) Foreign Currency

The functional currency of our foreign subsidiaries is the U.S.

3 unchanged sentences

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

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

As a global business, we are exposed to currency exchange rate risk.

In 2022, foreign currency transaction losses were $ 1.4 million 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.

(p) Derivative and Hedging Activities

We are exposed to currency exchange rate risk.

Although the majority of our revenue is denominated in U.S.

1 unchanged sentence

We enter into foreign currency derivative contracts, which we designate as cash flow hedges, to manage the foreign currency exchange risk associated with these expenses.

Derivative financial instruments are recorded at fair value and reported as either an asset or liability on our consolidated balance sheets.

Gains or losses related to our cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) in our consolidated balance sheets and are reclassified into the financial statement line item associated with the underlying hedged transaction in our consolidated statement of operations when the underlying hedged transaction is recognized in our consolidated statement of operations.

Our derivative financial instruments are recorded at fair value and reported as either an asset or liability on our consolidated balance sheets.

If it becomes probable that the hedged transaction will not occur, the cumulative unrealized gain or loss is reclassified immediately from accumulated other comprehensive income (loss) into the financial statement line item associated with the underlying hedged transaction in our consolidated statement of operations.

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.

As of December 31, 2022 and 2021, our cash flow hedges had contractual maturities of eighteen months or less, and as of December 31, 2022 and 2021, outstanding forward contracts had a total notional value of $ 44.9 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 year ended December 31, 2021, all cash flow hedges were considered effective.

During the years ended December 31, 2022 and 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

(q) Stock-Based Compensation

Stock-based compensation expense related to our stock options, restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”) and purchase rights issued under our 2015 Employee Stock Purchase Plan (“ESPP”) is calculated based on the estimated fair value of the award on the grant date.

9 unchanged sentences

We recognize forfeitures as they occur and do not estimate a forfeiture rate when calculating the stock-based compensation expense.

(s) Advertising

(r) Advertising

Advertising costs are expensed as incurred, and are recorded in sales and marketing expense in our consolidated statement of operations.

We incurred $ 22.7 million, $ 21.3 million and $ 16.4 million in advertising expense in 2022, 2021 and 2020, respectively.

(t) Income Taxes

(s) Income Taxes

Income taxes are accounted for using the asset and liability method.

6 unchanged sentences

Interest and penalties associated with such uncertain tax positions are classified as a component of income tax expense.

(u) Net Loss per Share

(t) Net Loss per Share

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

1 unchanged sentence

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.

As a result of our adoption of Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2020-06 (“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.

(v) Recent Accounting Pronouncements

(u) 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.

Accounting Pronouncements Not Yet Effective

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.

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires companies to apply revenue guidance to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination on the acquisition date, instead of measuring them at fair value.

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.

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.

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) to alternative reference rates.

We may elect to apply the amendments prospectively through December 31, 2022.

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

(3) Revenue from Contracts with Customers

4 unchanged sentences

Subscriptions $ 643,247 $ 492,608 $ 371,975

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

Professional services 37,548 34,561 28,564

14 unchanged sentences

Subscriptions $ 478,174 $ 191,817

Perpetual software licenses 3,693 585

Professional services 17,404 4,496

Other 462 131

Total $ 496,040 $ 196,444

3 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 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):

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 6,197

Prepaid and other current assets 1,272

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 ( 6,858 )

Intangible assets 65,200

Total identifiable net assets assumed 61,300

Goodwill 260,874

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.

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

Amount Weighted Average Amortization 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 were held by us to satisfy indemnification obligations and certain post-closing purchase price adjustments for a period of eighteen months from the acquisition date and were paid in January 2023.

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 $ 61.1 million, $ 260.9 million and $ 65.2 million, respectively.

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 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 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.

Year Ended December 31,

(in thousands)

Revenue $ 553,190 $ 427,670

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

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 consisted of $ 2.7 million paid in cash and $ 0.3 million in deferred cash payments paid in April 2022.

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

1 unchanged sentence

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.

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

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 $( 0.7 ) million, $ 40.8 million and $ 10.4 million, respectively.

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

5 unchanged sentences

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

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 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 $ 0.6 million, $ 9.4 million and $ 6.1 million, respectively.

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.

(5) Investments

3 unchanged sentences

(in thousands)

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

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

Government agencies $ 66,234 $ 4 $ ( 545 ) $ 65,693

Corporate bonds 14,351 — ( 230 ) 14,121

Commercial paper 7,944 — — 7,944

Agency bonds 6,231 — ( 71 ) 6,160

3 unchanged sentences

(in thousands)

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

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

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.

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.

As of December 31, 2022 and 2021, our available-for-sale investments had maturities ranging from 2 to 19 months and from 2 to 23 months, respectively.

Unrealized losses related to our available-for-sale investments are due to interest rate fluctuations as opposed to credit quality.

We do not intend to sell any of the securities in an unrealized loss position and it is not likely that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity.

