What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-26 compared with 2023-02-24 · 341 added, 211 removed, 794 unchanged (41% of the section changed)

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Consolidated Statements of Comprehensive Loss

Consolidated Statements of Changes Stockholders' Equity (Deficit)

Consolidated Statements of Changes Stockholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Critical Audit Matter

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The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of standalone selling prices of revenue performance obligations

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

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

The Company determines standalone selling price based on pricing objectives, taking into consideration market conditions and other factors, including the geographic locations of customers, negotiated discounts from price lists and selling method.

We identified the evaluation of standalone selling prices for the Company’s products and services as a critical audit matter.

Subjective auditor judgment was involved in evaluating the Company’s assumptions regarding market conditions and pricing practices, including historical sales data and discounts from list price, where there was no direct observable data available.

The following are primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls in the Company’s revenue process, including controls over the determination of standalone selling prices, and the assumptions described above.

We evaluated the Company’s estimated standalone selling prices, including their compliance with the Company’s accounting policy, by assessing available, relevant external information and comparing the estimated standalone selling prices to internal historical disaggregated sales data, including discounts from list price, by geographic location and selling method.

We selected certain customer agreements and read contract source documents to assess the relevance and reliability of the historical sales data used by the Company to estimate standalone selling prices, and tested the mathematical accuracy of the median or average discount from list price for the products and services.

Sufficiency of audit evidence over products revenue

As discussed in Note 2 to the consolidated financial statements, the Company derives revenue primarily from product subscriptions revenue which consists of cloud-based subscriptions, managed services, term software licenses, content subscriptions and maintenance and support associated with its software licenses.

For the year ended December 31, 2023, the Company recorded revenue of $778 million, which includes product subscriptions revenue of $739 million.

The Company has high volumes of transactions and the processing and recording of the related product subscriptions revenue is reliant upon the Company’s information technology (IT) system.

We identified the evaluation of the sufficiency of audit evidence over product subscriptions revenue as a critical audit matter.

Subjective auditor judgment was required to determine the nature and extent of procedures performed over the processing and recording of product subscriptions revenue because the revenue recognition process is highly automated.

Additionally, specialized skills and knowledge were required to test the IT system used for the processing and recording of product subscriptions revenue.

The following are the primary procedures we performed to address this critical audit matter.

We applied auditor judgment to determine the nature and extent of procedures to be performed over the processing and recording of product subscriptions revenue, including the related IT system.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the processing and recording of product subscriptions revenue.

We involved IT professionals with specialized skills and knowledge, who assisted in evaluating the design and testing the operating effectiveness of certain general IT and application controls.

For a sample of product subscriptions revenue transactions, we determined the revenue to be recorded in the current period based on the underlying contract and compared it to the Company's recorded balances.

In addition, we evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of such evidence.

We have served as the Company's auditor since 2013.

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February 26, 2024

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CONSOLIDATED BALANCE SHEETS

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Short-term investments 169,544 84,162

Accounts receivable, net of allowance for credit losses of $ 2,299 and $ 1,978 at December 31, 2022 and 2021, respectively

Accounts receivable, net of allowance for credit losses of $ 951 and $ 2,299 at December 31, 2023 and December 31, 2022, respectively

164,862 152,045

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Total liabilities $ 1,623,527 $ 1,479,065

Stockholders’ equity (deficit):

Stockholders’ deficit:

Preferred stock, $ 0.01 par value per share;

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61,714,051 and 59,719,469 shares outstanding at December 31, 2023 and 2022, respectively

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

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

( 4,765 ) ( 4,764 )

Additional paid-in-capital 894,630 746,249

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

Accumulated other comprehensive (loss) income 1,344 ( 1,411 )

Accumulated deficit ( 1,010,005 ) ( 860,745 )

Total stockholders’ equity (deficit) ( 120,074 ) ( 125,995 )

Total liabilities and stockholders’ equity (deficit) $ 1,358,991 $ 1,296,011

Total stockholders’ deficit ( 118,179 ) ( 120,074 )

Total liabilities and stockholders’ deficit $ 1,505,348 $ 1,358,991

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS

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General and administrative 84,276 84,969 78,289

Impairment of long-lived assets 30,784 — —

Restructuring 22,227 — —

Total operating expenses 626,699 582,348 486,521

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Loss before income taxes ( 149,778 ) ( 122,305 ) ( 135,913 )

Provision for income taxes 2,412 10,421 1,986

(Benefit from) provision for income taxes ( 518 ) 2,412 10,421

Net loss $ ( 149,260 ) $ ( 124,717 ) $ ( 146,334 )

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See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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Net loss $ ( 149,260 ) $ ( 124,717 ) $ ( 146,334 )

Other comprehensive (loss) income:

Other comprehensive income (loss):

Change in fair value of cash flow hedges 797 ( 3,874 ) ( 86 )

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

Adjustment for net losses realized on cash flow hedges and included in net loss, net of taxes 724 4,053 —

Total change in unrealized gains (losses) on cash flow hedges 1,521 179 ( 86 )

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

Change unrealized gains (losses) on investments 1,234 ( 778 ) ( 1,043 )

