What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-03 · 128 added, 221 removed, 441 unchanged (44% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Current assets:

1 unchanged sentence

Short-term investments 56,483 84,162

Accounts receivable, net of allowance for credit losses of $ 2,241 and $ 1,978 at September 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance for credit losses of $ 2,320 and $ 2,299 at March 31, 2023 and December 31, 2022, respectively

116,683 152,045

23 unchanged sentences

Total liabilities 1,439,631 1,479,065

Stockholders’ equity (deficit):

Stockholders’ deficit:

Preferred stock, $ 0.01 par value per share;

10,000,000 shares authorized at September 30, 2022 and December 31, 2021;

0 shares issued at September 30, 2022 and December 31, 2021

10,000,000 shares authorized at March 31, 2023 and December 31, 2022;

0 shares issued at March 31, 2023 and December 31, 2022

Common stock, $ 0.01 par value per share;

100,000,000 shares authorized at September 30, 2022 and December 31, 2021;

59,690,872 and 58,181,816 shares issued at September 30, 2022 and December 31, 2021, respectively;

59,204,064 and 57,695,008 shares outstanding at September 30, 2022 and December 31, 2021, respectively

Treasury stock, at cost, 486,808 shares at September 30, 2022 and December 31, 2021

100,000,000 shares authorized at March 31, 2023 and December 31, 2022;

60,891,488 and 60,206,277 shares issued at March 31, 2023 and December 31, 2022, respectively;

60,321,909 and 59,719,469 shares outstanding at March 31, 2023 and December 31, 2022, respectively

Treasury stock, at cost, 569,579 and 486,808 shares at March 31, 2023 and December 31, 2022, respectively

( 4,765 ) ( 4,764 )

2 unchanged sentences

Accumulated deficit ( 886,660 ) ( 860,745 )

Total stockholders’ equity (deficit) ( 142,284 ) ( 125,995 )

Total liabilities and stockholders’ equity (deficit) $ 1,295,549 $ 1,296,011

Total stockholders’ deficit ( 110,172 ) ( 120,074 )

Total liabilities and stockholders’ deficit $ 1,329,459 $ 1,358,991

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

1 unchanged sentence

(in thousands, except share and per share data)

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

2022 2021 2022 2021

Three Months Ended March 31,

Products $ 173,772 $ 149,025

24 unchanged sentences

(in thousands)

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

2022 2021 2022 2021

Three Months Ended March 31,

Net loss $ ( 25,915 ) $ ( 44,999 )

1 unchanged sentence

Change in fair value of cash flow hedges 192 ( 898 )

Adjustments for net losses (gains) realized on cash flow hedges and included in net loss 1,361 ( 8 ) 2,438 ( 386 )

Total change in unrealized losses on cash flow hedges ( 1,994 ) ( 782 ) ( 4,842 ) ( 1,361 )

Change in unrealized losses on investments ( 166 ) ( 10 ) ( 1,044 ) ( 22 )

Total other comprehensive loss ( 2,160 ) ( 792 ) ( 5,886 ) ( 1,383 )

Adjustments for net losses realized on cash flow hedges and included in net loss 641 316

Total change in unrealized gains (losses) on cash flow hedges 833 ( 582 )

Change in unrealized gains (losses) on investments 378 ( 658 )

Total other comprehensive income (loss) 1,211 ( 1,240 )

Comprehensive loss $ ( 24,704 ) $ ( 46,239 )

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

Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited)

(in thousands)

Common stock Treasury stock Additional

paid-in-capital Accumulated

comprehensive

loss Accumulated

deficit Total

stockholders’

Shares Amount Shares Amount

Balance, June 30, 2022 58,636 $ 586 487 $ ( 4,764 ) $ 681,194 $ ( 4,538 ) $ ( 820,633 ) $ ( 148,155 )

Stock-based compensation expense — — — — 31,746 — — 31,746

Issuance of common stock under employee stock purchase plan 137 1 — — 6,232 — — 6,233

Vesting of restricted stock units 381 4 — — ( 4 ) — — —

Shares withheld for employee taxes ( 23 ) — — — ( 1,637 ) — — ( 1,637 )

Issuance of common stock upon exercise of stock options 73 1 — — 415 — — 416

Other comprehensive loss — — — — — ( 2,160 ) — ( 2,160 )

Net loss — — — — — — ( 28,727 ) ( 28,727 )

