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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 September 30, 2022
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: 001-39051
_________________________________________________________
Datadog, Inc.
(Exact Name of Registrant as Specified in its Charter)
_________________________________________________________
Delaware27-2825503
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
620 8th Avenue, 45th Floor
New York,NY10018
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (866) 329-4466
_________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.00001 per shareDDOGThe 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, a 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 filerSmall 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 October 26, 2022, there were 292,049,852 shares of the registrant’s Class A common stock and 25,509,986 shares of the registrant’s Class B common stock, each with a par value of $0.00001 per share, outstanding.




TABLE OF CONTENTS
Page
 
 

1


SPECIAL NOTE REGARDING 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 facts contained in this Quarterly Report on Form 10-Q including statements regarding our future results of operations or 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,” “will” or “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, expenses and other operating results;
our ability to acquire new customers and successfully retain existing customers;
our ability to increase usage of our platform and upsell and cross sell additional products;
our ability to achieve or sustain our profitability;
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, and our ability to promote our brand;
our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;
our ability to effectively manage our growth, including any international expansion;
our ability to protect our intellectual property rights and any costs associated therewith;
our ability to compete effectively with existing competitors and new market entrants;
the growth rates of the markets in which we compete; and
the potential impact of macroeconomic events such as the COVID-19 pandemic on our business, results of operations and financial condition.
You should not rely on forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described under the header “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained herein. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made, and we undertake no obligation to update them to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
Unless the context otherwise indicates, references in this report to the terms “Datadog”, “the Company,” “we,” “our” and “us” refer to Datadog, Inc. and its subsidiaries.
We may announce material business and financial information to our investors using our investor relations website (investors.datadoghq.com). We therefore encourage investors and others interested in Datadog to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls.
2


PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DATADOG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
September 30,
2022
December 31,
2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$294,815 $270,973 
Marketable securities1,471,448 1,283,473 
Accounts receivable, net of allowance for credit losses of $5,430 and $2,997 as of
September 30, 2022 and December 31, 2021, respectively
348,830 268,824 
Deferred contract costs, current29,873 23,235 
Prepaid expenses and other current assets31,603 24,443 
Total current assets2,176,569 1,870,948 
Property and equipment, net110,889 75,152 
Operating lease assets88,930 61,355 
Goodwill332,649 292,176 
Intangible assets, net15,616 15,704 
Deferred contract costs, non-current50,154 42,062 
Restricted cash3,019 3,490 
Other assets19,777 19,907 
TOTAL ASSETS$2,797,603 $2,380,794 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable$27,625 $25,270 
Accrued expenses and other current liabilities146,290 111,284 
Operating lease liabilities, current21,751 20,157 
Deferred revenue, current478,742 371,985 
Total current liabilities674,408 528,696 
Operating lease liabilities, non-current76,934 52,106 
Convertible senior notes, net738,003 735,482 
Deferred revenue, non-current9,455 13,896 
Other liabilities9,364 9,411 
Total liabilities1,508,164 1,339,591 
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY:
Class A common stock, $0.00001 par value per share; 2,000,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 292,014,760 and 263,339,585 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
3 2 
Class B common stock, $0.00001 par value per share; 310,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 25,509,986 and 50,025,852 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
 1 
Additional paid-in capital1,487,992 1,197,136 
Accumulated other comprehensive loss(25,324)(3,830)
Accumulated deficit(173,232)(152,106)
Total stockholders’ equity1,289,439 1,041,203 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$2,797,603 $2,380,794 
See accompanying notes to condensed consolidated financial statements.
3


DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Revenue$436,533 $270,488 $1,205,701 $702,586 
Cost of revenue93,599 63,332 249,986 167,096 
Gross profit342,934 207,156 955,715 535,490 
Operating expenses:
Research and development205,388 112,675 533,695 286,720 
Sales and marketing129,493 75,827 345,929 210,592 
General and administrative39,395 23,549 100,158 65,789 
Total operating expenses374,276 212,051 979,782 563,101 
Operating loss(31,342)(4,895)(24,067)(27,611)
Other income (loss):
Interest expense(3,728)(4,912)(13,516)(15,448)
Interest income and other income, net12,011 5,040 25,367 16,105 
Other income, net8,283 128 11,851 657 
Loss before provision for income taxes(23,059)(4,767)(12,216)(26,954)
Provision for income taxes(2,926)(717)(8,910)(960)
Net loss$(25,985)$(5,484)$(21,126)$(27,914)
Net loss attributable to common stockholders$(25,985)$(5,484)$(21,126)$(27,914)
Basic net loss per share$(0.08)$(0.02)$(0.07)$(0.09)
Diluted net loss per share$(0.08)$(0.02)$(0.07)$(0.09)
Weighted average shares used in calculating basic net loss per share:315,990 310,247 314,753 308,115 
Weighted average shares used in calculating diluted net loss per share:315,990 310,247 314,753 308,115 
See accompanying notes to condensed consolidated financial statements.
4


DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Net loss$(25,985)$(5,484)$(21,126)$(27,914)
Other comprehensive loss:
Foreign currency translation adjustments(5,678)(652)(8,782)(1,346)
Unrealized loss on available-for-sale marketable securities(1,137)(368)(12,712)(1,129)
Other comprehensive loss(6,815)(1,020)(21,494)(2,475)
Comprehensive loss$(32,800)$(6,504)$(42,620)$(30,389)
See accompanying notes to condensed consolidated financial statements.
5


DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)

 Class A and Class B
Common Stock
Additional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders' Equity
SharesAmount
BALANCE—June 30, 2022316,415,782 $3 $1,380,873 $(18,509)$(147,247)$1,215,120 
Issuance of common stock upon exercise of stock options415,291 — 1,837 — — 1,837 
Vesting of restricted stock units693,673 — — — — — 
Stock-based compensation— — 105,282 — — 105,282 
Change in accumulated other comprehensive loss— — — (6,815)— (6,815)
Net loss— — — — (25,985)(25,985)
BALANCE—September 30, 2022317,524,746 $3 $1,487,992 $(25,324)$(173,232)$1,289,439 

Class A and Class B
Common Stock
Additional
Paid-in
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total
Stockholders'
Equity
SharesAmount
BALANCE—June 30, 2021309,841,134 $3 $1,065,835 $832 $(153,791)$912,879 
Issuance of common stock upon exercise of stock options1,715,963 — 4,459 — — 4,459 
Vesting of early exercised stock options— — 33 — — 33 
Vesting of restricted stock units344,362 — — — — — 
Stock-based compensation— — 46,545 — — 46,545 
Changes in accumulated other comprehensive loss— — — (1,020)— (1,020)
Net loss— — — — (5,484)(5,484)
BALANCE—September 30, 2021311,901,459 $3 $1,116,872 $(188)$(159,275)$957,412 
Class A and Class B
Common Stock
Additional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders'
Equity
SharesAmount
BALANCE—December 31, 2021313,365,437 $3 $1,197,136 $(3,830)$(152,106)$1,041,203 
Issuance of common stock upon exercise of stock options2,089,044 — 8,253 — — 8,253 
Vesting of early exercised stock options— — 33 — — 33 
Vesting of restricted stock units1,732,731 — — — — — 
Issuance of restricted shares of common stock from acquisitions191,019 — 7,608 — — 7,608 
Issuance of common stock under the Employee Stock Purchase Plan146,515 — 13,557 — — 13,557 
Stock-based compensation— — 261,405 — — 261,405 
Change in accumulated other comprehensive loss— — — (21,494)— (21,494)
Net loss— — — — (21,126)(21,126)
BALANCE—September 30, 2022317,524,746 $3 $1,487,992 $(25,324)$(173,232)$1,289,439 