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

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

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

Total change in unrealized gains (losses) on investments 1,234 ( 778 ) ( 1,180 )

Total other comprehensive income (loss) 2,755 ( 599 ) ( 1,266 )

Comprehensive loss $ ( 146,505 ) $ ( 125,316 ) $ ( 147,600 )

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

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RAPID7, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

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comprehensive

loss Accumulated

income (loss) Accumulated

deficit Total

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Issuance of common stock upon exercise of stock options 521 6 — — 4,300 — — 4,306

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

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

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

Issuance of common stock in connection with redemption, repurchase and conversion of convertible senior notes 2,897 29 — — ( 3,094 ) — — ( 3,065 )

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

Issuance of common stock related to acquisition 341 4 — — ( 4 ) — — —

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

Other comprehensive income — — — — — ( 1,266 ) — ( 1,266 )

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

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

Issuance of common stock in connection with redemption, repurchase and conversion of convertible senior notes 2,897 29 — — ( 3,094 ) — — ( 3,065 )

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

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

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

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

Other comprehensive loss — — — — — ( 1,266 ) — ( 1,266 )

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

Other comprehensive income — — — — — ( 599 ) — ( 599 )

Net loss — — — — — — ( 124,717 ) ( 124,717 )

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Issuance of common stock upon exercise of stock options 216 2 — — 3,051 — — 3,053

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

Issuance of common stock related to acquisition 107 1 — — ( 1 ) — — —

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

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

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

Reclassification of equity to derivative assets related to capped calls — — — — 33,029 — — 33,029

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

Other comprehensive loss — — — — — 2,755 — 2,755

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See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

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Stock-based compensation expense 108,081 119,902 102,579

Impairment of long-lived assets 30,784 — —

Change in fair value of derivative assets 15,511 — —

Deferred income taxes ( 5,624 ) ( 1,440 ) 466

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Other investments 2,710 ( 1,000 ) ( 3,000 )

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

Net cash used in investing activities ( 178,754 ) ( 39,988 ) ( 325,378 )

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes, net of issuance costs of $ 14,976 and $ 7,201 for the year ended December 31, 2021 and 2020, respectively

Proceeds from issuance of convertible senior notes, net of issuance costs of $ 7,909 and $ 14,976 for the years ended December 31, 2023 and 2021, respectively

292,091 — 585,024

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Payments related to business acquisitions ( 2,250 ) ( 300 ) ( 12,118 )

Proceeds from capped calls settlement 17,518 — —

Taxes paid related to net share settlement of equity awards ( 5,570 ) ( 7,462 ) ( 16,044 )

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See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

(1) Nature of the Business

and subsidiaries (“we,” “us” or “our”) are advancing security with visibility, analytics, and automation delivered through our Insight Platform.

(1) Nature of Business

and subsidiaries (“we,” “us” or “our”) are advancing security with visibility, analytics, and automation delivered through our platform solutions.

Our solutions simplify the complex, allowing security teams to work more effectively with IT and development to reduce vulnerabilities, monitor for malicious behavior, investigate and shut down attacks, and automate routine tasks.

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We generate revenue primarily from:

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

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

We recognize revenue when a customer obtains control of promised products or services.

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The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring products or services to the customer.

Variable consideration is included in the transaction price if, in our judgment, it is probable that no significant future reversal of cumulative revenue under the contract will occur.

Variable consideration is included in the transaction

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price if, in our judgment, it is probable that no significant future reversal of cumulative revenue under the contract will occur.

In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component.

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Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to a customer.

Revenue is recognized when control of the products or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those products or services.

Subscriptions

Subscriptions consists of revenue from our cloud-based subscription, term software licenses, managed services offerings, content subscriptions and maintenance and support associated with our software licenses.

Revenue is recognized when control of the products or services is transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those products or services.

Product Subscriptions

Product subscriptions consists of revenue from our cloud-based subscription, term software licenses, managed services offerings, content subscriptions and maintenance and support associated with our software licenses.

• We generate cloud-based subscription revenue primarily from sales of subscriptions to access our cloud platform, together with related support services to our customers.

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For our term software licenses which are not dependent on the continued delivery of content subscriptions, the license is considered distinct from the maintenance and support, and we therefore recognize revenue attributable to the license at the time of delivery.

• Content subscriptions and our maintenance and support services are sold with our perpetual and term software licenses.

• Content subscriptions and our maintenance and support services are sold with our term software licenses.

Revenue related to our content subscriptions associated with our software licenses is recognized ratably over the contractual period.

Maintenance and support services are distinct from the perpetual and term software license and revenue attributable to maintenance and support services is recognized ratably over the contractual period.

Maintenance and support services are distinct from

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the perpetual and term software license and revenue attributable to maintenance and support services is recognized ratably over the contractual period.

Professional Services

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

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

As of December 31, 2023 and 2022, unbilled receivables of $ 2.0 million and $ 1.1 million are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of December 31, 2023 and 2022, we have no contract assets recorded on our consolidated balance sheet.

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(e) Investments

Our investments consist of U.S.

