What changed in this filing

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Item 1. Financial Statements

2023-11-06 compared with 2023-08-09 · 168 added, 147 removed, 513 unchanged (38% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

1 unchanged sentence

Short-term investments 139,434 84,162

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

Accounts receivable, net of allowance for credit losses of $ 789 and $ 2,299 at September 30, 2023 and December 31, 2022, respectively

137,690 152,045

10 unchanged sentences

Total assets $ 1,399,300 $ 1,358,991

Liabilities and Stockholders’ Equity (Deficit)

Liabilities and Stockholders’ Deficit

Current liabilities:

12 unchanged sentences

Preferred stock, $ 0.01 par value per share;

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

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

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

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

Common stock, $ 0.01 par value per share;

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.

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

61,991,937 and 60,206,277 shares issued at September 30, 2023 and December 31, 2022, respectively;

61,422,358 and 59,719,469 shares outstanding at September 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

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

( 4,765 ) ( 4,764 )

Additional paid-in-capital 873,381 746,249

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

Accumulated other comprehensive loss ( 822 ) ( 1,411 )

Accumulated deficit ( 1,030,053 ) ( 860,745 )

4 unchanged sentences

(in thousands, except share and per share data)

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

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

2023 2022 2023 2022

12 unchanged sentences

Impairment of long-lived assets 3,553 — 30,784 —

Restructuring 19,996 — 19,996 —

Total operating expenses 157,054 145,151 492,111 439,456

12 unchanged sentences

(in thousands)

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

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

2023 2022 2023 2022

2 unchanged sentences

Change in fair value of cash flow hedges ( 1,120 ) ( 3,355 ) ( 481 ) ( 7,280 )

Adjustments for net losses realized on cash flow hedges and included in net loss ( 61 ) 761 580 1,077

Total change in unrealized gains (losses) on cash flow hedges 386 ( 2,266 ) 1,219 ( 2,848 )

Adjustments for net (gains) losses realized on cash flow hedges and included in net loss ( 49 ) 1,361 531 2,438

Total change in unrealized (losses) gains on cash flow hedges ( 1,169 ) ( 1,994 ) 50 ( 4,842 )

Change in unrealized gains (losses) on investments 97 ( 166 ) 539 ( 1,044 )

Total other comprehensive income (loss) 450 ( 2,486 ) 1,661 ( 3,726 )

Total other comprehensive (loss) income ( 1,072 ) ( 2,160 ) 589 ( 5,886 )

Comprehensive loss $ ( 77,683 ) $ ( 30,887 ) $ ( 168,719 ) $ ( 119,218 )

9 unchanged sentences

Shares Amount Shares Amount

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 )

Stock-based compensation expense — — — — 23,719 — — 23,719

Issuance of common stock under employee stock purchase plan 152 2 — — 5,147 — — 5,149

Vesting of restricted stock units 338 3 — — ( 3 ) — — —

1 unchanged sentence

Issuance of common stock upon exercise of stock options 21 — — — 302 — — 302

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

Purchase of capped calls related to convertible senior notes — — — — ( 36,570 ) — — ( 36,570 )

Repurchase and inducement of convertible senior notes — — — — 35,881 — — 35,881

Other comprehensive loss — — — — — ( 1,072 ) — ( 1,072 )

Net loss — — — — — — ( 76,611 ) ( 76,611 )

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

Balance, September 30, 2023 61,422 $ 614 570 $ ( 4,765 ) $ 873,381 $ ( 822 ) $ ( 1,030,053 ) $ ( 161,645 )

Common stock Treasury stock Additional

5 unchanged sentences

Shares Amount Shares Amount

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 )

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 ) — — —

1 unchanged sentence

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

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 — — — — — ( 2,160 ) — ( 2,160 )

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

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

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

Common stock Treasury stock Additional

14 unchanged sentences

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

Purchase of capped calls related to convertible senior notes — — — — ( 36,570 ) — — ( 36,570 )

Repurchase and inducement of convertible senior notes — — — — 35,881 — — 35,881

Other comprehensive gain — — — — — 589 — 589

Net loss — — — — — — ( 169,308 ) ( 169,308 )

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

Balance, September 30, 2023 61,422 $ 614 570 $ ( 4,765 ) $ 873,381 $ ( 822 ) $ ( 1,030,053 ) $ ( 161,645 )

