What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 175 added, 84 removed, 485 unchanged (35% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

1 unchanged sentence

Short-term investments 107,573 84,162

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

Accounts receivable, net of allowance for credit losses of $ 1,275 and $ 2,299 at June 30, 2023 and December 31, 2022, respectively

136,300 152,045

25 unchanged sentences

Preferred stock, $ 0.01 par value per share;

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

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

10,000,000 shares authorized at June 30, 2023 and December 31, 2022;

0 shares issued at June 30, 2023 and December 31, 2022

Common stock, $ 0.01 par value per share;

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

100,000,000 shares authorized at June 30, 2023 and December 31, 2022;

61,509,616 and 60,206,277 shares issued at June 30, 2023 and December 31, 2022, respectively;

60,940,037 and 59,719,469 shares outstanding at June 30.

2023 and December 31, 2022, respectively

Treasury stock, at cost, 569,579 and 486,808 shares at June 30, 2023 and December 31, 2022, respectively

( 4,765 ) ( 4,764 )

Additional paid-in-capital 846,326 746,249

Accumulated other comprehensive loss ( 200 ) ( 1,411 )

Accumulated other comprehensive income (loss) 250 ( 1,411 )

Accumulated deficit ( 953,442 ) ( 860,745 )

4 unchanged sentences

(in thousands, except share and per share data)

Three Months Ended March 31,

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

2023 2022 2023 2022

Products $ 181,701 $ 159,122 $ 355,473 $ 308,147

10 unchanged sentences

General and administrative 22,888 20,890 47,095 42,406

Impairment of long-lived assets 27,231 — 27,231 —

Total operating expenses 183,917 147,831 335,057 294,305

12 unchanged sentences

(in thousands)

Three Months Ended March 31,

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

2023 2022 2023 2022

Net loss $ ( 66,782 ) $ ( 39,606 ) $ ( 92,697 ) $ ( 84,605 )

16 unchanged sentences

Shares Amount Shares Amount

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

Stock-based compensation expense — — — — 31,276 — — 31,276

Vesting of restricted stock units 442 4 — — ( 4 ) — — —

Shares withheld for employee taxes ( 28 ) — — — ( 1,324 ) — — ( 1,324 )

Issuance of common stock upon exercise of stock options 171 2 — — 2,499 — — 2,501

Issuance of common stock in relation to an acquisition 33 — — — — — — —

Reclassification of 2023 capped calls from equity to derivative asset — — — — 33,029 — — 33,029

Other comprehensive gain — — — — — 450 — 450

Net loss — — — — — — ( 66,782 ) ( 66,782 )

Balance, June 30, 2023 60,940 $ 609 570 $ ( 4,765 ) $ 846,326 $ 250 $ ( 953,442 ) $ ( 111,022 )

Common stock Treasury stock Additional

paid-in-capital Accumulated

comprehensive

loss Accumulated

deficit Total

stockholders’

Shares Amount Shares Amount

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

Stock-based compensation expense — — — — 31,890 — — 31,890

Vesting of restricted stock units 364 4 — — ( 4 ) — — —

Shares withheld for employee taxes ( 24 ) — — — ( 1,645 ) — — ( 1,645 )

Issuance of common stock upon exercise of stock options 21 — — — 246 — — 246

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 — — — — — ( 2,486 ) — ( 2,486 )

Net loss — — — — — — ( 39,606 ) ( 39,606 )

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

Common stock Treasury stock Additional

paid-in-capital Accumulated

comprehensive

loss Accumulated

deficit Total

stockholders’

Shares Amount Shares Amount

Balance, December 31, 2022 59,720 $ 597 487 $ ( 4,764 ) $ 746,249 $ ( 1,411 ) $ ( 860,745 ) $ ( 120,074 )

5 unchanged sentences

Issuance of common stock in relation to an acquisition 107 1 — — ( 1 ) — — —

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

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

Reclassification of 2023 capped calls from equity to derivative asset — — — — 33,029 — — 33,029