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

Our investments consist of commercial paper, corporate bonds, U.S.

Government agencies and agency bonds.

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

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Management regularly reviews the adequacy of the allowance for credit loss based upon historical collection experience, the age of the receivable, an evaluation of each customer's expected ability to pay and current and future economic and market conditions.

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

of operations.

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

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

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

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(g) Concentration of Credit Risk

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We determined the estimated period of benefit by taking into consideration the contractual term and expected renewals of customer contracts, our technology and other factors, including the fact that sales commissions paid on renewals are not commensurate with commissions paid on initial sales transactions.

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

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

Contract costs relating to contract renewals are deferred and amortized on a straight-line basis over the weighted average contract length of renewal contracts.

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

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Costs related to software developed, acquired or modified for internal use are capitalized.

Costs incurred during the preliminary planning and evaluation stage of the project and during the post implementation stages of the project are expensed as incurred.

Costs incurred during the preliminary planning and evaluation stage of the project and during the post implementation stages

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of the project are expensed as incurred.

Costs incurred during the application development stage of the project are capitalized.

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Operating lease ROU assets and liabilities are recognized at the present value of future lease payments at the lease commencement date.

The implicit rate within our operating leases are generally not determinable and therefore we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments.

The implicit rate within our operating leases is generally not determinable and therefore we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments.

We determine our incremental borrowing rate for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease.

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

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

(m) Business Combinations

For the year ended December 31, 2023, we determined that triggering events occurred which indicated that the carrying value of our 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 year ended December 31, 2023, we recorded impairment losses of $ 30.8 million related to these idle office spaces, consisting of $ 22.2 million related to ROU assets and $ 8.6 million related to leasehold improvements associated with these leased office spaces.

(m) 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

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

(n) Business Combinations

We allocate the fair value of purchase consideration to the tangible asset acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values.

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Based upon our assessment performed as of December 31, 2023, we concluded the fair value of our single reporting unit exceeded its' carrying value and there was no impairment of goodwill.

(o) Foreign Currency

(p) Foreign Currency

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

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Foreign currency denominated expenses are re-measured using the average exchange rates for the period.

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

In 2022, foreign currency transaction losses were $ 1.4 million and foreign currency re-measurement gains (losses) were not material.

Foreign currency transaction and re-measurement gains and losses are included in other income (expense), net in the condensed consolidated statement of operations.

In 2023, foreign currency transaction losses and foreign currency re-measurement losses were $ 1.4 million and $ 0.4 million, respectively.

(p) Derivative and Hedging Activities

In 2022, foreign currency transaction gains were $ 1.4 million and foreign currency re-measurement gains (losses) were not material.

(q) Derivative and Hedging Activities

We are exposed to currency exchange rate risk.

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Derivatives designated as cash flow hedges are classified in our consolidated statements of cash flow in the same manner as the underlying hedged transaction, primarily within cash flow from operating activities.

As of December 31, 2022 and 2021, our cash flow hedges had contractual maturities of eighteen months or less, and as of December 31, 2022 and 2021, outstanding forward contracts had a total notional value of $ 44.9 million and $ 34.7 million, respectively.

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As of December 31, 2023 and 2022, our cash flow hedges have contractual maturities of eighteen months or less, and as of December 31, 2023 and 2022, outstanding forward contracts had a total notional value of $ 49.5 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.

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Refer to Note 6, Fair Value Measurements , for the fair values of our outstanding derivative instruments.

(q) Stock-Based Compensation

(r) Stock-Based Compensation

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

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

(r) Advertising

(s) Advertising

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

We incurred $ 22.4 million, $ 22.7 million, and $ 21.3 million in advertising expense in 2023, 2022, and 2021, respectively.

(s) Income Taxes

(t) Income Taxes

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

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In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

We recognize tax benefits from uncertain tax positions if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

We recognize tax provision from uncertain tax positions if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

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

(t) Net Loss per Share

(u) Net Income (Loss) per Share

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

Diluted net loss per share is computed by giving effect to all potentially dilutive securities, including stock options, RSUs, PSUs, the impact of our ESPP, common shares issued in connection with acquisitions and the impact of our convertible senior notes (“Notes”).

Diluted net income (loss) per share is computed by giving effect to all potentially dilutive securities, including stock options, RSUs, PSUs, the impact of our ESPP, common shares

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issued in connection with acquisitions and the impact of our convertible senior notes (“Notes”).

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

As a result of our adoption of Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2020-06 (“ASU 2020-06”) on January 1, 2021, the dilutive impact of the Notes for our calculation of diluted net loss per share is considered using the if-converted method.

For periods prior to our January 1, 2021 adoption of ASU 2020-06, we considered the impact of the Notes on our diluted net loss per share calculation based on applying the treasury stock method as we had the ability, and intent, to settle any conversions of the Notes solely in cash at that time.

Basic and diluted net loss per share was the same for all periods presented as the inclusion of all potentially dilutive securities outstanding was anti-dilutive.

(u) Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

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

This standard is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted.

We early adopted this standard on January 1, 2022.

