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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40526

 

CONFLUENT, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-1824387

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

899 W. Evelyn Avenue

Mountain View, California

94041

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 439-3207

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.00001 per share

 

CFLT

 

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of April 30, 2024, there were 244,657,840 shares of the registrant’s Class A common stock and 73,177,131 shares of the registrant's Class B common stock, each with a par value of $0.00001 per share, outstanding.

 

 


TABLE OF CONTENTS

 

PART I. Financial Information

 

 

ITEM 1. Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

3

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023

5

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023

6

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023

7

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

8

 

 

Notes to Condensed Consolidated Financial Statements

10

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

44

 

ITEM 4. Controls and Procedures

45

PART II. Other Information

 

 

ITEM 1. Legal Proceedings

46

 

ITEM 1A. Risk Factors

47

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

96

 

ITEM 3. Defaults Upon Senior Securities

96

 

ITEM 4. Mine Safety Disclosures

96

 

ITEM 5. Other Information

97

 

ITEM 6. Exhibits

98

Signatures

99

 

 


SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

our expectations regarding our revenue, revenue mix, expenses, and other results of operations;
our ability to acquire new customers and successfully retain existing customers;
our ability to increase consumption of our offering and expand features and functionalities;
our ability to achieve or sustain our margins and profitability;
the impact of, and our ability to operate our business and effectively manage our growth under, evolving and uncertain macroeconomic conditions, including as a result of inflationary pressures, geopolitical events, and recessionary environments;
future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;
the costs and success of our sales and marketing efforts, including in connection with our shift to a consumption-oriented sales model for Confluent Cloud, and our ability to promote our brand;
our growth strategies for, and market acceptance of, our platform, as well as our ability to execute such strategies;
the estimated addressable market opportunity and our ability to penetrate such market;
our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;
our ability to effectively manage our growth, including international expansion;
our ability to protect our intellectual property rights and any costs associated therewith;
the effects of public health crises, such as the COVID-19 pandemic;
our ability to compete effectively with existing competitors and new market entrants; and
the growth rates of the markets in which we compete.

 

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

 

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

 

1


 

You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.


Where You Can Find More Information

 

Investors and others should note that we may announce material business and financial information to our investors using our Investor Relations website (investors.confluent.io), our filings with the Securities and Exchange Commission (“SEC”), webcasts, press releases, public conference calls, and blogs published on our website. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.

 

We also use our X (Twitter), LinkedIn, and Facebook accounts as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts, in addition to following our SEC filings, webcasts, press releases, public conference calls, and blogs published on our website. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. These channels may be updated from time to time on our investor relations website.

 

2


PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

Confluent, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 

 

March 31, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

336,373

 

 

$

349,761

 

Marketable securities

 

1,570,586

 

 

 

1,551,009

 

Accounts receivable, net

 

199,842

 

 

 

229,962

 

Deferred contract acquisition costs

 

43,214

 

 

 

43,937

 

Prepaid expenses and other current assets

 

76,102

 

 

 

76,986

 

Total current assets

 

2,226,117

 

 

 

2,251,655

 

Property and equipment, net

 

61,627

 

 

 

54,012

 

Operating lease right-of-use assets

 

9,176

 

 

 

10,061

 

Goodwill and intangible assets, net

 

54,988

 

 

 

55,490

 

Deferred contract acquisition costs, non-current

 

73,508

 

 

 

75,815

 

Other assets, non-current

 

14,213

 

 

 

13,776

 

Total assets

$

2,439,629

 

 

$

2,460,809

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

1,882

 

 

$

6,714

 

Accrued expenses and other liabilities

 

96,739

 

 

 

141,847

 

Operating lease liabilities

 

10,061

 

 

 

7,890

 

Deferred revenue

 

330,516

 

 

 

330,570

 

Total current liabilities

 

439,198

 

 

 

487,021

 

Operating lease liabilities, non-current

 

13,284

 

 

 

17,391

 

Deferred revenue, non-current

 

17,145

 

 

 

22,436

 

Convertible senior notes, net

 

1,089,266

 

 

 

1,088,313

 

Other liabilities, non-current

 

35,519

 

 

 

35,233

 

Total liabilities

 

1,594,412

 

 

 

1,650,394

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

3


 

March 31, 2024

 

 

December 31, 2023

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023

 

-

 

 

 

-

 

Class A common stock, par value of $0.00001 per share; 1,000,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 244,079,585 and 224,737,415 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

2

 

 

 

2

 

Class B common stock, par value of $0.00001 per share; 500,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 73,182,995 and 86,774,127 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

1

 

 

 

1

 

Additional paid-in capital

 

2,584,665

 

 

 

2,453,293

 

Accumulated other comprehensive (loss) income

 

(2,333

)

 

 

1,270

 

Accumulated deficit

 

(1,737,118

)

 

 

(1,644,151

)

Total stockholders’ equity

 

845,217

 

 

 

810,415

 

Total liabilities and stockholders’ equity

$

2,439,629

 

 

$

2,460,809

 

 

See accompanying notes to the condensed consolidated financial statements.