Common stock Treasury stock Additional

15 unchanged sentences

Net loss — — — — — — ( 113,332 ) ( 113,332 )

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

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

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

1 unchanged sentence

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

6 unchanged sentences

Change in fair value of derivative assets 15,511 —

Induced conversion expense 53,889 —

Other 5,626 3,828

17 unchanged sentences

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes, net of issuance costs paid of $ 7,200

Purchase of capped calls related to convertible senior notes ( 36,570 ) —

Payments of debt issuance costs — ( 71 )

1 unchanged sentence

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

Proceeds from capped call settlement 17,518 —

Taxes paid related to net share settlement of equity awards ( 4,012 ) ( 6,743 )

25 unchanged sentences

All intercompany transactions and balances have been eliminated in consolidation.

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.

The results of operations for the three and nine months ended September 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 and six-month periods ended June 30, 2023.

There have been no changes to the significant accounting policies, other than restructuring expense noted below, during the three and nine-month periods ended September 30, 2023.

Restructuring Expense

We record restructuring expense when management commits to and approves a restructuring plan, the restructuring plan identifies all significant actions, the period of time to complete the restructuring plan indicates that significant changes to the restructuring plan are not likely to occur, and employees who are impacted have been notified of the pending involuntary termination.

A restructuring plan generally includes significant actions involving employee-related severance charges, employee-related benefits, and other charges associated with the restructuring (collectively, “restructuring expense”).

Restructuring expense is recorded within restructuring in the condensed consolidated statement of operations.

The restructuring liability accrued but not paid at the end of the reporting period is included within accrued expenses in the condensed consolidated balance sheet.

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 and six months ended June 30, 2023 and 2022:

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

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

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

2023 2022 2023 2022

26 unchanged sentences

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

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.

For the three months ended September 30, 2023 and 2022, we recognized revenu e of $ 174.3 million and $ 153.8 million, respectively, and for the nine months ended September 30, 2023 and 2022, we recognized $ 366.5 million a nd $ 308.3 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.

We receive payments from customers based upon contractual billing schedules.

2 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 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 June 30, 2023 and December 31, 2022, we had no contract assets recorded on our consolidated balance sheet.

As of September 30, 2023 and December 31, 2022, unbilled receivables of $ 2.4 million and $ 1.1 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of September 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 June 30, 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 September 30, 2023.

The estimated revenues do not include unexercised contract renewals.

11 unchanged sentences

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 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.

In the three and nine months ended September 30, 2023, we recognized stock-based compensation expense related to such shares in the amount of $ 0.4 million and $ 1.0 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):

17 unchanged sentences

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

The goodwill was allocated to our one reporting unit.

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

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.

In the nine months ended September 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 nine months ended September 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 June 30, 2023

As of September 30, 2023

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

12 unchanged sentences

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

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

As of September 30, 2023, our available-for-sale investments had maturities ranging from 1 to 18 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 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.

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

As of September 30, 2023

Level 1 Level 2 Level 3 Total

(in thousands)

Money market funds $ 108,675 $ — $ — $ 108,675

Government agencies $ 185,322 $ — $ — $ 185,322

Derivative assets — 20,369 — 20,369

Corporate bonds — 3,960 — 3,960

Money market funds 65,592 — — 65,592

Agency bonds — 3,224 — 3,224

Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets) — 1,150 — 1,150

Corporate bonds — 1,491 — 1,491

Total $ 250,914 $ 4,715 $ — $ 255,629

13 unchanged sentences

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

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.

As of September 30, 2023, the fair value of our 2.25 %, 0.25 % and 1.25 % convertible senior notes due 2025, 2027 and 2029, as further described in Note 10, Debt , was $ 47.1 million, $ 511.1 million and $ 290.7 million, respectively, based upon quoted market prices.

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

1 unchanged sentence

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

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

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

(in thousands)

6 unchanged sentences

Property and equipment, net $ 42,449 $ 57,891

(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.

(1) As of September 30, 2023, leasehold improvements with a net book value of $ 8.6 million were recorded as an impairment of long-lived assets related to certain idle office space at our corporate headquarters in Boston, Massachusetts and idle office space in Los Angeles, California, and Toronto, Canada.