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

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 years ended December 31, 2023, 2022 and 2021, the shares underlying the Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive.

(v) Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Effective

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”).

This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures.

The amendments of this update are related to the rate reconciliation and income taxes paid, requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We do not plan to early adopt this standard.

We are currently evaluating the effect of adopting this standard on our disclosures.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures (“ASU 2023-07”) , to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses on an interim and annual basis.

All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods for the fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis to all periods presented.

Early adoption is permitted.

We do not plan to early adopt this standard.

We are currently evaluating the effect of adopting this standard on our disclosures.

(3) Revenue from Contracts with Customers

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(in thousands)

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

Product subscriptions $ 738,819 $ 643,247 $ 492,608

Professional services 37,539 37,548 34,561

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The estimated revenues do not include unexercised contract renewals.

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Next Twelve Months Thereafter

(in thousands)

Subscriptions $ 478,174 $ 191,817

Product subscriptions $ 553,807 $ 285,791

Professional services 17,545 8,066

Other 462 131

Total $ 571,479 $ 293,890

(4) Business Combinations

Minerva Labs Ltd.

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

(“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.

For the year ended December 31, 2023, we recognized stock-based compensation expense related to such shares in the amount of $ 1.4 million.

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

Consideration:

Cash $ 34,977

Estimated purchase price adjustment receivable ( 365 )

Fair value of total consideration transferred $ 34,612

Recognized amount of identifiable assets acquired and liabilities assumed:

Cash and cash equivalents $ 136

Other current assets 1,792

Other assets 43

Accounts payable and other current liabilities ( 438 )

Other long-term liabilities ( 441 )

Intangible asset 12,800

Total identifiable net assets assumed $ 13,892

Goodwill 20,720

Net purchase price $ 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.

The estimated fair value of the developed technology intangible asset was $ 12.8 million which was based on a valuation using the income approach.

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

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

We believe that the amount of goodwill reflects the expected synergistic benefits of being able to leverage the integration of the technology acquired with our existing product offerings and being able to successfully market and sell these new features to our customer base.

The goodwill was allocated to our one reporting unit.

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

For the year ended December 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 year ended December 31, 2023 was not material.

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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.

IntSights Cyber Intelligence Ltd.

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

Divvy Cloud Corporation

On May 1, 2020, we acquired Divvy Cloud Corporation (“DivvyCloud”), a Cloud Security Posture Management (“CSPM”) company, for a purchase price with an aggregate fair value of $ 137.8 million.

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

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

The fair value of net assets acquired, goodwill and intangible assets were $ 0.9 million, $ 115.7 million and $ 21.2 million, respectively.

The goodwill was allocated to our one reporting unit.

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

(5) Investments

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(in thousands)

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

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

Commercial paper 7,944 — — 7,944

U.S government agencies $ 222,820 $ 467 $ ( 65 ) $ 223,222

Agency bonds 2,500 — ( 7 ) 2,493

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(in thousands)

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

U.S government agencies $ 66,234 $ 4 $ ( 545 ) $ 65,693

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

Government agencies 22,396 — ( 31 ) 22,365

Commercial paper 7,944 — — 7,944

Agency bonds 6,231 — ( 71 ) 6,160

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

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

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

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

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

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As of December 31, 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 December 31, 2023 and December 31, 2022, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity.

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

(6) Fair Value Measurements

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We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.

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

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Money market funds $ 124,506 $ — $ — $ 124,506

Corporate bonds — 14,121 — 14,121

Commercial paper — 7,944 — 7,944

government agencies 223,222 — — 223,222

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Total assets $ 347,728 $ 3,815 $ — $ 351,543

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

Foreign currency forward contracts designated as cash flow hedges (other current liabilities) — 55 — 55

Total liabilities $ — $ 55 $ — $ 55

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

Commercial paper — 37,778 — 37,778

Corporate bonds — 32,027 — 32,027

government agencies 65,693 — — 65,693

Corporate bonds — 14,121 — 14,121

Commercial paper — 7,944 — 7,944

Agency bonds — 6,160 — 6,160

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

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

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

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

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

As of December 31, 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 11, Debt , was $ 50.5 million, $ 538.9 million and $ 333.4 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.

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(7) Property and Equipment

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

As of December 31,

December 31, December 31,

(in thousands)

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Leasehold improvements (1)

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

56,151 66,180

Total 93,443 102,571

Less accumulated depreciation ( 53,801 ) ( 44,680 )

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

Property and equipment, net $ 39,642 $ 57,891

(1) As of December 31, 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 12, Leases, for further details on the impairment of long-lived assets.

We recorded depreciation expense of $ 14.0 million, $ 13.6 million and $ 12.3 million in 2023, 2022 and 2021, respectively.

(8) Goodwill and Intangible Assets

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

(8) Goodwill and Intangibles

Goodwill was $ 536.4 million and $ 515.6 million as of December 31, 2023 and December 31, 2022, respectively.

There were no goodwill impairment charges in 2023, 2022 or 2021.