6


Class A and Class B
Common Stock
Additional
Paid-in
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total
Stockholders'
Equity
SharesAmount
BALANCE—December 31, 2020305,880,063 $3 $1,103,305 $2,287 $(148,163)$957,432 
Effect of adoption of ASU 2020-06— — (173,070)— 16,802 (156,268)
BALANCE—January 1, 2021305,880,063 3 930,235 2,287 (131,361)801,164 
Issuance of common stock upon exercise of stock options4,246,592 — 10,676 — — 10,676 
Vesting of early exercised stock options— — 533 — — 533 
Vesting of restricted stock units1,133,572 — — — — — 
Issuance of restricted shares of common stock from acquisitions501,583 — 51,501 — — 51,501 
Issuance of common stock under the Employee Stock Purchase Plan139,649 — 9,794 — — 9,794 
Stock-based compensation— — 114,133 $— — 114,133 
Change in accumulated other comprehensive loss— — — (2,475)— (2,475)
Net loss— — — — (27,914)(27,914)
BALANCE—September 30, 2021311,901,459 $3 $1,116,872 $(188)$(159,275)$957,412 

See accompanying notes to condensed consolidated financial statements.

7


DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss$(21,126)$(27,914)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization24,825 16,062 
Amortization of discounts or premiums on marketable securities7,217 11,829 
Amortization of issuance costs2,525 2,510 
Amortization of deferred contract costs19,941 12,557 
Stock-based compensation, net of amounts capitalized250,645 107,371 
Non-cash lease expense15,236 12,605 
Allowance for credit losses on accounts receivable3,929 1,226 
Loss on disposal of property and equipment1,152 258 
Changes in operating assets and liabilities:
Accounts receivable, net(83,738)(61,880)
Deferred contract costs(34,671)(27,610)
Prepaid expenses and other current assets(11,280)(941)
Other assets(1,920)(1,844)
Accounts payable2,483 12,432 
Accrued expenses and other liabilities27,350 19,226 
Deferred revenue101,398 94,865 
Net cash provided by operating activities303,966 170,752 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities(1,067,732)(897,412)
Maturities of marketable securities857,193 935,692 
Proceeds from sale of marketable securities2,090 61,132 
Purchases of property and equipment(25,207)(7,551)
Capitalized software development costs(21,592)(19,364)
Cash paid for acquisition of businesses; net of cash acquired(40,302)(200,202)
Net cash used in investing activities(295,550)(127,705)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options8,267 10,651 
Proceeds from issuance of common stock under the employee stock purchase plan13,557 9,794 
Employee payroll taxes paid related to net share settlement under the employee stock purchase plan (245)
Repayments of convertible senior notes(3) 
Net cash provided by financing activities21,821 20,200 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(6,866)(1,420)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH23,371 61,827 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period274,463 228,711 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period$297,834 $290,538 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes$1,082 $939 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued property and equipment purchases$1,662 $1,250 
Stock-based compensation included in capitalized software development costs$10,760 $6,762 
Vesting of early exercised options$33 $533 
Issuance of restricted shares of common stock for the acquisition of businesses$7,608 $51,501 
Acquisition holdback$5,473 $1,195 
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOWN IN THE STATEMENTS OF CASH FLOWS ABOVE:
Cash and cash equivalents$294,815 $286,966 
Restricted cash3,019 3,572 
Total cash, cash equivalents and restricted cash$297,834 $290,538 
See accompanying notes to condensed consolidated financial statements.
8


DATADOG, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
Description of Business
Datadog, Inc. (“Datadog” or the “Company”) was incorporated in the State of Delaware on June 4, 2010. The Company is the monitoring and security platform for cloud applications. The Company’s SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management and security monitoring to provide unified, real-time observability of its customers’ entire technology stack. The Company is headquartered in New York City and has various other global office locations.
2. Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Condensed Consolidated Financial Information
The unaudited condensed consolidated financial statements include the accounts of Datadog, Inc. and its wholly-owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other interim period or for any other future year. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 25, 2022 (the “Annual Report”).
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Datadog, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates include the fair value of marketable securities, the allowance for credit losses, the fair value of acquired assets and assumed liabilities from business combinations, useful lives of property, equipment, software and finite lived intangibles, stock-based compensation, valuation of long-lived assets and their recoverability, including goodwill, the incremental borrowing rate for operating leases, estimated expected period of benefit for deferred contract costs, fair value of the liability component of the convertible debt, realization of deferred tax assets and uncertain tax positions, revenue recognition and the allocation of overhead costs between cost of revenue and operating expenses. The Company bases its estimates on historical experience and also on assumptions that management considers reasonable. The Company assesses these estimates on a regular basis; however, actual results could materially differ from these estimates.
Accounting Pronouncements Recently Adopted

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU No. 2021-08"), which intends to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by
9


the acquirer. It is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. The Company early adopted ASU No. 2021-08 on January 1, 2022 on a prospective basis with no material impact on the Company's condensed consolidated financial statements.