We did not recognize any credit losses related to our available-for-sale investments during the years ended December 31, 2022 and 2021.

(6) Fair Value Measurements

13 unchanged sentences

Money market funds $ 88,039 $ — $ — $ 88,039

Commercial paper — 37,778 — 37,778

Corporate bonds — 14,121 — 14,121

Commercial paper — 7,944 — 7,944

Government agencies 65,693 — — 65,693

Agency bonds — 6,160 — 6,160

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

Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets and other assets) — 988 — 988

Total assets $ 153,732 $ 29,213 $ — $ 182,945

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

Foreign currency forward contracts designated as cash flow hedges (other current liabilities and other long term liabilities) $ — $ 1,559 $ — $ 1,559

Total liabilities $ — $ 1,559 $ — $ 1,559

3 unchanged sentences

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

Commercial paper — 37,778 — 37,778

Corporate bonds — 32,027 — 32,027

Government agencies 22,365 — — 22,365

Commercial paper — 24,192 — 24,192

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) — 432 — 432

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

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

Foreign currency forward contracts designated as cash flow hedges (other current liabilities and other long-term liabilities) 823 823

Total liabilities $ — $ 823 $ — $ 823

As of December 31, 2022, the fair value of our 2.25 % and 0.25 % convertible senior notes due 2025 and 2027, respectively, as further described in Note 10, Debt, was $ 220.3 million and $ 468.6 million, respectively, based upon quoted market prices.

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

We had no financial liabilities measured and recorded at fair value on a recurring basis as of December 31, 2021 and 2020.

(7) Property and Equipment

5 unchanged sentences

Leasehold improvements 66,180 51,983

Total 82,222 73,429

Total property and equipment, gross 102,571 82,222

Less accumulated depreciation ( 44,680 ) ( 31,997 )

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

Total property and equipment, net $ 57,891 $ 50,225

We recorded depreciation expense of $ 13.6 million, $ 12.3 million and $ 11.0 million in 2022, 2021 and 2020, respectively.

5 unchanged sentences

Balance at December 31, 2020 $ 213,601

DivvyCloud acquisition 115,735

Balance at December 31, 2020 $ 213,601

Alcide acquisition 40,783

1 unchanged sentence

Balance at December 31, 2021 515,258

IntSights acquisition adjustments 373

Balance at December 31, 2022 $ 515,631

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

2 unchanged sentences

Amount Accumulated

Amortization Net Book Value Gross Carrying

Amortization Net Carrying Value Gross Carrying

Amount Accumulated

Amortization Net Book Value

Amortization Net Carrying Value

(in thousands)

10 unchanged sentences

2023 $ 25,988

2027 and thereafter 5,206

Total $ 82,252

9 unchanged sentences

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

2 unchanged sentences

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

• 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 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.

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 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.

4 unchanged sentences

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 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 December 31, 2022 and 2021 was as follows (in thousands):

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

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 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

2025 Notes 2027 Notes

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

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

Amortization of debt issuance costs — 1,425 1,425 — 2,468 2,468

Conversion of Notes ( 8 ) — ( 8 ) — — —

Balance at December 31.2022 $ 229,992 $ ( 3,480 ) $ 226,512 $ 600,000 $ ( 10,564 ) $ 589,436

During the six months ended June 30, 2022, the 2025 Notes were convertible at the option of the holders.

During this period an immaterial principal amount of the 2025 Notes were requested for conversion and settled in cash.

As of December 31, 2022, the 2025 Notes and 2027 Notes were not convertible at the option of the holder.

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

2022 2021 2020

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

Contractual interest expense $ 5,174 $ 1,502 $ 6,676 $ 950 $ 5,175 $ 1,164 $ 7,289 $ 2,875 $ 3,450 $ 6,325

3 unchanged sentences

Total interest expense $ 6,599 $ 3,970 $ 10,569 $ 4,188 $ 6,559 $ 3,112 $ 13,859 $ 14,240 $ 9,504 $ 23,744

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 were not 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 convertible senior notes due August 1, 2023 (the “2023 Notes”), and paid accrued and unpaid interest thereon.

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

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

Expiration dates June 2, 2023 - July 28, 2023 March 4, 2025 - April 29, 2025 January 1, 2027 - March 11, 2027

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

21 unchanged sentences

As of December 31,

(in thousands, except lease term and discount rate)

Operating ROU assets $ 83,751 $ 67,178

Operating lease liabilities, current portion $ 9,630 $ 9,612

Operating lease liabilities, non-current portion 90,865 75,737

Total operating lease liabilities $ 100,495 $ 85,349

Weighted average remaining lease terms (in years) - operating leases 6.6 7.2

17 unchanged sentences

We initially reserved 800,000 shares of our common stock for the issuance of awards under the 2015 Plan plus the number of shares of common stock reserved for issuance under the 2011 Plan at the time the 2015 Plan became effective.

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.

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, the 2015 Plan to reserve an additional 1,500,000 shares of our common stock for issuance of inducement awards.