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Balance at December 31, 2021 $ 515,258

Alcide acquisition 40,783

IntSights acquisition 260,874

Balance at December 31, 2021 515,258

IntSights acquisition adjustments 373

Balance at December 31, 2022 $ 515,631

Minerva acquisition 20,720

Balance at December 31, 2023 $ 536,351

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

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Amount Accumulated

Amortization Net Carrying Value Gross Carrying

Amortization Net Book Value Gross Carrying

Amount Accumulated

Amortization Net Carrying Value

Amortization Net Book Value

(in thousands)

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Amortization expense was $ 31.9 million, $ 27.5 million and $ 21.2 million in 2023, 2022 and 2021, respectively.

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

2024 $ 30,880

2029 and thereafter 3,531

Total $ 86,832

The table above excludes the impact of $ 7.7 million of capitalized internal-use software costs for projects that have not been completed as of December 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.

(9) Deferred Contract Acquisition and Fulfillment Costs

For the year ended December 31, 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.

(9) Deferred Contract Acquisitions and Fulfillment Costs

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the years ended December 31, 2023 and 2022:

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Ending balance $ 121,609 $ 103,075

(10) Derivative and Hedging Activities

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 December 31, 2023 and December 31, 2022, outstanding forward contracts had a total notional value of $ 49.5 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 years ended December 31, 2023 and 2022, all cash flow hedges were considered effective.

Refer to Note 6, 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”) 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:

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

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

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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 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 (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).

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 December 31, 2023, the 2025 Notes, the 2027 Notes and the 2029 Notes were not convertible at the option of the holders.

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.

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

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

On or after the respective Redemption Dates, we may redeem for cash all or any portion of the 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.

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 2023 Notes

On March 16, 2021, we used a portion of the proceeds from the issuance of the 2027 Notes, together with 2.2 million shares of our common stock, to repurchase and retire $ 182.6 million aggregate principal amount of the 2023 Notes, and paid accrued and unpaid interest thereon (the 2023 Notes Repurchase Transaction).

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

The total fair value of the additional common stock issued to induce the conversion of $ 2.7 million was recognized as an inducement expense and classified as a

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component of interest expense in our consolidated statement of operations.

The remaining cash and common stock consideration issued under the original terms of the 2023 Notes was accounted for under the general conversion accounting guidance where the difference between the carrying amount of the 2023 Notes retired, including unamortized debt issuance cost of $ 2.7 million, and the cash consideration paid and the par amount of the common stock issued, was recorded in additional paid-in capital.

During the first quarter of 2021, holders of the 2023 Notes elected to convert Notes with a principal amount of $ 2.0 million.

Cash was paid for the principal and the excess conversion spread was paid in 23,123 shares of our common stock.

Redemption of the 2023 Notes

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

Pursuant to the redemption notice, on November 30, 2021 we paid $ 43.4 million in cash and issued 697,262 shares of our common stock to the holders of the 2023 Notes who submitted conversion notices, and the remaining $ 2.0 million of 2023 Notes were redeemed in cash, plus accrued and unpaid interest.

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 December 31, 2022 and 2021 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 December 31, 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 ( 7,909 ) 292,091

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

Amortization of debt issuance costs — 1,066 1,066 — 2,487 2,487 — 394 394

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

Balance at December 31, 2023 $ 45,992 $ ( 404 ) $ 45,588 $ 600,000 $ ( 8,077 ) $ 591,923 $ 300,000 $ ( 7,515 ) $ 292,485

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

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

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

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

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2023 2022 2021

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

2025 Notes 2027 Notes 2029 Notes Total 2025 Notes 2027 Notes Total 2023 Notes 2025 Notes 2027 Notes Total

Contractual interest expense $ 3,795 $ 1,500 $ 1,167 $ 6,462 $ 5,174 $ 1,502 $ 6,676 $ 950 $ 5,175 $ 1,164 $ 7,289

Amortization of debt discount — — — — — — — 10,342 5,417 15,759

Amortization of debt issuance costs 1,066 2,487 394 3,947 1,425 2,468 3,893 $ 498 $ 1,384 $ 1,948 $ 3,830

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Total interest expense $ 58,750 $ 3,987 $ 1,561 $ 64,298 $ 6,599 $ 3,970 $ 10,569 $ 4,188 $ 6,559 $ 3,112 $ 13,859

During the first quarter of 2021, we used a portion of the proceeds from the issuance of the 2027 Notes, together with 2.2 million shares of our common stock, to repurchase and retire $ 182.6 million aggregate principal amount of the convertible senior notes due August 1, 2023 (the “2023 Notes”), and paid accrued and unpaid interest thereon.

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

The total fair value of the additional common stock issued to induce the conversion of $ 2.7 million was recognized as an inducement expense and classified as a component of interest expense in our consolidated statement of operations.

In addition, during the first quarter of 2021, holders of the 2023 Notes elected to convert Notes with a principal amount of $ 2.0 million.

Cash was paid for the principal and the excess conversion spread was paid in 23,123 shares of our common stock.

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

We paid $ 43.4 million in cash and issued 697,262 shares of our common stock to the holders of the 2023 Notes who submitted conversion notices, and the remaining $ 2.0 million of 2023 Notes were redeemed in cash, plus accrued and unpaid interest.

