What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-07 · 183 added, 100 removed, 470 unchanged (38% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current assets:

1 unchanged sentence

Short-term investments 221,122 169,544

Accounts receivable, net of allowance for credit losses of $ 1,380 and $ 951 at June 30, 2024 and December 31, 2023, respectively

Accounts receivable, net of allowance for credit losses of $ 1,591 and $ 951 at September 30, 2024 and December 31, 2023, respectively

141,891 164,862

25 unchanged sentences

Preferred stock, $ 0.01 par value per share;

100,000,000 shares authorized at June 30, 2024 and December 31, 2023;

0 shares issued and outstanding at June 30, 2024 and December 31, 2023

100,000,000 shares authorized at September 30, 2024 and December 31, 2023;

0 shares issued and outstanding at September 30, 2024 and December 31, 2023

Common stock, $ 0.01 par value per share;

100,000,000 shares authorized at June 30, 2024 and December 31, 2023;

63,271,273 and 62,283,630 shares issued at June 30, 2024 and December 31, 2023, respectively;

62,701,694 and 61,714,051 shares outstanding at June 30, 2024 and December 31, 2023, respectively

Treasury stock, at cost, 569,579 shares at June 30, 2024 and December 31, 2023

100,000,000 shares authorized at September 30, 2024 and December 31, 2023;

63,747,524 and 62,283,630 shares issued at September 30, 2024 and December 31, 2023, respectively;

63,177,945 and 61,714,051 shares outstanding at September 30, 2024 and December 31, 2023, respectively

Treasury stock, at cost, 569,579 shares at September 30, 2024 and December 31, 2023

( 4,765 ) ( 4,765 )

Additional paid-in-capital 978,898 894,630

Accumulated other comprehensive (loss) income ( 851 ) 1,344

Accumulated other comprehensive income 1,929 1,344

Accumulated deficit ( 982,998 ) ( 1,010,005 )

4 unchanged sentences

(in thousands, except share and per share data)

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

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

2024 2023 2024 2023

12 unchanged sentences

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

Restructuring — 19,996 — 19,996

Total operating expenses 137,676 157,054 411,569 492,111

3 unchanged sentences

Interest expense ( 2,837 ) ( 56,515 ) ( 8,180 ) ( 62,005 )

Other expense, net ( 695 ) ( 13,268 ) ( 2,130 ) ( 13,575 )

Other income (expense), net 2,811 ( 4,518 ) 681 ( 18,093 )

Income (loss) before income taxes 19,506 ( 74,529 ) 39,422 ( 165,763 )

8 unchanged sentences

(in thousands)

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

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

2024 2023 2024 2023

3 unchanged sentences

Adjustment for net (gains)/losses realized on cash flow hedges and included in net income (loss), net of taxes ( 183 ) ( 49 ) ( 656 ) 531

Total change in unrealized (losses) gains on cash flow hedges ( 421 ) 386 ( 1,431 ) 1,219

Change in unrealized (losses) gains on investments ( 209 ) 64 ( 764 ) 442

Total other comprehensive (loss) income ( 630 ) 450 ( 2,195 ) 1,661

Total change in unrealized gains (losses) on cash flow hedges 1,657 ( 1,169 ) 226 50

Change in unrealized gains on investments 1,123 97 359 539

Total other comprehensive income (loss) 2,780 ( 1,072 ) 585 589

Comprehensive income (loss) $ 19,334 $ ( 77,683 ) $ 27,592 $ ( 168,719 )

1 unchanged sentence

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

Three Months Ended June 30, 2024 and 2023

Three Months Ended September 30, 2024 and 2023

(in thousands)

6 unchanged sentences

Shares Amount Shares Amount

Balance, March 31, 2024 62,269 $ 623 570 $ ( 4,765 ) $ 925,661 $ ( 221 ) $ ( 1,007,747 ) $ ( 86,449 )

Balance, June 30, 2024 62,702 $ 628 570 $ ( 4,765 ) $ 951,620 $ ( 851 ) $ ( 999,552 ) $ ( 52,920 )