4


Confluent, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

Subscription

$

206,902

 

 

$

160,567

 

Services

 

10,335

 

 

 

13,735

 

Total revenue

 

217,237

 

 

 

174,302

 

Cost of revenue:

 

 

 

 

 

Subscription

 

48,355

 

 

 

42,905

 

Services

 

12,866

 

 

 

15,239

 

Total cost of revenue

 

61,221

 

 

 

58,144

 

Gross profit

 

156,016

 

 

 

116,158

 

Operating expenses:

 

 

 

 

 

Research and development

 

97,571

 

 

 

84,890

 

Sales and marketing

 

131,352

 

 

 

128,624

 

General and administrative

 

38,444

 

 

 

35,355

 

Restructuring and other related charges

 

-

 

 

 

33,382

 

Total operating expenses

 

267,367

 

 

 

282,251

 

Operating loss

 

(111,351

)

 

 

(166,093

)

Other income, net

 

20,850

 

 

 

15,185

 

Loss before income taxes

 

(90,501

)

 

 

(150,908

)

Provision for income taxes

 

2,466

 

 

 

1,647

 

Net loss

$

(92,967

)

 

$

(152,555

)

Net loss per share, basic and diluted

$

(0.30

)

 

$

(0.52

)

Weighted-average shares used to compute net loss per share, basic and diluted

 

314,203,181

 

 

 

291,864,975

 

 

See accompanying notes to the condensed consolidated financial statements.

5


Confluent, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Net loss

$

(92,967

)

 

$

(152,555

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

Net unrealized (loss) gain on marketable securities

 

(1,866

)

 

 

4,159

 

Net unrealized (loss) gain on derivative instruments

 

(1,737

)

 

 

843

 

Other comprehensive (loss) income, net of tax

 

(3,603

)

 

 

5,002

 

Total comprehensive loss

$

(96,570

)

 

$

(147,553

)

 

See accompanying notes to the condensed consolidated financial statements.

6


Confluent, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

 

Three Months Ended March 31, 2024

 

 

Class A and Class B
Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances as of January 1, 2024

 

311,511,542

 

 

$

3

 

 

$

2,453,293

 

 

$

1,270

 

 

$

(1,644,151

)

 

$

810,415

 

Vesting of early exercised options

 

-

 

 

 

-

 

 

 

316

 

 

 

-

 

 

 

-

 

 

 

316

 

Issuance of common stock upon exercise of vested options

 

2,257,832

 

 

 

-

 

 

 

14,534

 

 

 

-

 

 

 

-

 

 

 

14,534

 

Vesting of restricted stock units

 

2,819,051

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock under employee stock purchase plan

 

674,155

 

 

 

-

 

 

 

15,603

 

 

 

-

 

 

 

-

 

 

 

15,603

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

100,919

 

 

 

-

 

 

 

-

 

 

 

100,919

 

Other comprehensive loss, net of tax

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,603

)

 

 

-

 

 

 

(3,603

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(92,967

)

 

 

(92,967

)

Balances as of March 31, 2024

 

317,262,580

 

 

$

3

 

 

$

2,584,665

 

 

$

(2,333

)

 

$

(1,737,118

)

 

$

845,217

 

 

 

Three Months Ended March 31, 2023

 

 

Class A and Class B
Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances as of January 1, 2023

 

289,384,180

 

 

$

3

 

 

$

1,980,335

 

 

$

(9,456

)

 

$

(1,201,405

)

 

$

769,477

 

Repurchases of unvested options

 

(30,828

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Vesting of early exercised options

 

-

 

 

 

-

 

 

 

1,275

 

 

 

-

 

 

 

-

 

 

 

1,275

 

Issuance of common stock upon exercise of vested options

 

3,595,765

 

 

 

-

 

 

 

21,269

 

 

 

-

 

 

 

-

 

 

 

21,269

 

Vesting of restricted stock units

 

1,714,907

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock under employee stock purchase plan

 

714,586

 

 

 

-

 

 

 

17,172

 

 

 

-

 

 

 

-

 

 

 

17,172

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

83,211

 

 

 

-

 

 

 

-

 

 

 

83,211

 

Other comprehensive income, net of tax

 

-

 

 

 

-

 

 

 

-

 

 

 

5,002

 

 

 

-

 

 

 

5,002

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(152,555

)

 

 

(152,555

)

Balances as of March 31, 2023

 

295,378,610

 

 

$

3

 

 

$

2,103,262

 

 

$

(4,454

)

 

$

(1,353,960

)

 

$

744,851

 

 

See accompanying notes to the condensed consolidated financial statements.