Refer to Note 11, Leases, for further details on the impairment of long-lived assets.

Depreciation expense was $ 3.3 million and $ 3.5 million for the three months ended September 30, 2023 and 2022, respectively, and $ 10.9 million and $ 10.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Goodwill and Intangible Assets

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

Goodwill was $ 536.3 million and $ 515.6 million as of September 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 20,674

Balance at June 30, 2023 $ 536,326

Balance at September 30, 2023 $ 536,305

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

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

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

Life (years) Gross Carrying

11 unchanged sentences

Total intangible assets $ 202,499 $ ( 102,506 ) $ 99,993 $ 180,176 $ ( 78,907 ) $ 101,269

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

Amortization expense was $ 8.3 million and $ 6.7 million for the three months ended September 30, 2023 and 2022, respectively and $ 23.6 million and $ 20.6 million for the nine months ended September 30, 2023 and 2022, respectively.

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

2023 (for the remaining three months) $ 7,777

2028 and thereafter 5,131

Total $ 89,470

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.

The table above excludes the impact of $ 10.5 million of capitalized internal-use software costs for projects that have not been completed as of September 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.

For the nine months ended September 30, 2023, we recorded a $ 3.5 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 six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

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

Nine Months Ended September 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 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.

These forward contracts have contractual maturities of nineteen months or less, and as of September 30, 2023 and December 31, 2022, outstanding forward contracts had a total notional value of $ 50.3 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 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 .

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

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

Convertible Senior 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”), in March 2021, we issued $ 600.0 million aggregate principal amount of convertible senior notes due March 15, 2027 (the “2027 Notes”) and in September 2023, we issued $ 300.0 million aggregate principal amount of convertible senior notes due March 15, 2029 (the “2029 Notes”) (collectively, the “Notes”).

Further details of the Notes are as follows:

2 unchanged sentences

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

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

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

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

2029 Notes March 15, 2029 1.25 % March 15, 2024 1.69 % March 15 and September 15 15.4213 $ 64.85 4.6

The 2025 Notes, the 2027 Notes and the 2029 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by indentures between the Company, as issuer, and U.S.

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

The total net proceeds from the 2025 Notes, the 2027 Notes and the 2029 Notes offerings, after deducting initial purchase discounts and estimated debt issuance costs, were $ 222.8 million, $ 585.0 million and $ 292.0 million, respectively.

Terms of the Notes

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

• during any calendar quarter commencing after the calendar quarter ending on 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 (the “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, March 20, 2024 for the 2027 Notes and September 21, 2026 for the 2029 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 and the 2029 Notes (the “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 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.

As of September 30, 2023, the 2025 Notes, the 2027 Notes and the 2029 Notes were not convertible at the option of the holder.

The holders may convert the 2025 Notes, the 2027 Notes and the 2029 Notes at any time on or after November 1, 2024, December 15, 2026 and December 15, 2028, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the circumstances set forth above.

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

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

In addition, following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, in each case as described in the Indentures, we will increase the conversion rate for a holder of the Notes who elects to convert its Notes in connection with such a corporate event or during the related redemption period in certain circumstances.

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

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

rate for a holder of the Notes who elects to convert its Notes in connection with such a corporate event or during the related redemption period in certain circumstances.

The 2025 Notes, the 2027 Notes and the 2029 Notes are redeemable after May 6, 2023, March 20, 2024 and September 21, 2026 (the “Redemption Dates”), respectively.

On or after the respective Redemption Dates, we may redeem for cash all or any portion of the 2025 Notes, the 2027 Notes or the 2029 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, the 2027 Notes or the 2029 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Partial Repurchase and Conversion of the 2025 Notes

In September 2023, we used $ 201.0 million of the proceeds from the issuance of the 2029 Notes to repurchase and retire $ 184.0 million aggregate principal amount of the 2025 Notes and paid accrued and unpaid interest thereon.

As a result of the induced conversion, we recorded $ 53.9 million in non-cash induced conversion expense which is included in interest expense in our consolidated statement of operations.

The induced conversion expense represents the fair value of the consideration issued upon conversion in excess of the fair value of the securities issuable under the original terms of the 2025 Notes.