Other comprehensive gain — — — — — 1,661 — 1,661

Net loss — — — — — — ( 92,697 ) ( 92,697 )

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

Balance, June 30, 2023 60,940 $ 609 570 $ ( 4,765 ) $ 846,326 $ 250 $ ( 953,442 ) $ ( 111,022 )

Common stock Treasury stock Additional

11 unchanged sentences

Issuance of common stock upon exercise of stock options 120 1 — — 1,204 — — 1,205

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 — — — — — ( 3,726 ) — ( 3,726 )

Net loss — — — — — — ( 84,605 ) ( 84,605 )

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

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

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

1 unchanged sentence

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

4 unchanged sentences

Stock-based compensation expense 61,068 61,333

Impairment of long-lived assets 27,231 —

Change in fair value of derivative assets 12,660 —

Other 4,423 2,281

14 unchanged sentences

Sales/maturities of investments 65,700 60,329

Other investments — ( 500 )

Net cash used in investing activities ( 62,183 ) ( 14,450 )

Cash flows from financing activities:

Payments of debt issuance costs — ( 71 )

Payments for repurchase of convertible senior notes — ( 12 )

Payments related to business acquisitions ( 2,250 ) ( 300 )

4 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 337 ) ( 3,671 )

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

Net (decrease) increase in cash, cash equivalents and restricted cash ( 21,358 ) 1,157

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 months ended March 31, 2023 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Use of Estimates

5 unchanged sentences

Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

There have been no changes to the significant accounting policies during the three and six-month periods ended June 30, 2023.

Recent Accounting Pronouncements

3 unchanged sentences

(1) subscriptions from the sale of cloud-based subscriptions, managed services, term software licenses, content subscriptions and maintenance and support associated with our software licenses 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,

The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2023 and 2022:

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

2023 2022 2023 2022

(in thousands)

25 unchanged sentences

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

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.

For the three months ended June 30, 2023 and 2022, we recognized revenue of $ 164.9 million and $ 143.7 million, respectively, and for the six months ended June 30, 2023 and 2022, we recognized $ 288.3 million and $ 250.4 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

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

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 March 31, 2023 and December 31, 2022, unbilled receivables of $ 1.1 million and $ 1.2 million,

As of June 30, 2023 and December 31, 2022, unbilled receivables of $ 2.5 million and $ 1.1 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.

As of June 30, 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 March 31, 2023.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of June 30, 2023.

The estimated revenues do not include unexercised contract renewals.

7 unchanged sentences

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.

(“Minerva”), a leading provider of anti-evasion and ransomware prevention technology, for a purchase price with an aggregate fair value of $ 34.6 million.

The purchase consideration consisted of $ 35.0 million paid in cash at closing and a $ 0.4 million receivable for purchase price adjustments.

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.

In the three and six months ended June 30, 2023, we recognized stock-based compensation expense related to such shares in the amount of $ 0.4 million and $ 0.5 million, respectively.

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

Consideration

Cash $ 34,977

Estimated purchase price receivable adjustment ( 365 )

Fair value of total consideration transferred $ 34,612

Recognized amount of identifiable assets acquired and liabilities assumed:

8 unchanged sentences

Total purchase price allocation $ 34,612

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

We identified developed technology as the sole acquired intangible asset.

2 unchanged sentences

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.

and sell these new features to our customer base.

The goodwill was allocated to our one reporting unit.

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.

In the three and six months ended June 30, 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 and six months ended June 30, 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 March 31, 2023

As of June 30, 2023

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

12 unchanged sentences

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

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

As of June 30, 2023, our available-for-sale investments had maturities ranging from 1 to 13 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 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.