7


Confluent, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net loss

$

(92,967

)

 

$

(152,555

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

4,311

 

 

 

3,122

 

Net accretion of discounts on marketable securities

 

(10,396

)

 

 

(9,133

)

Amortization of debt issuance costs

 

953

 

 

 

939

 

Amortization of deferred contract acquisition costs

 

12,762

 

 

 

10,484

 

Non-cash operating lease costs

 

885

 

 

 

1,207

 

Lease abandonment charges

 

-

 

 

 

15,667

 

Stock-based compensation, net of amounts capitalized

 

95,322

 

 

 

79,289

 

Deferred income taxes

 

615

 

 

 

5

 

Other

 

849

 

 

 

279

 

Changes in operating assets and liabilities, net of effects of business combinations:

 

 

 

 

 

Accounts receivable

 

29,360

 

 

 

8,068

 

Deferred contract acquisition costs

 

(9,732

)

 

 

(10,160

)

Prepaid expenses and other assets

 

(1,929

)

 

 

3,141

 

Accounts payable

 

(4,932

)

 

 

(11,325

)

Accrued expenses and other liabilities

 

(43,752

)

 

 

(16,557

)

Operating lease liabilities

 

(1,935

)

 

 

(1,998

)

Deferred revenue

 

(5,368

)

 

 

1,755

 

Net cash used in operating activities

 

(25,954

)

 

 

(77,772

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Capitalization of internal-use software costs

 

(5,539

)

 

 

(4,556

)

Purchases of marketable securities

 

(443,307

)

 

 

(453,356

)

Maturities of marketable securities

 

432,267

 

 

 

451,777

 

Purchases of property and equipment

 

(186

)

 

 

(546

)

Cash paid for business combinations, net of cash acquired

 

-

 

 

 

(45,802

)

Net cash used in investing activities

 

(16,765

)

 

 

(52,483

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of vested options

 

14,401

 

 

 

20,780

 

Repurchases of unvested options

 

-

 

 

 

(223

)

Proceeds from issuance of common stock under employee stock purchase plan

 

15,603

 

 

 

17,172

 

Net cash provided by financing activities

 

30,004

 

 

 

37,729

 

Effect of exchange rate changes on cash and cash equivalents

 

(673

)

 

 

205

 

Net decrease in cash and cash equivalents

 

(13,388

)

 

 

(92,321

)

Cash and cash equivalents at beginning of period

 

349,761

 

 

 

435,781

 

Cash and cash equivalents at end of period

$

336,373

 

 

$

343,460

 

 

 

8


 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Supplementary cash flow disclosures:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Income taxes

$

1,814

 

 

$

1,883

 

Non-cash investing and financing activities:

 

 

 

 

 

Stock-based compensation capitalized as internal-use software costs

$

5,597

 

 

$

3,922

 

Vesting of early exercised stock options

$

316

 

 

$

1,275

 

 

See accompanying notes to the condensed consolidated financial statements.

 

9


 

Confluent, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Description of Business

Description of Business

Confluent, Inc. (“Confluent” or the “Company”) created a data infrastructure platform focused on data in motion. Confluent’s platform allows customers to connect their applications, systems, and data layers and can be deployed either as a self-managed software offering, Confluent Platform, or as a fully-managed cloud-native software-as-a-service (“SaaS”) offering, Confluent Cloud. Confluent also offers professional services and education services. The Company was incorporated in the state of Delaware in September 2014 and is headquartered in California with various other global office locations.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on February 21, 2024 (the Annual Report).

In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2024 and the results of operations and cash flows for the three months ended March 31, 2024 and 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, the standalone selling price ("SSP") for each distinct performance obligation included in customer contracts, deferred contract acquisition costs and their period of benefit, stock-based compensation expense, the fair value of acquired intangible assets, capitalization and estimated useful life of internal-use software, the incremental borrowing rate used to measure operating lease liabilities, and accounting for income taxes.

The Company bases its estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions about future events and their effects, including the impact of global macroeconomic conditions, cannot be determined with certainty and therefore require the exercise of judgment. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed consolidated financial statements.