Stock-based compensation expense — — — — 23,739 — — 23,739

Issuance of common stock under employee stock purchase plan 144 1 4,200 4,201

Vesting of restricted stock units 341 3 — — ( 3 ) — — —

3 unchanged sentences

Net income — — — — — — 16,554 16,554

Balance, June 30, 2024 62,702 $ 628 570 $ ( 4,765 ) $ 951,620 $ ( 851 ) $ ( 999,552 ) $ ( 52,920 )

Balance, September 30, 2024 63,177 $ 632 570 $ ( 4,765 ) $ 978,898 $ 1,929 $ ( 982,998 ) $ ( 6,304 )

Common stock Treasury stock Additional

5 unchanged sentences

Shares Amount Shares Amount

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

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

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

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

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

1 unchanged sentence

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

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

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

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

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

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

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

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

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

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

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

Six Months Ended June 30, 2024 and 2023

Nine Months Ended September 30, 2024 and 2023

(in thousands)

14 unchanged sentences

Net income — — — — — — 27,007 27,007

Balance, June 30, 2024 62,702 $ 628 570 $ ( 4,765 ) $ 951,620 $ ( 851 ) $ ( 999,552 ) $ ( 52,920 )

Balance, September 30, 2024 63,177 $ 632 570 $ ( 4,765 ) $ 978,898 $ 1,929 $ ( 982,998 ) $ ( 6,304 )

Common stock Treasury stock Additional

14 unchanged sentences

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

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

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

Other comprehensive gain — — — — — 589 — 589

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

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

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

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

1 unchanged sentence

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

7 unchanged sentences

Deferred income taxes 1,840 —

Induced conversion expense — 53,889

Other ( 4,534 ) 5,626

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Cash flows from financing activities:

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

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

Payments for repurchase of convertible senior notes — ( 199,998 )

Payments related to business acquisitions — ( 2,250 )

Proceeds from capped call settlement — 17,518

Taxes paid related to net share settlement of equity awards ( 3,883 ) ( 4,012 )

23 unchanged sentences

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 26, 2024.

The consolidated financial statements include our results of operations and those of our wholly-owned subsidiaries and reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented.

The condensed consolidated financial statements include our results of operations and those of our wholly-owned subsidiaries and reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented.

All intercompany transactions and balances have been eliminated in consolidation.

The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

The management estimates include, but are not limited to the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition costs, the useful lives and recoverability of long-lived assets, the valuation for credit losses, the valuation of stock-based compensation, the fair value of assets acquired and liabilities assumed in business combinations, the incremental borrowing rate for operating leases and the valuation for deferred tax assets.

The management estimates include, but are not limited to the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition costs, the useful lives and recoverability of long-lived assets, the valuation for credit losses, the valuation of stock-based compensation, the fair value of assets acquired and liabilities assumed in business combinations, the valuation of contingent consideration, the incremental borrowing rate for operating leases and the valuation for deferred tax assets.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable.

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Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Except for the inclusion of a description of contingent consideration within our Business Combinations policy, as noted below, there have been no changes to the significant accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2023.

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.

The excess of the fair value of purchase consideration over the fair value these identifiable assets and liabilities is recorded as goodwill.

During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the final determination of the fair value of assets acquired or liabilities assumed any subsequent adjustments are recorded to the consolidated statements of operations.

Determining the fair value of the tangible assets acquired, liabilities assumed and intangible assets requires management to make significant estimates and assumptions, especially with respect to intangible assets.

Significant estimates in valuing certain intangible assets include, but are not limited to, cash flows that an asset is expected to generate in the future, technology migration curves, discount rates, and useful lives.

While we use our best estimates and judgements, our estimates are inherently uncertain and subject to refinement.

Contingent consideration arising from business combinations is recorded at fair value as a liability on the acquisition date and remeasured at each reporting date.

Changes in fair value are recorded in general and administrative expense in the consolidated statements of operations.

Determining the fair value of the contingent consideration each period requires management to make assumptions and judgments.

These estimates involve inherent uncertainties, and if different assumptions had been used, the fair value of contingent consideration could have been materially different from the amounts recorded.

Acquisition-related transaction costs are expensed as incurred.

Restricted Cash

As of June 30, 2024, we had $ 7.6 million of restricted cash recorded on our condensed consolidated balance sheet in prepaid expenses and other current assets and other assets in letters of credit outstanding as collateral for certain office space leases.