In connection with the offering of the 2023 Notes, the 2025 Notes and the 2027 Notes, we entered into privately negotiated capped call transactions with certain counterparties (the “2023 Capped Calls”, “2025 Capped Calls” and “2027 Capped Calls”) (collectively, the “Capped Calls”).

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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 - July 28, 2023 March 4, 2025 - April 29, 2025 January 1, 2027 - March 11, 2027

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

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

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

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 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

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The fees are recorded in other current assets on the consolidated balance sheet and are amortized on a straight-line basis over the contractual term of the arrangement.

The commitment fee of 0.2 % per annum on the unused portion of the credit facility is expensed as incurred and included within interest expense on the consolidated statement of operations.

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commitment fee of 0.2 % per annum on the unused portion of the credit facility is expensed as incurred and included within interest expense on the consolidated statement of operations.

The Credit Agreement contains certain financial covenants including a requirement that we maintain specified minimum recurring revenue and liquidity amounts.

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As of December 31, 2023, we had a total of $ 8.8 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 7 years and some of which include options to terminate the leases within the next 6.8 years.

Our leases primarily relate to office facilities that have remaining terms of up to 8.3 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 4 years.

All of our leases are classified as operating leases.

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

As of December 31,

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

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

Weighted average remaining lease term (in years) - operating leases 5.7 6.6

Weighted average discount rate - operating leases 6.4 % 6.2 %

Supplemental cash flow information related to leases was as follows:

As of December 31,

Year Ended December 31,

(in thousands)

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ROU assets obtained in exchange for new lease obligations $ 8,119 $ 10,327

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

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Total $ 94,582

During the year ended December 31, 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.

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 year ended December 31, 2023, we recorded impairment losses of $ 30.8 million, respectively, related to these idle office spaces.

consisting of $ 22.2 million, related to ROU assets and $ 8.6 million related to leasehold improvements associated with these leased office spaces.

(13) Stock-Based Compensation

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

The 2015 Plan also provides that (i) any shares subject to awards granted under the 2011 Plan that would have otherwise returned to the 2011 Plan (such as upon the expiration

or termination of a stock award prior to vesting) will be added to, and available for issuance under, the 2015 Plan and (ii) the number of shares reserved and available for issuance under the 2015 Plan automatically increases each January 1, beginning on January 1, 2016, by 4 % of the outstanding number of shares of our common stock on the immediately preceding December 31 (known as the “evergreen” provision) or such lesser number of shares as determined by our board of directors.

The 2015 Plan also provides that (i) any shares subject to awards granted under the 2011 Plan that would have otherwise returned to the 2011 Plan (such as upon the expiration or termination of a stock award prior to vesting) will be added to, and available for issuance under, the 2015 Plan and (ii) the number of shares reserved and available for issuance under the 2015 Plan automatically increases each January 1, beginning on January 1, 2016, by 4 % of the outstanding number of shares of our common stock on the immediately preceding December 31 (known as the “evergreen” provision) or such lesser number of shares as determined by our board of directors.

Additionally, on October 8, 2015, our board of directors amended, the 2015 Plan to reserve an additional 1,500,000 shares of our common stock for issuance of inducement awards.

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

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

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Total stock-based compensation expense $ 108,081 $ 119,902 $ 102,579

Our Compensation Committee approved the performance goals, targets and payout formulas for our 2022, 2021 and 2020 bonus plans, including permitting our executive officers and certain other employees the opportunity to receive payment of their earned bonuses in the form of common stock (in lieu of cash).

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

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

We recognize compensation cost of all awards on a straight-line basis over the applicable vesting period, which is generally four years .

Our Compensation Committee adopted and approved the performance goals, targets and payout formulas for our 2023, 2022 and 2021 bonus plans, including permitting our executive officers and certain other employees the opportunity to receive payment of their earned bonuses in the form of common stock (in lieu of cash).

During the years ended December 31, 2023, 2022, and 2021 we recognized stock-based compensation expense related to such bonuses in the amount of $ 1.6 million, $ 1.0 million and $ 4.7 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of December 31, 2023, 2022 and 2021.

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.

In 2021, we accelerated the vesting of a stock award which was deemed a modification of the original award resulting in $ 6.1 million of incremental stock-based compensation which we recorded in the year ended December 31, 2021.

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

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

RSUs and PSUs activity during 2023, 2022, and 2021 was as follows:

Shares Weighted-

Average Grant

Unvested balance as of December 31, 2020 2,941,914 $ 32.43

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Unvested balance as of December 31, 2023 2,714,426 $ 61.60

As of December 31, 2022, the unrecognized compensation cost related to shares of unvested RSUs and PSUs expected to vest was $ 231.0 million.

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

As of December 31, 2023, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 145.1 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 2.1 years.

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In February 2023, our Compensation Committee awarded 173,103 PSUs that required the achievement of an annualized recurring revenue (“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 would be capped at a maximum of 200 % of the target level payout and if certain ARR or non-GAAP operating income margin goals were not met, no PSUs will be earned.