As of December 31, 2022, the shares of common stock authorized to be issued under the 2015 Plan totaled 20,185,353 and there were 3,811,978 shares of common stock available for grant.

We recognize stock-based compensation expense for all awards on a straight-line basis over the applicable vesting period, which is generally four years .

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

Stock-based compensation expense for restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), stock options and purchase rights issued under our employee stock purchase plan was classified in the accompanying consolidated statements of operations as follows:

Year Ended December 31,

7 unchanged sentences

Total stock-based compensation expense $ 119,902 $ 102,579 $ 63,888

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.

Our Compensation Committee approved the performance goals, targets and payout formulas for our 2022, 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).

For the years ended December 31, 2022 2021, and 2020 we recognized stock-based compensation expense related to such bonuses in the amount of $ 1.0 million , $ 4.7 million and $ 2.5 million, respectively, based on the performance against the pre-established corporate financial objectives as of December 31, 2022, 2021 and 2020.

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

1 unchanged sentence

In 2021, we accelerated the vesting of a stock award which was deemed a modification of the original award resulting in $ 6.1 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

Restricted stock, restricted stock unit and performance-based restricted stock unit activity during 2021, 2020 and 2019 was as follows:

Restricted Stock RSUs and PSUs

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

RSUs and PSUs activity during 2022, 2021 and 2020 was as follows:

Shares Weighted-

Average Grant

Value Shares Weighted-

Unvested balance as of December 31, 2019 2,936,924 $ 32.43

31 unchanged sentences

Vested and exercisable as of December 31, 2022 932,126 3.19 $ 19,837

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 2022, 2021 and 2020 was $ 0.1 million, $ 0.6 million and $ 2.2 million, respectively.

(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).

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.

The number of shares reserved and available for issuance under our 2015 Employee Stock Purchase Plan (“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, 2022, the shares of common stock authorized to be issued under the ESPP totaled 4,155,805 and there were 2,484,322 shares of common stock available for grant.

20 unchanged sentences

Common shares issued 218,314 80,747 73,676 147,837 131,585 101,806

Purchase prices $ 52.60 and $ 67.59

Purchase prices $ 45.31

$ 67.59 and $ 81.37

48 unchanged sentences

Research and development credits 11,047 8,950

Capitalized research and development 40,253 —

Operating lease liabilities 25,134 25,235

8 unchanged sentences

Operating lease ROU assets ( 20,159 ) ( 20,921 )

Convertible senior notes — ( 17,961 )

Deferred contract acquisition and fulfillment costs ( 22,664 ) ( 18,278 )

2 unchanged sentences

Net deferred tax liabilities $ ( 5,374 ) $ ( 7,020 )

Beginning January 1, 2022, the Tax Cuts and Jobs Act (the "Tax Act”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to Internal Revenue Code (“IRC”) Section 174.

The capitalized expenses are amortized over a 5-year period for domestic

expenses and a 15-year period for foreign expenses.

We have included the impact of this provision, which results in additional deferred tax assets of approximately $ 37.1 million as of December 31, 2022.

As of December 31, 2022, we have evaluated the need for a valuation allowance on deferred tax assets.

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.

The valuation allowance increased by $ 77.0 million for the year ended December 31, 2021, primarily due to additional operating losses generated during the year.

The valuation allowance increased by $ 42.8 million for the year ended December 31, 2022, primarily due to additional deferred tax assets established in the United States related to Section 174 R&D Capitalization.

We plan to permanently reinvest the undistributed earnings of our foreign subsidiaries.

7 unchanged sentences

These credit carryforwards expire at various dates beginning in 2023.

We are currently subject to the annual limitation under Sections 382 and 383 of the Internal Revenue Code.

corporation’s ability to utilize its net operating loss carryforwards is limited under Section 382 of the Internal Revenue Code of 1986, as amended, if the corporation undergoes an ownership change by which one or more stockholders or groups of stockholders that own at least 5% of the company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.

We experienced an ownership change, as defined in Section 382, in January 2018.

As such, we are currently subject to the annual limitation under Sections 382 and 383 of the Internal Revenue Code.

We will not be precluded from realizing the net operating loss carryforwards and tax credits but may be limited in the amount we could utilize in any given tax year in the event that the federal and state taxable income exceeds the limitation imposed by Section 382.

8 unchanged sentences

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

Changes in our reserve for unrecognized income tax benefits for the years ended December 31, 2022 was as follows (in thousands):

Balance at December 31, 2021 $ 5,041

Additions based on current year tax provisions —

Balance at December 31, 2022 $ 5,041

We recorded $ 0.2 million of interest in 2022 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.

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

(14) Net Loss Per Share

8 unchanged sentences

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, 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 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.

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

As of December 31, 2022, the 2025 Notes and 2027 Notes were not convertible at the option of the holder.

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

23 unchanged sentences

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

intend to vigorously contest Finjan's claims.

We intend to vigorously contest Finjan's claims.

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

33 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-K

Item 8. Financial Statements and Supplementary Data