Accounting for the Notes

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

2025 Notes 2027 Notes

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

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

2025 Notes 2027 Notes 2029 Notes

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

Balance at December 31, 2022 $ 229,992 $ ( 3,480 ) $ 226,512 $ 600,000 $ ( 10,564 ) $ 589,436 $ — $ — $ —

Issuance — — — — — — 300,000 ( 7,984 ) $ 292,016

Partial repurchase ( 184,000 ) 2,010 ( 181,990 ) — — — — —

Amortization of debt issuance costs — 990 990 — 1,855 1,855 — 73 73

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

Balance at September 30, 2023 $ 45,992 $ ( 480 ) $ 45,512 $ 600,000 $ ( 8,709 ) $ 591,291 $ 300,000 $ ( 7,911 ) $ 292,089

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

Three Months Ended June 30,

2025 Notes 2027 Notes Total 2025 Notes 2027 Notes Total

Three Months Ended September 30,

2025 Notes 2027 Notes 2029 Notes Total 2025 Notes 2027 Notes Total

Contractual interest expense $ 948 $ 375 $ 229 $ 1,552 $ 1,292 $ 377 $ 1,669

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Total interest expense $ 1,237 $ 1,006 $ 302 $ 2,545 $ 1,663 $ 1,003 $ 2,666

Six Months Ended June 30,

2025 Notes 2027 Notes Total 2025 Notes 2027 Notes Total

Nine Months Ended September 30,

2025 Notes 2027 Notes 2029 Notes Total 2025 Notes 2027 Notes Total

Contractual interest expense $ 3,536 $ 1,125 $ 229 $ 4,890 $ 3,880 $ 1,127 $ 5,007

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Total interest expense $ 4,526 $ 2,980 $ 302 $ 7,808 $ 4,932 $ 2,967 $ 7,899

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”).

In connection with the offering of the 1.25 % convertible senior notes due 2023 (the “2023 Notes”), the 2025 Notes, the 2027 Notes and the 2029 Notes, we entered into privately negotiated capped call transactions with certain counterparties (the “2023 Capped Calls, “2025 Capped Calls”, “2027 Capped Calls” and “2029 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.

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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 $ 64.85

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Total premium paid (in thousands) $ 26,910 $ 27,255 $ 76,020 $ 36,570

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 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.

Expiration dates June 2, 2023 - August 1, 2023 March 4, 2025 - April 29, 2025 January 1, 2027 - March 11, 2027 February 13, 2029 - March 13, 2029

For accounting purposes, the 2023 Capped Calls, the 2025 Capped Calls, the 2027 Capped Calls and the 2029 Capped Calls are separate transactions, and not part of the terms of the 2023 Notes, the 2025 Notes, the 2027 Notes and the 2029 Notes.

The 2023 Notes, 2025 Capped Calls, 2027 Capped Calls and 2029 Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives.

The 2025 Capped Calls were not redeemed with the partial repurchase of the 2025 Notes and remain outstanding.

The 2023 Capped Calls were not redeemed with the repayment of the 2023 Notes in 2021.

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”).

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

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.

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

The change in fair value of the derivative asset from the Notice Date to September 30, 2023 was $ 15.5 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

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

feature under which we could increase the credit facility to up to $ 70.0 million.

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

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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 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.

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

As of September 30, 2023, we had a total of $ 9.0 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 8.5 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 years.

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The components of lease expense were as follows:

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

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

2023 2022 2023 2022

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

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

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

Weighted average remaining lease term (in years) - operating leases 6.0 6.6

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Supplemental cash flow information related to leases was as follows:

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

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

2023 2022 2023 2022

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ROU assets obtained in exchange for new lease obligations $ 620 $ 3,811 $ 4,457 $ 12,675

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

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

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

2023 (for the remaining three months) $ 3,469

2028 and thereafter 36,262

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Total $ 93,537

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.

During the nine months ended September 30, 2023, we determined that triggering events 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 as well as idle office spaces located in Plano, Texas, Los Angeles, California, and Toronto, Canada may not be fully recoverable.

As a result, we utilized discounted cash flow models to estimate the fair value of the asset groups 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.

In the three and nine months ended September 30, 2023, we recorded impairment losses of $ 3.6 million and $ 30.8 million, respectively, related to these idle office spaces.

In the three and nine months ended September 30, 2023, the impairment losses consisted of $ 2.0 million and $ 22.2 million, respectively, related to ROU assets and $ 1.6 million and $ 8.6 million, respectively, related to leasehold improvements associated with these leased office spaces.