As of September 30, 2024, we had $ 7.5 million of restricted cash recorded on our condensed consolidated balance sheet in prepaid expenses and other current assets and other assets in letters of credit outstanding as collateral for certain office space leases.

Recent Accounting Pronouncements

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

Accounting Pronouncements Not Yet Effective

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 FASB issued 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.

Revenue from Contracts with Customers

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

For the three months ended June 30, 2024 and 2023, we recognized revenue of $ 179.0 million and $ 164.9 million, respectively, and for the six months ended June 30, 2024 and 2023, we recognized $ 310.8 million and $ 288.3 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

For the three months ended September 30, 2024 and 2023, we recognized revenue of $ 184.6 million and $ 174.3 million, respectively, and for the nine months ended September 30, 2024 and 2023, we recognized $ 398.3 million and $ 366.5 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented.

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

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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 record a contract asset.

As of June 30, 2024 and December 31, 2023, unbilled receivables of $ 2.4 million and $ 1.1 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of June 30, 2024 and December 31, 2023, we had no contract assets recorded on our condensed consolidated balance sheet.

As of September 30, 2024 and December 31, 2023, unbilled receivables of $ 3.6 million and $ 2.0 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

As of September 30, 2024 and December 31, 2023, we had no contract assets recorded on our condensed consolidated balance sheet.

Transaction Price Allocated to the Remaining Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of June 30, 2024.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of September 30, 2024.

The estimated revenues do not include unexercised contract renewals.

5 unchanged sentences

Business Combinations

Noetic Cyber, Inc.

On July 3, 2024, we acquired Noetic Cyber, Inc, (“Noetic”) a provider of cyber asset attack surface management, to extend Rapid7’s security operations platform by unlocking more accessible and accurate asset inventory in order to provide customers more comprehensive visibility to their attack surface, for a purchase price with an aggregate fair value of $ 51.0 million.

The purchase consideration consisted of $ 38.6 million in cash paid at closing, $ 12.1 million of contingent consideration and $ 0.4 million of deferred cash payments.

The deferred cash payments will be held by Rapid7 to satisfy certain post-closing purchase price adjustments.

Subject to the terms of the merger agreement, we are required to pay consideration of up to $ 20.0 million to Noetic shareholders based on the achievement of certain performance targets (the “Earnout Consideration”), measured annually upon the first, second and third anniversaries of the closing date of the transaction (the “Earnout Period”).

If all performance targets are achieved, approximately $ 13.1 million of Earnout Consideration will be paid in cash, and the remaining $ 6.9 million of Earnout Consideration will be issued to certain employees in the form of shares of our common stock subject to continued employment requirements over the Earnout Period.

The approximate $ 6.9 million of the Earnout Consideration that is subject to continued employment will be recognized as stock-based compensation expense over the required employment period.

The fair value of the portion of the Earnout Consideration that is not subject to continued employment is included as part of purchase consideration at the date of the acquisition.

As of July 3, 2024, we determined the fair value of the contingent purchase consideration to be $ 12.1 million.

The fair value of the contingent purchase consideration will be reassessed each reporting

period and any required adjustment will be recorded to general and administrative expense.

As of September 30, 2024 , the fair value of the contingent purchase consideration was $ 12.2 million of which $ 6.8 million was recorded within accrued expenses and other current liabilities and $ 5.4 million was recorded within other liabilities in our condensed consolidated balance sheet.

In the three and nine months ended September 30, 2024 , we recorded $ 0.2 million of accretion expense related to the contingent purchase consideration to general and administrative expense.

In connection with the acquisition, we expect to issue an aggregate value of $ 2.3 million of our common stock to two key employees of Noetic in three installments over a 36 -month period following the closing date of the transaction, subject to continued employment requirements (the “Key Employee Consideration”) and therefore will be recognized as stock-based compensation expense over the required employment period.

The number of shares to be issued at each issuance date for both the Earnout Consideration and the Key Employee Consideration shares will be determined by dividing the aggregate value by the fair market value of our common stock on the issuance date, and therefore will be liability-classified until the final issuance dates.

In the three and nine months ended September 30, 2024 , we recognized stock-based compensation expense related to such shares in the amount of $ 0.7 million.