Balance, September 30, 2022 59,204 $ 592 487 $ ( 4,764 ) $ 717,946 $ ( 6,698 ) $ ( 849,360 ) $ ( 142,284 )

Common stock Treasury stock Additional

paid-in-capital Accumulated

comprehensive

loss Accumulated

deficit Total

stockholders’

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 )

Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited)

Consolidated Statements of Changes in Stockholders' Deficit (Unaudited)

(in thousands)

12 unchanged sentences

Issuance of common stock upon exercise of stock options 16 — — — 181 — — 181

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

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

Other comprehensive loss — — — — — ( 5,886 ) — ( 5,886 )

Issuance of common stock in relation to an acquisition 74 1 — — ( 1 ) — — —

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

Other comprehensive gain — — — — — 1,211 — 1,211

Net loss — — — — — — ( 25,915 ) ( 25,915 )

Balance, September 30, 2022 59,204 $ 592 487 $ ( 4,764 ) $ 717,946 $ ( 6,698 ) $ ( 849,360 ) $ ( 142,284 )

Balance, March 31, 2023 60,322 $ 603 570 $ ( 4,765 ) $ 780,850 $ ( 200 ) $ ( 886,660 ) $ ( 110,172 )

Common stock Treasury stock Additional

1 unchanged sentence

comprehensive

gain (loss) Accumulated

loss Accumulated

deficit Total

stockholders’

equity (deficit)

Shares Amount Shares Amount

5 unchanged sentences

Issuance of common stock upon exercise of stock options 99 1 — — 958 — — 959

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 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 )

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

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

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

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

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:

4 unchanged sentences

Stock-based compensation expense 29,373 28,922

Deferred income taxes — 3,924

Induced conversion expense — 2,740

Other 995 526

14 unchanged sentences

Sales/maturities of investments 35,800 2,800

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

Net cash used in investing activities ( 10,177 ) ( 35,911 )

Cash flows from financing activities:

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

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

Payments of debt issuance costs ( 71 ) —

Payments for repurchase and conversion of convertible senior notes ( 12 ) ( 184,649 )

Payments related to business acquisitions ( 2,250 ) —

4 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 33 ) ( 800 )

Net increase in cash, cash equivalents and restricted cash 3,851 53,913

Net decrease in cash, cash equivalents and restricted cash ( 1,530 ) ( 23,100 )

Cash, cash equivalents and restricted cash, beginning of period 207,804 165,017

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, 2022 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, 2023 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 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 three and nine months ended September 30, 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.

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.

Significant Accounting Policies

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, 2022.

There have been no changes to the significant accounting policies during the three and nine-month periods ended September 30, 2022.

There have been no changes to the significant accounting policies during the three-month period ended March 31, 2023.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

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.

We have not identified any recently issued accounting pronouncements that would have a material impact to our consolidated financial statements.

Revenue from Contracts with Customers

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.

The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2022 and 2021:

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

2022 2021 2022 2021

(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.

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

(in thousands)

Subscriptions $ 173,390 $ 147,467

Perpetual software licenses 759 1,840 3,226 5,990

Professional services 9,402 8,359

16 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 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

2 unchanged sentences

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

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.

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

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

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

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

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

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

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

Contract Balances

1 unchanged sentence

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

For the three months ended September 30, 2022 and 2021, we recognized revenue of $ 153.8 million and $ 117.5 million, respectively, and for the nine months ended September 30, 2022 and 2021, we recognized $ 308.3 million and $ 237.5 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, 2023 and 2022, we recognized revenue of $ 163.4 million and $ 137.3 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

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

3 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 record a contract asset.

As of September 30, 2022 and December 31, 2021, unbilled receivables of $ 1.2 million are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of September 30, 2022 and December 31, 2021, we had no contract assets recorded on our consolidated balance sheet.

As of March 31, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, 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, 2022.

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, 2023.

The estimated revenues do not include unexercised contract renewals.

2 unchanged sentences

Subscriptions $ 481,320 $ 198,798

Perpetual software licenses 878 184

Professional services 15,484 5,195

Other 307 133

Total $ 497,111 $ 204,126

Business Combinations

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

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

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 $ 61.1 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.

Velocidex Enterprises Pty Ltd

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

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

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

Alcide.IO Ltd.

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

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

The 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.

On March 14, 2023, we acquired Minerva Labs Ltd.

(“Minerva”), a leading provider of anti-evasion and ransomware prevention technology, for a purchase consideration of $ 35.0 million, which was funded in cash.