For all of our investments for which the amortized cost basis was greater than the fair value at June 30, 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 March 31, 2023

As of June 30, 2023

Level 1 Level 2 Level 3 Total

2 unchanged sentences

Government agencies 102,850 — — 102,850

Derivative assets — 20,369 — 20,369

Corporate bonds — 3,960 — 3,960

9 unchanged sentences

Government agencies 65,693 — — 65,693

Commercial paper — 14,121 — 14,121

Corporate bonds — 14,121 — 14,121

Commercial paper — 7,944 — 7,944

Agency bonds — 6,160 — 6,160

3 unchanged sentences

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

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.

As of June 30, 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 $ 234.2 million and $ 520.9 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 March 31, 2023 As of December 31, 2022

As of June 30, 2023 As of December 31, 2022

(in thousands)

2 unchanged sentences

Leasehold improvements (1)

60,998 66,180

Total 98,621 102,571

1 unchanged sentence

Property and equipment, net $ 47,104 $ 57,891

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

(1) During the second quarter of 2023, leasehold improvements with a net book value of $ 7.0 million were included in an impairment of long-lived assets charge recorded related to certain idle office space at our corporate headquarters in Boston, Massachusetts.

Refer to Note 11.

Leases for further details on the impairment of long-lived assets.

Depreciation expense was $ 3.7 million and $ 3.2 million for the three months ended June 30, 2023 and 2022, respectively, and $ 7.6 million and $ 6.5 million for the six months ended June 30, 2023 and 2022, respectively.

Goodwill and Intangible Assets

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

Goodwill was $ 536.3 million and $ 515.6 million as of June 30, 2023 and December 31, 2022, respectively.

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

2 unchanged sentences

Minerva acquisition 20,695

Balance at March 31, 2023 $ 538,037

Balance at June 30, 2023 $ 536,326

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

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

As of June 30, 2023 As of December 31, 2022

Life (years) Gross Carrying

11 unchanged sentences

Total intangible assets $ 198,898 $ ( 94,200 ) $ 104,698 $ 180,176 $ ( 78,907 ) $ 101,269

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

Amortization expense was $ 8.1 million and $ 7.0 million for the three months ended June 30, 2023 and 2022, respectively and $ 15.3 million and $ 13.9 million for the six months ended June 30, 2023 and 2022, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of June 30, 2023 was as follows (in thousands):

2023 (for the remaining six months) $ 15,362

2028 and thereafter 5,131

Total $ 92,645

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.

The table above excludes the impact of $ 12.1 million of capitalized internal-use software costs for projects that have not been completed as of June 30, 2023, and therefore, we have not determined the useful life of the software, nor have all the costs associated with these projects been incurred.

In the three and six months ended June 30, 2023, we recorded a $ 3.2 million impairment of capitalized internal-use software costs to research and development expense in our consolidated statement of operations for projects that have been discontinued and will not be placed into service.

Deferred Contract Acquisition and Fulfillment Costs

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,

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

(in thousands)

5 unchanged sentences

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

These forward contracts have contractual maturities of 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.

These forward contracts have contractual maturities of eighteen months or less, and as of June 30, 2023 and December 31, 2022, outstanding forward contracts had a total notional value of $ 51.7 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 months ended March 31, 2023, all cash flow hedges were considered effective.

During the three and six months ended June 30, 2023, all cash flow hedges were considered effective.

As further described in Note 10, Debt , as of June 30, 2023, we have a $ 20.4 million derivative asset related to the settlement of our 2023 capped call transactions which was recorded as a component of prepaid expenses and other current assets on our consolidated balance sheet .

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).

As of March 31, 2023, the 2025 Notes and 2027 Notes were not convertible at the option of the holder.

As of June 30, 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 March 31, 2023 and December 31, 2022 was as follows (in thousands):

The net carrying amount of the Notes as of June 30, 2023 and December 31, 2022 was as follows (in thousands):

2025 Notes 2027 Notes

2 unchanged sentences

Amortization of debt issuance costs — 701 701 — 1,224 1,224

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

Balance at June 30, 2023 $ 229,992 $ ( 2,779 ) $ 227,213 $ 600,000 $ ( 9,340 ) $ 590,660

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

Three Months Ended March 31,

Three Months Ended June 30,

2025 Notes 2027 Notes Total 2025 Notes 2027 Notes Total

2 unchanged sentences

Total interest expense $ 1,655 $ 994 $ 2,649 $ 1,645 $ 987 $ 2,632

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”).