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

Consideration:

Cash $ 38,597

Deferred cash consideration 397

Contingent consideration 12,055

Fair value of total consideration transferred $ 51,049

Recognized amount of identifiable assets acquired and liabilities assumed:

Cash and cash equivalents $ 1,296

Accounts receivable 510

Prepaid and other current assets 102

Property and equipment, net 19

Accrued expenses and other current liabilities ( 220 )

Deferred revenue ( 910 )

Other long-term liabilities ( 62 )

Intangible asset 11,500

Total identifiable net assets assumed $ 12,235

Goodwill 38,814

Total purchase price allocation $ 51,049

We identified developed technology as the sole acquired intangible asset.

The estimated fair value of the developed technology intangible asset was $ 11.5 million which was based on a valuation using a probability weighted expected return model ( “ PWERM ” ).

The estimated useful life of the developed technology is 7 years.

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

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

The goodwill was allocated to our one reporting unit.

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

In the three and nine months ended September 30, 2024, we recorded $ 0.1 million and $ 0.4 million, respectively, of acquisition-related transaction costs related to the acquisition of Noetic to general and administrative expense.

Our revenue and net loss attributable to the Noetic business for the three and nine months ended September 30, 2024 was not material.

Minerva Labs Ltd.

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

In the first quarter of 2024, we sold acquired intellectual property through a non-cash intercompany transaction, which for the three and six months ended June 30, 2024 resulted in $ 4.6 million of current tax expense and $ 1.8 million of deferred tax expense in Israel.

In the first quarter of 2024, we sold acquired intellectual property through a non-cash intercompany transaction, which for the three and nine months ended September 30, 2024 resulted in $ 4.6 million of current tax expense and $ 1.8 million o f deferred tax expense in Israel.

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

As of June 30, 2024

As of September 30, 2024

Losses Fair Value

8 unchanged sentences

Total $ 225,320 $ 467 $ ( 72 ) $ 225,715

As of June 30, 2024, our available-for-sale investments had maturities ranging fro m 1 to 15 months.

As of September 30, 2024, our available-for-sale investments had maturities ranging fro m 1 to 20 months.

As of December 31, 2023, our available-for-sale investments had maturities ranging from 1 to 18 months.

For all of our investments for which the amortized cost basis was greater than the fair value at June 30, 2024 and December 31, 2023, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity.

For all of our investments for which the amortized cost basis was greater than the fair value at September 30, 2024 and December 31, 2023, 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.

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

As of June 30, 2024

As of September 30, 2024

Level 1 Level 2 Level 3 Total

3 unchanged sentences

Total assets $ 281,504 $ 1,559 $ — $ 283,063

Foreign currency forward contracts designated as cash flow hedges (other current liabilities) — 419 — 419

Contingent consideration (other current liabilities and other long-term liabilities) — — 12,238 12,238

Foreign currency forward contracts designated as cash flow hedges (other current liabilities and other long-term liabilities) — 66 — 66

Total liabilities $ — $ 66 $ 12,238 $ 12,304

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Cash and cash equivalents are excluded from the table above as carrying amounts reported in our condensed consolidated balance sheet equal or approximate fair value.

As of June 30, 2024, the fair value of our 2.25 %, 0.25 % and 1.25 % convertible senior notes due 2025, 2027 and 2029, as further described in Note 10, Debt , was $ 45.1 million, $ 536.2 million and $ 282.9 million, respectively, based upon quoted market prices.

As of September 30, 2024, the fair value of our 2.25 %, 0.25 % and 1.25 % convertible senior notes due 2025, 2027 and 2029, as further described in Note 10, Debt , was $ 45.1 million, $ 547.1 million and $ 281.9 million, respectively, based upon quoted market prices.

We consider the fair value of the Notes (as defined in Note 10, Debt) to be a Level 2 measurement due to limited trading activity of the Notes.

As of September 30, 2024, the fair value of our contingent consideration, as further described in Note 3, Business Combinations, was $ 12.2 million and is classified as a Level 3 measurement based on inputs not observable in the market.

Property and Equipment

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

June 30, December 31,

September 30, December 31,

(in thousands)

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Property and equipment, net $ 33,936 $ 39,642

Depreciation expense was $ 2.8 million and $ 3.7 million for the three months ended June 30, 2024 and 2023, respectively, and $ 5.7 million and $ 7.6 million for the six months ended June 30, 2024 and 2023, respectively.