Additionally, we issued an aggregate of 73,846 shares of our common stock to the founders of Minerva with a fair value of $ 3.6 million.

The 73,846 shares of common stock will be accounted for as stock-based compensation expense over a 24-month period as continued service is required for the founders to receive their full amount of common stock.

In the three months ended March 31, 2023, we recognized stock-based compensation expense related to such shares in the amount of $ 0.1 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):

Purchase price $ 34,977

Recognized amount of identifiable assets acquired and liabilities assumed:

Cash and cash equivalents $ 136

Other current assets 600

Other assets 43

Accounts payable and other current liabilities ( 413 )

Other long-term liabilities ( 395 )

Intangible asset 12,600

Total identifiable net assets assumed $ 12,571

Goodwill 22,406

Total purchase price allocation $ 34,977

We identified developed technology as the sole acquired intangible asset.

The estimated fair value of the developed technology intangible asset was $ 12.6 million which was based on a valuation using the income approach.

The estimated useful life of the developed technology is 8 years.

The excess of the purchase price over the tangible assets acquired, identifiable intangible asset 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.

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

In the three months ended March 31, 2023, we recorded $ 0.4 million of acquisition-related transaction costs related to the acquisition of Minerva to general and administrative expense.

Our revenue and net loss attributable to the Minerva business for the three months ended March 31, 2023 was not material.

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

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

As of September 30, 2022

As of March 31, 2023

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

2 unchanged sentences

Corporate bonds 11,524 — ( 111 ) 11,413

Commercial paper 7,630 — — 7,630

Agency bonds 3,250 — ( 51 ) 3,199

3 unchanged sentences

(in thousands)

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

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

U.S 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

Total $ 94,760 $ 4 $ ( 846 ) $ 93,918

As of September 30, 2022, our available-for-sale investments had maturities ranging from 1 to 22 months.

As of March 31, 2023, our available-for-sale investments had maturities ranging from 1 to 16 months.

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

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

For all of our investments for which the amortized cost basis was greater than the fair value at March 31, 2023 and December 31, 2022, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity.

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

10 unchanged sentences

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

As of September 30, 2022

As of March 31, 2023

Level 1 Level 2 Level 3 Total

(in thousands)

Government agencies $ 69,840 $ — $ — $ 69,840

Money market funds $ 62,390 $ — $ — $ 62,390

Government agencies 49,214 — — 49,214

Corporate bonds — 11,413 — 11,413

Commercial paper — 7,630 — 7,630

Agency bonds — 3,199 — 3,199

7 unchanged sentences

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

Government agencies 65,693 — — 65,693

Commercial paper — 14,121 — 14,121

Corporate bonds — 7,944 — 7,944

Government agencies 22,365 — — 22,365

Agency bonds — 6,160 — 6,160

3 unchanged sentences

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

As of September 30, 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 $ 229.9 million and $ 455.2 million, respectively, based upon quoted market prices.

As of March 31, 2023, 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 $ 235.4 million and $ 521.1 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, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

(in thousands)

5 unchanged sentences

Property and equipment, net $ 56,638 $ 57,891

Depreciation expense was $ 3.5 million and $ 3.2 million for the three months ended September 30, 2022 and 2021, respectively, and $ 10.0 million and $ 9.2 million for the nine months ended September 30, 2022 and 2021, respectively .

Depreciation expense was $ 3.8 million and $ 3.3 million for the three months ended March 31, 2023 and 2022, respectively .

Goodwill and Intangible Assets

Goodwill was $ 515.6 million and $ 515.3 million as of September 30, 2022 and December 31, 2021, respectively.

Goodwill was $ 538.0 million and $ 515.6 million as of March 31, 2023 and December 31, 2022, respectively.

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

1 unchanged sentence

Balance at December 31, 2022 $ 515,631

IntSights acquisition adjustments 373

Balance at September 30, 2022 $ 515,631

Minerva acquisition 22,406

Balance at March 31, 2023 $ 538,037

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, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

Life (years) Gross Carrying

11 unchanged sentences

Total intangible assets $ 197,552 $ ( 86,120 ) $ 111,432 $ 180,176 $ ( 78,907 ) $ 101,269

Amortization expense was $ 6.7 million and $ 6.6 million for the three months ended September 30, 2022 and 2021, respectively, and $ 20.6 million and $ 14.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of September 30, 2022 was as follows (in thousands):