Six Months Ended June 30,

2025 Notes 2027 Notes Total 2025 Notes 2027 Notes Total

Contractual interest expense $ 2,588 $ 750 $ 3,338 $ 2,588 $ 750 $ 3,338

Amortization of debt issuance costs 701 1,224 1,925 681 1,214 1,895

Total interest expense $ 3,289 $ 1,974 $ 5,263 $ 3,269 $ 1,964 $ 5,233

In connection with the offering of the 1.25 % convertible senior notes due 2023 (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.

6 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.

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

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.

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

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

The 2023 Capped Calls are due to be settled over a 40 -day trading period from June 2, 2023 to August 1, 2023, with a settlement date of August 3, 2023.

The 2023 Capped Calls are separate transactions from the 2023 Notes and were recorded in stockholders' equity at issuance.

In accordance with the terms of the Capped Calls agreements, we elected to cash-settle the 2023 Capped Calls via written notice provided to the counterparties on May 31, 2023 (the "Notice Date").

Since cash settlement was elected, pursuant to ASC 815, the 2023 Capped Calls were deemed to meet the definition of a derivative instrument, requiring reclassification from stockholder's equity to a derivative asset at the fair value on the Notice Date, with subsequent changes in fair value to be recorded to earnings through the settlement date.

The fair value on the Notice Date of $ 33.0 million was reclassed from stockholders' equity (additional paid-in capital) to derivative assets.

As of June 30, 2023, the fair value of the derivative asset was $ 20.4 million and classified as prepaid and other current assets on our consolidated balance sheet.

The change in fair value of the derivative asset from the Notice Date to June 30, 2023 was $ 12.7 million and recorded to other income (expense) on our consolidated statement of operations.

On August 3, 2023, we received $ 17.5 million in cash from the settlement of the 2023 Capped Calls.

Credit Agreement

8 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 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.

As of June 30, 2023, we did not have any outstanding borrowings and we were in compliance with all covenants under the Credit Agreement.

As of June 30, 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 8.8 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 4.2 years.

All of our leases are classified as operating leases.

The components of lease expense were as follows:

Three Months Ended March 31,

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

2023 2022 2023 2022

(in thousands)

4 unchanged sentences

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

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

As of June 30, 2023 As of December 31, 2022

Weighted average remaining lease term (in years) - operating leases 6.2 6.6

1 unchanged sentence

Supplemental cash flow information related to leases was as follows:

Three Months Ended March 31,

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

2023 2022 2023 2022

(in thousands)

1 unchanged sentence

ROU assets obtained in exchange for new lease obligations $ 2,686 $ — $ 3,837 $ 8,864

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

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

Maturities of operating lease liabilities as of June 30, 2023 were as follows (in thousands):

2023 (for the remaining six months) $ 8,407

2028 and thereafter 36,559

2 unchanged sentences

Total $ 96,867

During the second quarter of 2023, we determined that a triggering event occurred which indicated that the carrying value of our right-of-use (“ROU”) and other lease-related assets related to a change in usage of certain idle office space at our corporate headquarters in Boston, Massachusetts may not be fully recoverable.

As a result, we utilized discounted cash flow models to estimate the fair value of the asset group taking into consideration the time period it will take to obtain sublessees, the applicable discount rate and the anticipated sublease income and calculated the corresponding impairment loss.

We used prices and other relevant information generated by recent market transactions involving similar or comparable assets, as well as our historical experience in real estate transactions.