Depreciation expense was $ 2.7 million and $ 3.3 million for the three months ended September 30, 2024 and 2023, respectively, and $ 8.4 million and $ 10.9 million for the nine months ended September 30, 2024 and 2023, respectively.

Goodwill and Intangibles

Goodwill was $ 536.4 million as of June 30, 2024 and December 31, 2023.

Goodwill was $ 575.2 million and $ 536.4 million as of September 30, 2024 and December 31, 2023, respectively.

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

(in thousands)

Balance, December 31, 2023 $ 536,351

Noetic acquisition 38,814

Balance, September 30, 2024 $ 575,165

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

Average Estimated Useful Life (years) As of June 30, 2024 As of December 31, 2023

Average Estimated Useful Life (years) As of September 30, 2024 As of December 31, 2023

Gross Carrying

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Total intangible assets $ 226,604 $ ( 135,856 ) $ 90,748 $ 205,345 $ ( 110,799 ) $ 94,546

Amortization expense was $ 8.1 million and $ 8.1 million for the three months ended June 30, 2024 and 2023, respectively, and $ 16.5 million and $ 15.3 million for the six months ended June 30, 2024 and 2023, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of June 30, 2024 was as follows (in thousands):

2024 (for the remaining six months) $ 19,373

Amortization expense was $ 8.5 million and $ 8.3 million for the three months ended September 30, 2024 and 2023, respectively, and $ 25.1 million and $ 23.6 million for the nine months ended September 30, 2024 and 2023, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of September 30, 2024 was as follows (in thousands):

2024 (for the remaining three months) $ 8,429

2029 and thereafter 7,652

Total $ 80,501

The table above excludes the impact of $ 4.9 million of capitalized internal-use software costs for projects that have not been completed as of June 30, 2024, and therefore, all the costs associated with these projects have not been incurred.

The table above excludes the impact of $ 10.2 million of capitalized internal-use software costs for projects that have not been completed as of September 30, 2024, and therefore, all the costs associated with these projects have not been incurred.

Deferred Contract Acquisitions and Fulfillment Costs

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

Deferred contract acquisition and fulfillment costs, which primarily consist of capitalized sales commissions, for the nine months ended September 30, 2024 and 2023 was as follows:

Nine Months Ended September 30,

(in thousands)

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

These forward contracts have contractual maturities of eighteen months or less, and as of June 30, 2024 and December 31, 2023, outstanding forward contracts had a total notional value of $ 42.7 million and $ 44.9 million, respectively.

These forward contracts have contractual maturities of twenty months or less, and as of September 30, 2024 and December 31, 2023, outstanding forward contracts had a total notional value of $ 52.4 million and $ 49.5 million, respectively.

The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract.

During the three and six months ended June 30, 2024, all cash flow hedges were considered effective.

During the three and nine months ended September 30, 2024, all cash flow hedges were considered effective.

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

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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”).

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.

For additional details on the terms of our Notes, see Note 11, Debt , to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

As of June 30, 2024, the 2025 Notes, the 2027 Notes and the 2029 Notes were not convertible at the option of the holders.

As of September 30, 2024, 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.

equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

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

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

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The debt issuance costs are amortized to interest expense using the effective interest method over the contractual term of the Notes.

The net carrying amount of the Notes as of June 30, 2024 and December 31, 2023 was as follows (in thousands):

The net carrying amount of the Notes as of September 30, 2024 and December 31, 2023 was as follows (in thousands):

2025 Notes 2027 Notes 2029 Notes

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Amortization of debt issuance costs — 228 228 — 1,877 1,877 — 1,077 1,077

Balance at June 30, 2024 $ 45,992 $ ( 256 ) $ 45,736 $ 600,000 $ ( 6,833 ) $ 593,167 $ 300,000 $ ( 6,894 ) $ 293,106

Balance at September 30, 2024 $ 45,992 $ ( 176 ) $ 45,816 $ 600,000 $ ( 6,200 ) $ 593,800 $ 300,000 $ ( 6,438 ) $ 293,562

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

Three Months Ended June 30,

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

Three Months Ended September 30,

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

Contractual interest expense $ 258 $ 375 $ 938 $ 1,571 $ 948 $ 375 $ 229 $ 1,552

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Total interest expense $ 337 $ 1,009 $ 1,393 $ 2,739 $ 1,237 $ 1,006 $ 302 $ 2,545