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

The 2023 targets for these PSUs were not met and therefore no stock-based compensation expense was recorded in 2023 related to these PSUs.

The following table summarizes information about stock option activity during the reporting periods:

The following tables summarizes information about stock option activity during the reporting periods:

Shares Weighted

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Vested and exercisable as of December 31, 2023 716,270 $ 12.26 1.97 $ 32,115

The total fair value of stock options vested in 2022, 2021 and 2020 was $ 0.1 million, $ 0.6 million and $ 2.2 million, respectively.

The total fair value of stock options vested in 2022 and 2021 was $ 0.1 million, and $ 0.6 million, respectively.

All outstanding stock options were fully vested as of December 31, 2022.

(d) Employee Stock Purchase Plan

number of shares of our common stock on the immediately preceding December 31 (known as the “evergreen” provision) or such lesser number of shares as determined by our board of directors.

The number of shares reserved and available for issuance under our 2015 Employee Stock Purchase Plan (“ESPP”) automatically increases each January 1, beginning on January 1, 2016, by 1 % of the outstanding number of shares of our common stock on the immediately preceding December 31 (known as the “evergreen” provision) or such lesser number of shares as determined by our board of directors.

As of December 31, 2023, the shares of common stock authorized to be issued under the ESPP totaled 4,752,999 and there were 2,751,211 shares of common stock available for grant.

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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.

The fair value of shares issued under our ESPP are estimated on the grant date using the Black-Scholes option pricing model.

The fair value of shares issued under our ESPP is estimated on the grant date using the Black-Scholes option pricing model.

The expected term represents the term from the first day of the offering period to the purchase dates within each offering period.

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We have not paid dividends on our common stock nor do we expect to pay dividends in the foreseeable future.

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The following table reflects the assumptions used in the Black-Scholes option pricing model to calculate the expense related to the ESPP:

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Common shares issued 152,419 177,886 218,314 80,747 73,676 147,837

Purchase prices $ 45.31

$ 67.59 and $ 81.37

Purchase prices $ 33.78 $ 34.71 $ 45.31 $ 67.59 and $ 81.37

$ 52.60 and $ 67.59

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Foreign ( 5,635 ) ( 1,452 ) 418

Total deferred tax expense (benefit) ( 1,440 ) 430 707

Total deferred tax (benefit) expense ( 5,624 ) ( 1,440 ) 430

Income tax expense $ ( 518 ) $ 2,412 $ 10,421

The reconciliation of the federal statutory rate of 21% to the effective income tax rate for the years ended December 31, 2023, 2022 and 2021 was as follows:

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Year Ended December 31,

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Tax rate change ( 3.4 ) 7.8 11.2

Induced conversion expense ( 9.5 ) — ( 0.6 )

Tax reserves ( 0.1 ) ( 0.2 ) ( 3.8 )

Prior year true-ups 5.2 ( 0.3 ) ( 0.1 )

Capital gain on sale — — ( 7.0 )

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Operating lease ROU assets ( 11,307 ) ( 20,159 )

Convertible senior notes — —

Deferred contract acquisition and fulfillment costs ( 24,251 ) ( 22,664 )

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

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

expenses and a 15-year period for foreign expenses.

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

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

In assessing whether the deferred tax assets are realized, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Due to our history of generating losses in the United States, the United Kingdom and Ireland, we continue to record a full valuation allowance against our deferred tax assets in these jurisdictions.

If we achieve future profitability, a significant portion of these deferred tax assets could be available to offset future income taxes.

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

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

If we repatriate these earnings, we may be required to pay U.S.

state and local taxes, as well as foreign withholding taxes.

As of December 31, 2022, we had federal and state net operating loss carryforwards of $ 450.5 million and $ 345.4 million, respectively.

Of our federal net operating losses, $ 389.7 million will carry forward indefinitely.

The remaining federal and state net operating loss carryforwards expire at various dates beginning in 2023.

As of December 31, 2022, we had foreign net operating loss carryforwards of $ 246.3 million that can be carried forward indefinitely.

We also had federal, state and international research and development credit carryforwards of $ 7.7 million, $ 3.1 million and $ 0.2 million as of December 31, 2022, respectively.

The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses.

We have included the impact of this provision, which results in

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additional deferred tax assets of approximately $ 63.2 million and $ 37.1 million as of December 31, 2023 and 2022, respectively.

As of December 31, 2023, we have evaluated the need for a valuation allowance on our deferred tax assets.

In making this determination, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The valuation allowance increased by $ 1.5 million for the year ended December 31, 2023.

Due to our history of generating losses, we continue to record a valuation allowance against our net deferred tax assets in the United States and U.K.

In addition to the United States, we have recognized valuation allowance against a net deferred tax asset in Israel.

Based on our assessment of future profitability in Ireland, we have released a portion of valuation allowance in respect of our deferred tax assets.

As of December 31, 2023, we had federal and state net operating loss (“NOL”) carryforwards in the United States of $ 346.5 million and $ 293.5 million, respectively.

Of these amounts, $ 332.7 million of federal and a portion of state NOLs can be carried forward indefinitely.