In the three and six months ended June 30, 2023, we recorded an impairment loss of $ 27.2 million consisting of $ 20.2 million related to ROU assets and $ 7.0 million related to leasehold improvements associated with this leased office space.

Stock-Based Compensation Expense

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

Three Months Ended March 31,

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

2023 2022 2023 2022

(in thousands)

7 unchanged sentences

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 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.

During the three months ended June 30, 2023 and 2022, we recognized stock-based compensation expense related to such bonuses in the amount of $ 0.4 million and $ 0.5 million, respectively, and during the six months ended based June 30, 2023 and 2022, we recognized stock-based compensation expense related to such bonuses in the amount of $ 1.1 million and $ 1.5 million, respectively, on the probable expected performance against the pre-established corporate financial objectives as of June 30, 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.

1 unchanged sentence

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

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

RSUs and PSUs activity during the six months ended June 30, 2023 was as follows:

Shares Weighted-Average

3 unchanged sentences

Forfeited ( 486,985 ) 71.83

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.

Unvested balance as of June 30, 2023 3,838,671 $ 64.08

As of June 30, 2023, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 229.2 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 2.5 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 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 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.

2 unchanged sentences

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

Stock option activity during the six months ended June 30, 2023 was as follows:

Shares Weighted

6 unchanged sentences

Forfeited/cancelled — —

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

Outstanding as of June 30, 2023 744,262 $ 12.30 2.6 $ 24,555

Vested and exercisable as of June 30, 2023 744,462 $ 12.30 2.6 $ 24,555

(d) Employee Stock Purchase Plan

4 unchanged sentences

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 months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the three and six months ended June 30, 2023 and 2022:

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

2023 2022 2023 2022

(in thousands, except share and per share data)

4 unchanged sentences

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

For the three months ended March 31, 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.

For the three and six months ended June 30, 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.

As of June 30, 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.

1 unchanged sentence

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 Months Ended March 31,

Three and Six Months Ended June 30,

Options to purchase common stock 744,262 1,291,667

Unvested restricted stock units 3,838,671 3,685,422

Common stock to be issued to DivvyCloud founders 33,433 66,865

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

Common stock issued to Minerva founders 73,846 —

Common stock issued in conjunction with acquisitions 115,041 240,041

Shares to be issued under ESPP 120,586 57,281

24 unchanged sentences

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

Three Months Ended March 31,

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

2023 2022 2023 2022

(in thousands)

3 unchanged sentences

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

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

As of June 30, 2023 As of December 31, 2022

(in thousands)

2 unchanged sentences

Total $ 47,104 $ 57,891

Subsequent Event

Restructuring Plan

On August 7, 2023, the board of directors of the Company approved a restructuring plan that is designed to improve operational efficiencies, reduce operating costs and better align the Company’s workforce with current business needs, top strategic priorities and key growth opportunities (collectively, the “Restructuring Plan”).

The Restructuring Plan includes reduction of the Company’s workforce by approximately 18 %.

We estimate that we will incur approximately $ 24 -$ 32 million in charges in connection with the Restructuring Plan, consisting of cash expenditures for employee transition, notice period and severance payments and employee benefits and related facilitation costs, as well as non-cash expenditures related to acceleration of vesting of share-based awards.

Of this amount, approximately $ 22 -$ 30 million is expected to result in future cash outlays.

We expect that the majority of the restructuring charges will be incurred in the third and fourth quarter of 2023 and that the execution of the Restructuring Plan, including cash payments, will be substantially complete by the end of the fourth quarter of 2023.

Potential position eliminations in each country are subject to local law and consultation requirements, which may extend this process beyond the fourth quarter of 2023 in certain countries.

The charges that we expect to incur are subject to a number of assumptions, including local law requirements in various jurisdictions, and actual expenses may differ materially from the estimates disclosed above.

In connection with the Restructuring Plan, the Company plans to permanently close certain office locations.

This will result in an impairment loss of approximately $ 4 million that will be recorded during 2023 as the exit activities are finalized in each location.

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