Six Months Ended June 30,

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

Nine Months Ended September 30,

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

Contractual interest expense $ 776 $ 1,125 $ 2,812 $ 4,713 $ 3,536 $ 1,125 $ 229 $ 4,890

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

For additional details on the terms of our Capped Calls, see Note 11, Debt , to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

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

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The borrowings under the Credit Agreement bear interest, at our option, at a rate equal to either (i) term SOFR plus a credit spread adjustment of 0.10 % per annum plus a margin of 2.50 % per annum or (ii) the alternate base rate (subject to a floor), plus an applicable margin equal to 0 % per annum.

As of June 30, 2024, we did not have any outstanding borrowings under the Credit Agreement.

As of September 30, 2024, we did not have any outstanding borrowings under the Credit Agreement.

Stock-Based Compensation

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 condensed consolidated statements of operations as follows:

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

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

2024 2023 2024 2023

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Our Compensation Committee adopted and approved the performance goals, targets and payout formulas for our 2024 and 2023 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 each of the three months ended June 30, 2024 and 2023, we recognized stock-based compensation expense related to such bonuses in the amount of $ 0.4 million, and during the six months ended June 30, 2024 and 2023, we recognized stock-based compensation expense in the amount of $ 0.5 million a nd $ 1.1 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of June 30, 2024 and 2023.

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.

During the three months ended September 30, 2024 and 2023, we recognized stock-based compensation expense related to such bonuses in the amount of $ 0.2 million and $ 50 thousand, respectively, and during the nine months ended September 30, 2024 and 2023, we recognized stock-based compensation expense in the amount of $ 0.5 million a nd $ 1.1 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of September 30, 2024 and 2023.

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

The number of shares underlying such awards is determined by dividing the dollar value of the actual bonus award payment by the closing price per share of our common stock on the date of grant.

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

RSUs and PSUs activity during the six months ended June 30, 2024 was as follows:

RSUs and PSUs activity during the nine months ended September 30, 2024 was as follows:

Shares Weighted-

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Forfeited ( 824,443 ) $ 59.99

Unvested balance as of June 30, 2024 3,644,982 $ 58.42

As of June 30, 2024, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 188.9 million.

Unvested balance as of September 30, 2024 3,105,684 $ 56.24

As of September 30, 2024, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 152.0 million.

This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 2.0 years.

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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 net ARR or Adjusted EBITDA 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.

In the three and six months ended June 30, 2024, we recorded $ 0.9 million and $ 1.8 million, respectively, of stock-based compensation expense related to these PSUs based on estimated achievement of the performance criteria.

each such date.

In the three and nine months ended September 30, 2024, we recorded $ 0.4 million and $ 2.2 million, respectively, of stock-based compensation expense related to these PSUs based on estimated achievement of the performance criteria.

In July 2024, our Compensation Committee awarded 19,605 PSUs that required the achievement of certain milestones related to the integration of Noetic.

The PSUs have three measurement and vesting dates through September 15, 2025, subject to the participant's continuous service as of each such date.

If achievement of the milestones are not met, no PSUs will be earned.

In the three and nine months ended September 30, 2024, we recorded $ 0.3 million of stock-based compensation expense related to these PSUs based on estimated achievement of the performance criteria.

Stock option activity during the six months ended June 30, 2024 was as follows:

Stock option activity during the nine months ended September 30, 2024 was as follows:

Shares Weighted

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Forfeited/cancelled ( 450 ) $ 7.73

Outstanding as of June 30, 2024 595,498 $ 12.39 1.69 $ 18,367

Vested and exercisable as of June 30, 2024 595,498 $ 12.39 1.69 $ 22,146

Outstanding as of September 30, 2024 584,078 $ 12.40 1.45 $ 16,056

Vested and exercisable as of September 30, 2024 584,078 $ 12.40 1.45 $ 16,056

(d) Employee Stock Purchase Plan

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On March 15, 2024, we issued 147,445 shares of common stock to employees, with a purchase price of either $ 33.78 or $ 39.78 per share, for aggregate proceeds of $ 5.0 million.

On September 13, 2024, we issued 144,445 shares of common stock to employees, with a purchase price of $ 29.08 per share, for aggregate proceeds of $ 4.2 million.