The remaining NOLs expire at various dates beginning in 2024.

We had foreign NOL carryforwards of $ 241.6 million that can be carried forward indefinitely.

We also had federal, state and foreign research and development credit carryforwards of $ 7.2 million, $ 3.1 million and $ 3.8 million as of December 31, 2023, respectively.

These credit carryforwards expire at various dates beginning in 2024.

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

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

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

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

As of December 31, 2023, our ability to utilize NOLs remains limited under IRC Sections 382 and 383 due to an ownership change we experienced in January 2018.

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

The amount of the annual limitation is determined based on our value immediately prior to the ownership change.

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However, to the extent we utilize net operating losses or other similar carryforward attributes such as credits, the statute remains open to the extent of the net operating losses or credits that are utilized.

We currently are under examination in Israel for tax years 2016 through 2019.

We are currently under tax examination in the state of Massachusetts for tax years 2021 through 2022 and in Israel for tax years 2016 through 2019.

We have established reserves to provide for additional income taxes that management believes will more likely than not be due in future years.

The reserves have been established based upon our assessment of the potential exposure.

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

Balance at December 31, 2021 $ 5,041

Additions based on current year tax provisions —

Balance at December 31, 2022 $ 5,041

Our reserve for unrecognized income tax benefits of $ 5.0 million remained unchanged from December 31, 2022.

We recorded $ 0.2 million of interest in 2023 related to uncertain tax positions.

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

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

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

If we repatriate these earnings, we may be required to pay U.S.

state and local taxes, as well as foreign withholding taxes.

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(15) Net Loss Per Share

The following table summarizes the computation of basic and diluted net loss per share of our common stock for 2022, 2021 and 2020:

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the years ended December 31, 2023 and 2022 :

Year Ended December 31,

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Net loss per share, basic and diluted $ ( 2.46 ) $ ( 2.13 ) $ ( 2.65 )

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

As a result of our adoption of ASU 2020-06 on January 1, 2021, the dilutive impact of the Notes for our calculation of diluted net income (loss) per share is considered using the if-converted method.

For periods prior to our January 1, 2021 adoption of ASU 2020-06, we considered the impact of the Notes on our diluted net income (loss) per share calculation based on applying the treasury stock method as we had the ability, and intent, to settle any conversions of the Notes solely in cash at that time.

For the years ended December 31, 2022 and 2021, the shares underlying the Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive under each respective method.

In connection with the issuance of the 2023 Notes, the 2025 Notes and the 2027 Notes, we entered into 2023 Capped Calls, 2025 Capped Calls and 2027 Capped Calls, which were not included for the purpose of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.

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 years ended December 31, 2023 and 2022, the shares underlying the Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive.

In connection with the issuance of the 2023 Notes, the 2025 Notes, 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 11, Debt , the 2023 Capped Calls were not redeemed with the redemption of the 2023 Notes.

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

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

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

As of December 31, 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, prior to the use of the treasury stock method, have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive:

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:

Year Ended December 31,

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Unvested restricted stock units 2,983,020 3,001,443 2,778,877

Common stock to be issued to DivvyCloud founders 33,433 66,865 200,596

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

Common stock issued in conjunction to acquisitions 115,051 74,627 273,473

Shares to be issued under ESPP 103,778 106,965 36,831

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As of December 31, 2023, we have non-cancellable firm purchase commitments relating to cloud infrastructure services, including with Amazon Web Services (“AWS”), and software subscriptions.

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The following table presents details of the future non-cancellable purchase commitments under these agreements as of December 31, 2023 (in thousands):

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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.

We intend to vigorously contest Finjan's claims.

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

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

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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Our chief operating decision maker is our Chief Executive Officer, who makes operating decisions, assesses performance and allocates resources on a consolidated basis.

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

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Total $ 777,707 $ 685,083 $ 535,404

Property and equipment, net by geographic area as of December 31, 2022 and 2021 is presented in the table below:

As of December 31,

Property and equipment, net by geographic area is presented in the table below:

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

(in thousands)

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Total $ 39,642 $ 57,891

(19) 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 16 %.

In 2023, we incurred $ 22.2 million of restructuring charges which were recorded within restructuring in the condensed consolidated statements of operations.

In addition, we incurred $ 1.3 million of stock-based compensation expense related to acceleration of share-based awards.

As of December 31, 2023, the restructuring liability accrued but not paid totaled $ 3.8 million, which is included within accrued expenses in the condensed consolidated balance sheets.

The execution of the Restructuring Plan was substantially complete as of December 31, 2023 and we expect the remaining restructuring liability to be paid by the end of the first quarter of 2024.

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 2023, we permanently closed certain idle office spaces in Plano, Texas, Los Angeles, California and Toronto, Canada, which resulted in an impairment loss of $ 3.6 million.

Refer to Note 12, Leases , for further details on the impairment of long-lived assets.

The following table presents the activity of the restructuring liability for the year ended December 31, 2023:

Restructuring Liability

(in thousands)

Balance at December 31, 2022 $ —

Charges 22,227

Payments ( 18,463 )

Balance at December 31, 2023 $ 3,764

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data