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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

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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 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.

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, 2023 and 2022, we recognized stock-based compensation expense related to such bonuses in the amount of $ 50 thousand and $( 0.8 ) million, respectively, and during the nine months ended based September 30, 2023 and 2022, we recognized stock-based compensation expense related to such bonuses in the amount of $ 1.1 million and $ 0.8 million, respectively, on the probable expected performance against the pre-established corporate financial objectives as of September 30, 2023 and 2022.

For 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.

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

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

RSUs and PSUs activity during the nine months ended September 30, 2023 was as follows:

Shares Weighted-Average

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Forfeited ( 967,575 ) 67.85

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.

Unvested balance as of September 30, 2023 3,126,817 $ 62.79

As of September 30, 2023, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 265.8 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 2.3 years.

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

Stock option activity during the nine months ended September 30, 2023 was as follows:

Shares Weighted

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Forfeited/cancelled — —

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

Outstanding as of September 30, 2023 723,632 $ 12.23 2.4 $ 24,276

Vested and exercisable as of September 30, 2023 723,632 $ 12.23 2.4 $ 24,276

(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, 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.

On March 15, 2023, we issued 177,886 shares of common stock to employees, with a purchase price of $ 34.71 per share, for aggregate proceeds of $ 6.2 million.

On September 15, 2023, we issued 152,419 shares of common stock to employees, with a purchase price of $ 33.78 per share, for aggregate proceeds of $ 5.1 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 six months ended June 30, 2023 and 2022:

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

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, 2023 and 2022:

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

2023 2022 2023 2022

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Net loss per share, basic and diluted $ ( 1.25 ) $ ( 0.49 ) $ ( 2.80 ) $ ( 1.95 )

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

We intend to settle any conversion of our 2025 Notes, 2027 Notes and 2029 Notes in cash, shares, or a combination thereof.

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

For the three 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.

For the three and nine months ended September 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, the 2027 Notes and the 2029 Notes, we entered into 2023 Capped Calls, 2025 Capped Calls, 2027 Capped Calls and 2029 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 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.

The 2025 Capped Calls were not redeemed with the partial repurchase of the 2025 Notes and remain outstanding.

As of September 30, 2023 and 2022, the 2025 Notes, the 2027 Notes and the 2029 Notes were not convertible at the option of the holder.

We had not received any conversion notices through the issuance date of our unaudited 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 Six Months Ended June 30,

Three and Nine Months Ended September 30,

Options to purchase common stock 723,632 1,218,790

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(b) Litigation and Claims

In October 2018, Finjan, Inc.

(“Finjan”) filed a complaint against us and our wholly-owned subsidiary, Rapid7 LLC, in the United States District Court, District of Delaware, alleging patent infringement of seven patents held by them.

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

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.

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

Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business.

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

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

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

2023 2022 2023 2022

4 unchanged sentences

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

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

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

(in thousands)

2 unchanged sentences

Total $ 42,449 $ 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.

Restructuring

On August 7, 2023, our board of directors approved a restructuring plan that was 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 included a reduction of the Company’s workforce by approximately 17 %.

During the three months ended September 30, 2023, we incurred $ 20.0 million of restructuring charges which were recorded within restructuring in the condensed consolidated statements of operations.

In addition, we incurred $ 1.2 million of stock-based compensation expense related to acceleration of share-based awards.

As of September 30, 2023, the restructuring liability accrued but not paid totaled $ 4.7 million, which is included within accrued expenses in the condensed consolidated balance sheets.

We expect the remainder of the restructuring charges of approximately $ 3.5 million to be incurred in the fourth quarter of 2023 and the execution of the Restructuring Plan to 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.

We permanently closed certain idle office spaces in Plano, Texas, Los Angeles, California and Toronto, Canada, which resulted in an impairment loss in the three months ended September 30, 2023 of $ 3.6 million.

Refer to Note 11, Leases, for further details on the impairment of long-lived assets.

The following table presents the activity of the restructuring liability for the three months ended September 30, 2023:

Restructuring Liability

(in thousands)

Balance at December 31, 2022 $ —

Charges 19,996

Payments ( 15,318 )

Balance at September 30, 2023 $ 4,678

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