Net Income (Loss) per Share

The following table summarizes the computation of basic and diluted net income (loss) per share of our common stock for the three months June 30, 2024 and 2023:

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

The following table summarizes the computation of basic and diluted net income (loss) per share of our common stock for the three months September 30, 2024 and 2023:

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

2024 2023 2024 2023

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

For the three and six months ended June 30, 2024 and 2023, the shares underlying the Notes were not considered in the calculation of diluted net income (loss) per share as the effect would have been anti-dilutive.

For the three and nine months ended September 30, 2024 and 2023, the shares underlying the Notes were not considered in the calculation of diluted net income (loss) per share as the effect would have been anti-dilutive.

In connection with the issuance of the 2025 Notes, the 2027 Notes and the 2029 Notes, we entered into the 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 of June 30, 2024 and 2023, the 2025 Notes, the 2027 Notes and the 2029 Notes were not convertible at the option of the holder.

As of September 30, 2024 and 2023, 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 condensed consolidated financial statements.

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The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive:

Three and Six Months Ended June 30,

Nine Months Ended September 30,

Options to purchase common stock 584,078 723,632

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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.

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.

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.

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From time to time, we may receive income tax assessments from taxing authorities asserting additional tax liabilities owed by the Company.

During the quarter ended June 30, 2024, we received an initial assessment from the Israel Tax Authority (“ITA”) of approximately 324 million Israeli New Shekels (approximately $ 87 million, based upon current exchange rates between the Israeli New Shekel and the US Dollar) related to fiscal year 2021.

During the quarter ended June 30, 2024, we received an initial assessment from the Israel Tax Authority (“ITA”) of approximately 324 million Israeli New Shekels (approximately $ 87 million, based upon the exchange rate between the Israeli New Shekel and the US Dollar as of September 30, 2024) related to fiscal year 2021.

Based on our interpretation of the regulations and available case law, we believe that the tax positions we have taken on our filed tax return in Israel are sustainable and we intend to defend our position through all available means.

As such, we have not recorded any impact of the ITA assessment in our condensed consolidated financial statements as of, and for the three and six months ended June 30, 2024.

We are continuing to monitor developments related to this matter and its impact on our existing income tax reserves for all open years.

As such, we have not recorded any impact of the ITA assessment in our condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024.

We are continuing to monitor developments related to

this matter and its impact on our existing income tax reserves for all open years.

If we are unsuccessful in sustaining our tax position in this matter, our financial condition and results of operations would be adversely affected.

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

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

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

2024 2023 2024 2023

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

As of June 30, 2024 As of December 31, 2023

As of September 30, 2024 As of December 31, 2023

(in thousands)

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During the first quarter of 2024, the execution of the Restructuring Plan was completed and we recorded $( 0.2 ) million of restructuring charges within general and administrative expense in the condensed consolidated statements of operations.

The following table presents the activity of the restructuring liability for the six months ended June 30, 2024:

Restructuring Liability

(in thousands)

Balance at December 31, 2023 $ 3,764

Charges ( 190 )

Payments ( 3,574 )

Balance at June 30, 2024 $ —

Subsequent Event

On July 3, 2024, we acquired Noetic Cyber, Inc, (“Noetic”) a provider of cyber asset attack surface management, for consideration of approximately $ 39.2 million, subject to customary working capital adjustments as set forth in the merger agreement, including an aggregate value of $ 2.3 million of our common stock to be issued to two key employees of Noetic in three installments over a 36 -month period following the closing date of the transaction, subject to continued employment requirements (the “Closing Consideration”).

In addition, subject to the terms of the merger agreement, we may also be required to pay additional contingent consideration of up to $ 20.0 million based on the achievement of certain performance targets (the “Earnout Consideration”), measured annually upon the first, second and third anniversaries of the closing date of the transaction (the “Earnout Period”).

If the full $ 20.0 million is realized, approximately $ 6.9 million of the Earnout Consideration will be issued in the form of shares of our common stock subject to continued employment requirements over the Earnout Period, and the remainder will be paid in cash.

Additionally, during the second quarter of 2024, the remaining payments were made, resulting in no remaining restructuring liability.

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

What changed 10-Q

Item 1. Financial Statements