10


Significant Accounting Policies

There were no significant changes to the Company’s significant accounting policies disclosed in “Note 2 – Basis of Presentation and Summary of Significant Accounting Policies” of the Company’s Annual Report.

Recent Accounting Pronouncements

 

Recent Accounting Pronouncements Not Yet Adopted

Segment Reporting: In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

Income Taxes: In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This ASU is effective for fiscal years beginning after December 15, 2024, and may be applied on a retrospective or prospective basis. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

3. Marketable Securities

 

The following tables summarize the fair values of the Company’s marketable securities (in thousands):

 

 

March 31, 2024

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

U.S. treasury securities

$

761,343

 

 

$

26

 

 

$

(1,355

)

 

$

760,014

 

Corporate notes and bonds

 

393,175

 

 

 

223

 

 

 

(931

)

 

 

392,467

 

U.S. agency obligations

 

369,850

 

 

 

144

 

 

 

(939

)

 

 

369,055

 

Commercial paper

 

49,072

 

 

 

-

 

 

 

(22

)

 

 

49,050

 

Total marketable securities

$

1,573,440

 

 

$

393

 

 

$

(3,247

)

 

$

1,570,586

 

 

 

December 31, 2023

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

U.S. treasury securities

$

834,235

 

 

$

257

 

 

$

(1,355

)

 

$

833,137

 

U.S. agency obligations

 

403,035

 

 

 

599

 

 

 

(875

)

 

 

402,759

 

Corporate notes and bonds

 

279,328

 

 

 

838

 

 

 

(457

)

 

 

279,709

 

Commercial paper

 

35,407

 

 

 

-

 

 

 

(3

)

 

 

35,404

 

Total marketable securities

$

1,552,005

 

 

$

1,694

 

 

$

(2,690

)

 

$

1,551,009

 

 

11


The following tables summarize the fair values and unrealized losses of the Company’s marketable securities, classified by the length of time that the securities have been in a continuous unrealized loss position (in thousands):

 

 

March 31, 2024

 

 

Less than 12 Months

12 Months or Greater

Total

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

U.S. treasury securities

$

602,515

 

 

$

(1,306

)

 

$

21,930

 

 

$

(49

)

 

$

624,445

 

 

$

(1,355

)

U.S. agency obligations

 

229,157

 

 

 

(641

)

 

 

75,738

 

 

 

(298

)

 

 

304,895

 

 

 

(939

)

Corporate notes and bonds

 

278,565

 

 

 

(856

)

 

 

16,277

 

 

 

(75

)

 

 

294,842

 

 

 

(931

)

Commercial paper

 

12,270

 

 

 

(22

)

 

 

-

 

 

 

-

 

 

 

12,270

 

 

 

(22

)

Total

$

1,122,507

 

 

$

(2,825

)

 

$

113,945

 

 

$

(422

)

 

$

1,236,452

 

 

$

(3,247

)

 

 

December 31, 2023

 

 

Less than 12 Months

12 Months or Greater

Total

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

U.S. treasury securities

$

487,260

 

 

$

(1,074

)

 

$

46,130

 

 

$

(281

)

 

$

533,390

 

 

$

(1,355

)

U.S. agency obligations

 

206,105

 

 

 

(390

)

 

 

80,657

 

 

 

(485

)

 

 

286,762

 

 

 

(875

)

Corporate notes and bonds

 

100,295

 

 

 

(293

)

 

 

31,277

 

 

 

(164

)

 

 

131,572

 

 

 

(457

)

Commercial paper

 

6,810

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

6,810

 

 

 

(3

)

Total

$

800,470

 

 

$

(1,760

)

 

$

158,064

 

 

$

(930

)

 

$

958,534

 

 

$

(2,690

)

 

For available-for-sale debt securities in an unrealized loss position, the Company does not intend to sell these securities and it is more likely than not that the Company will hold these securities until maturity or a recovery of the cost basis. The Company determined that the decline in fair value of these securities was not due to credit-related factors, and no allowance for expected credit losses was recorded as of March 31, 2024 and December 31, 2023. Realized gains and losses were not material for the three months ended March 31, 2024 and 2023.