2022 (for the remaining three months) $ 6,637

Amortization expense was $ 7.2 million and $ 6.9 million for the three months ended March 31, 2023 and 2022, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of March 31, 2023 was as follows (in thousands):

2023 (for the remaining nine months) $ 21,698

2028 and thereafter 5,119

Total $ 93,858

The table above excludes the impact of $ 16.9 million of capitalized internal-use software costs for projects that have not been completed as of September 30, 2022, 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 $ 17.6 million of capitalized internal-use software costs for projects that have not been completed as of March 31, 2023, 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, 2022 and 2021:

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, 2023 and 2022:

Three Months Ended March 31,

(in thousands)

5 unchanged sentences

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

These forward contracts have contractual maturities of nineteen months or less, and as of September 30, 2022 and December 31, 2021, outstanding forward contracts had a total notional value of $ 51.8 million and $ 34.7 million, respectively.

These forward contracts have contractual maturities of nineteen months or less, and as of March 31, 2023 and December 31, 2022, outstanding forward contracts had a total notional value of $ 55.2 million and $ 44.9 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 and nine months ended September 30, 2022, all cash flow hedges were considered effective.

During the three months ended March 31, 2023, all cash flow hedges were considered effective.

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

14 unchanged sentences

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

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 September 30, 2022, the 2025 Notes and 2027 Notes were not convertible at the option of the holder.

As of March 31, 2023, the 2025 Notes and 2027 Notes were 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.

7 unchanged sentences

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

The net carrying amount of the Notes as of March 31, 2023 and December 31, 2022 was as follows (in thousands):

2025 Notes 2027 Notes

2 unchanged sentences

Amortization of debt issuance costs — 340 340 — 606 606

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

Balance at September, 30, 2022 $ 229,992 $ ( 3,853 ) $ 226,139 $ 600,000 $ ( 11,192 ) $ 588,808

Balance at March 31, 2023 $ 229,992 $ ( 3,140 ) $ 226,852 $ 600,000 $ ( 9,958 ) $ 590,042

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

Three Months Ended September 30,

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

Contractual interest expense $ 1,292 $ 377 $ 1,669 $ 146 $ 1,293 $ 375 $ 1,814

Amortization of debt issuance costs 371 626 997 75 361 620 1,056

Total interest expense $ 1,663 $ 1,003 $ 2,666 $ 221 $ 1,654 $ 995 $ 2,870

Nine Months Ended September 30,

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

Three Months Ended March 31,

2025 Notes 2027 Notes Total 2025 Notes 2027 Notes Total

Contractual interest expense $ 1,294 $ 375 $ 1,669 $ 1,294 $ 375 $ 1,669

Amortization of debt issuance costs 340 606 946 330 602 932

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

Total interest expense $ 1,634 $ 981 $ 2,615 $ 1,624 $ 977 $ 2,601

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.

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”).

7 unchanged sentences

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.

11 unchanged sentences

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 September 30, 2022, we did not have any outstanding borrowings and we were in compliance with all covenants under the Credit Agreement.

As of September 30, 2022, we had a total of $ 9.8 million in letters of credit outstanding as collateral for certain office space leases and corporate credit card programs which reduce the amount of borrowing available under our Credit Agreement.

Our leases primarily relate to office facilities that have remaining terms of up to 9.5 years, some of which include one or more options to renew with renewal terms of up to 7 years and some of which include options to terminate the leases within the next 7 years.

As of March 31, 2023, we did not have any outstanding borrowings and we were in compliance with all covenants under the Credit Agreement.

As of March 31, 2023, we had a total of $ 9.8 million in letters of credit outstanding as collateral for certain office space leases and corporate credit card programs which reduce the amount of borrowing available under our Credit Agreement.

Our leases primarily relate to office facilities that have remaining terms of up to 9.3 years, some of which include one or more options to renew with renewal terms of up to 5 years and some of which include options to terminate the leases within 1 year.

All of our leases are classified as operating leases.