 

The following table summarizes the contractual maturities of the Company’s marketable securities (in thousands):

 

 

March 31, 2024

 

 

Amortized Cost

 

 

Fair Value

 

Due within one year

$

1,123,419

 

 

$

1,121,345

 

Due after one year through five years

 

450,021

 

 

 

449,241

 

Total

$

1,573,440

 

 

$

1,570,586

 

 

12


4. Fair Value of Financial Instruments

 

The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

269,918

 

 

$

-

 

 

$

269,918

 

U.S. treasury securities

 

 

-

 

 

 

29,063

 

 

 

29,063

 

Commercial paper

 

 

-

 

 

 

3,973

 

 

 

3,973

 

Marketable securities:

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

-

 

 

 

760,014

 

 

 

760,014

 

Corporate notes and bonds

 

 

-

 

 

 

392,467

 

 

 

392,467

 

U.S. agency obligations

 

 

-

 

 

 

369,055

 

 

 

369,055

 

Commercial paper

 

 

-

 

 

 

49,050

 

 

 

49,050

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

 

-

 

 

 

1,172

 

 

 

1,172

 

Total assets

 

$

269,918

 

 

$

1,604,794

 

 

$

1,874,712

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

-

 

 

$

773

 

 

$

773

 

Total liabilities

 

$

-

 

 

$

773

 

 

$

773

 

 

 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

264,923

 

 

$

-

 

 

$

264,923

 

U.S. treasury securities

 

 

-

 

 

 

52,130

 

 

 

52,130

 

Marketable securities:

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

-

 

 

 

833,137

 

 

 

833,137

 

U.S. agency obligations

 

 

-

 

 

 

402,759

 

 

 

402,759

 

Corporate notes and bonds

 

 

-

 

 

 

279,709

 

 

 

279,709

 

Commercial paper

 

 

-

 

 

 

35,404

 

 

 

35,404

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

 

-

 

 

 

3,219

 

 

 

3,219

 

Total assets

 

$

264,923

 

 

$

1,606,358

 

 

$

1,871,281

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

-

 

 

$

1,272

 

 

$

1,272

 

Total liabilities

 

$

-

 

 

$

1,272

 

 

$

1,272

 

 

The Company classifies its highly liquid money market funds within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its U.S. treasury securities, corporate notes and bonds, U.S. agency obligations, commercial paper, and foreign currency forward contracts within Level 2 of the fair value hierarchy because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security that may not be actively traded. There were no transfers of financial instruments between valuation levels during the three months ended March 31, 2024 and 2023.

 

13


As of March 31, 2024 and December 31, 2023, the total estimated fair value of the Company’s 0% convertible senior notes due 2027 was $943.3 million and $917.9 million, respectively. The fair value was determined based on the quoted price of the convertible senior notes in an inactive market on the last trading day of the reporting period and is classified within Level 2 of the fair value hierarchy. See Note 8 for further information on the Companys convertible senior notes.

5. Derivative Instruments and Hedging

 

The Company enters into foreign currency forward contracts with certain financial institutions to mitigate the impact of foreign currency fluctuations on future cash flows and earnings. Derivative instruments that hedge the exposure to variability in expected future cash flows are designated as cash flow hedges. The Company records changes in the fair value of these derivatives as a component of accumulated other comprehensive income (loss) (“AOCI”) and subsequently reclassifies the related gains or losses into cost of revenue or operating expense in the same period, or periods, during which the hedged transaction affects earnings. The Company classifies cash flows related to its cash flow hedges as operating activities in its condensed consolidated statements of cash flows.

 

Derivative instruments that hedge the exposure to variability in the fair value of assets or liabilities denominated in non-USD currencies are not designated as hedges for financial reporting purposes. The Company records changes in the fair value of these derivatives in other income (expense), net in the condensed consolidated statements of operations. The Company classifies cash flows related to these derivatives as operating activities in its condensed consolidated statements of cash flows.

 

The following table summarizes the notional amounts of the Company’s derivative instruments (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Foreign currency forward contracts designated as hedging instruments

 

$

83,992

 

 

$

125,617

 

Foreign currency forward contracts not designated as hedging instruments

 

 

73,892

 

 

 

99,918

 

Total derivative instruments

 

$

157,884

 

 

$

225,535

 

 

The Company has master netting agreements with each of its counterparties, which permit net settlement of multiple, separate derivative contracts with a single payment. The Company does not have collateral requirements with any of its counterparties. Although the Company is allowed to present the fair value of derivative instruments on a net basis according to master netting arrangements, the Company has elected to present its derivative instruments on a gross basis in the condensed consolidated financial statements. The Company’s derivative instruments generally have maturities of 18 months or less. The Company does not use derivative instruments for trading or speculative purposes. The following table summarizes the fair value of the Company’s derivative instruments on the condensed consolidated balance sheets (in thousands):

14


 

 

Balance Sheet Location

 

March 31, 2024

 

 

December 31, 2023