The components of lease expense were as follows:

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

2022 2021 2022 2021

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, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

Weighted average remaining lease term (in years) - operating leases 6.4 6.6

1 unchanged sentence

Supplemental cash flow information related to leases was as follows:

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

2022 2021 2022 2021

Three Months Ended March 31,

(in thousands)

1 unchanged sentence

ROU assets obtained in exchange for new lease obligations $ 1,151 $ 8,864

Maturities of operating lease liabilities as of September 30, 2022 were as follows (in thousands):

2022 (for the remaining three months) $ 4,039

Maturities of operating lease liabilities as of March 31, 2023 were as follows (in thousands):

2023 (for the remaining nine months) $ 13,309

2028 and thereafter 34,955

3 unchanged sentences

Stock-Based Compensation Expense

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,

2022 2021 2022 2021

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

Three Months Ended March 31,

(in thousands)

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Our Compensation Committee adopted and approved the performance goals, targets and payout formulas for our 2023 and 2022 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, 2022 and 2021, we recognized stock-based compensation expense related to such bonuses in the amount of $( 0.8 ) million and $ 1.3 million, and during the nine months ended September 30, 2022 and 2021, we recognized stock-based compensation expense related to such bonuses in the amount of $ 0.8 million and $ 3.6 million, based on the probable expected performance against the pre-established corporate

financial objectives as of September 30, 2022 and 2021.

During the three months ended March 31, 2023 and 2022, we recognized stock-based compensation expense related to such bonuses in the amount of $ 0.7 million and $ 1.0 million, based on the probable expected performance against the pre-established corporate financial objectives as of March 31, 2023 and 2022.

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, 2022 was as follows:

RSUs and PSUs activity during the three months ended March 31, 2023 was as follows:

Shares Weighted-Average

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Forfeited ( 178,587 ) 75.10

Unvested balance as of September 30, 2022 3,279,901 $ 87.58

As of September 30, 2022, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 266.3 million.

Unvested balance as of March 31, 2023 4,246,259 $ 66.66

As of March 31, 2023, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 263.7 million.

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

In February 2023, our Compensation Committee awarded 173,103 PSUs that require the achievement of an ARR target for the 2023 full-year to earn any payout and also include a non-GAAP operating income margin modifier.

In addition, the portion of the PSUs that are earned will be capped at a maximum of 200 % of the target level payout and if certain ARR or non-GAAP operating income margin goals are not met, no PSUs will be earned.

The PSUs have a performance period of one year and the earned PSUs will vest in three equal installments following each of the first, second and third anniversary of the vesting commencement date, subject to the participant’s continuous service as of each such date.

Stock-based compensation expense related to these PSUs will be adjusted over the one-year performance period based on interim estimates of performance against the identified targets.

Stock option activity during the nine months ended September 30, 2022 was as follows:

Stock option activity during the three months ended March 31, 2023 was as follows:

Shares Weighted

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Forfeited/cancelled — —

Outstanding as of September 30, 2022 1,218,790 $ 11.10 2.7 $ 38,753

Vested and exercisable as of September 30, 2022 1,218,790 $ 11.10 2.7 $ 38,753

The total fair value of stock options vested in the nine months ended September 30, 2022 was $ 0.1 million.

Outstanding as of March 31, 2023 915,314 $ 12.73 — $ 30,366

Vested and exercisable as of March 31, 2023 915,314 $ 12.73 — $ 30,366

(d) Employee Stock Purchase Plan

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(i) the market value of our common stock at the beginning of each offering period and (ii) the market value of our common stock on the applicable purchase date.

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, 2022, we issued 137,567 shares of common stock to employees, with a purchase prices of $ 45.31 per share, for aggregate proceeds of $ 6.2 million.

On March 15, 2023, we issued 177,886 shares of common stock to employees, with a purchase prices of $ 34.71 per share, for aggregate proceeds of $ 6.2 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, 2022 and 2021:

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

2022 2021 2022 2021

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, 2023 and 2022:

Three Months Ended March 31,

(in thousands, except share and per share data)

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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 and nine months ended September 30, 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.

For the three months ended March 31, 2023 and 2022, 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.

As of March 31, 2023 and 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.

For disclosure purposes, we have calculated the potentially dilutive effect of the conversion spread, which is included in the table below.

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 915,314 1,312,604

2 unchanged sentences

Common stock issued to IntSights founders 41,194 206,608

Common stock issued to Minerva founders 73,846 —

Shares to be issued under ESPP 31,793 15,742

8 unchanged sentences

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

We intend to vigorously contest Finjan's claims.

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

Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

During the first quarter of 2023, we settled with Finjan for an immaterial amount.

On April 5, 2023, the joint motion to dismiss the case was accepted by the court and this matter is now closed.

In addition, from time to time, we may be a party to litigation or subject to claims incident to the ordinary course of business.

12 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,

2022 2021 2022 2021

Three Months Ended March 31,

(in thousands)

3 unchanged sentences

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

As of September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

(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