3. Marketable Securities
The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents on the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022
Amortized
Cost
Unrealized
Gain
Unrealized
Losses
Fair
Value
Commercial debt securities$898,044 $7 $(12,689)$885,362 
Commercial paper261,266 18 (1,127)260,157 
U.S. government treasury securities173,578  (1,618)171,960 
Certificates of deposit133,908 21 (549)133,380 
U.S. government agency securities12,654  (60)12,594 
Non-U.S. government securities8,004  (9)7,995 
Marketable securities$1,487,454 $46 $(16,052)$1,471,448 
December 31, 2021
Amortized
Cost
Unrealized
Gain
Unrealized
Losses
Fair
Value
Commercial debt securities$1,034,573 $43 $(2,564)$1,032,052 
Commercial paper151,379 14 (37)151,356 
U.S. government treasury securities77,628 18 (204)77,442 
Certificates of deposit14,574 5 (10)14,569 
Non-U.S. government securities8,071  (17)8,054 
Marketable securities$1,286,225 $80 $(2,832)$1,283,473 
As of September 30, 2022, the fair values of available-for-sale marketable securities, by remaining contractual maturity, were as follows (in thousands):
Due within one year$1,427,583 
Due in one year through five years43,865 
Total$1,471,448 
The Company does not believe that any unrealized losses are attributable to credit-related factors based on its evaluation of available evidence. To determine whether a decline in value is related to credit loss, the Company evaluates, among other factors: the extent to which the fair value is less than the amortized cost basis, changes to the rating of the security by a rating agency and any adverse conditions specifically related to an issuer of a security or its industry. Unrealized gains and losses on marketable securities are presented net of tax.
10


4. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):
Fair Value Measurement as of September 30, 2022
Level 1Level 2Level 3Total
Financial Assets:
Cash equivalents:
Money market funds$251,471 $ $ $251,471 
Corporate debt securities 4,116  4,116 
Marketable Securities:
Corporate debt securities 885,362  885,362 
Commercial paper 260,157  260,157 
U.S. government treasury securities 171,960  171,960 
Certificates of deposit 133,380  133,380 
U.S. government agency securities 12,594  12,594 
Non-U.S. government treasury securities 7,995  7,995 
Total financial assets$251,471 $1,475,564 $ $1,727,035 
Fair Value Measurement as of December 31, 2021
Level 1Level 2Level 3Total
Financial Assets:
Cash equivalents:
Money market funds$241,571 $ $ $241,571 
Marketable Securities:
Corporate debt securities 1,032,052  1,032,052 
Commercial paper 151,356  151,356 
U.S. government treasury securities 77,442  77,442 
Certificates of deposit 14,569  14,569 
Non-U.S. government treasury securities 8,054  8,054 
Total financial assets$241,571 $1,283,473 $ $1,525,044 
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 commercial paper, corporate debt securities, certificates of deposit, U.S. government agency securities, and U.S. and non-U.S. government treasury securities within Level 2 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 which may not be actively traded.
In addition to its cash equivalents and marketable securities, the Company measures the fair value of its outstanding convertible senior notes on a quarterly basis for disclosure purposes. The Company considers the fair value of the convertible senior notes to be a Level 2 measurement due to limited trading activity of the convertible senior notes. Refer to Note 7, Convertible Senior Notes, to the condensed consolidated financial statements for further details.
11


5. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
September 30,
2022
December 31,
2021
Computers and equipment$32,625 $16,885 
Furniture and fixtures9,982 6,595 
Leasehold improvements23,481 20,669 
Capitalized software development costs121,643 86,189 
Total property and equipment$187,731 $130,338 
Less: accumulated depreciation and amortization(76,842)(55,186)
Total property and equipment, net$110,889 $75,152 
The Company capitalizes costs related to the development of computer software for internal use and is included in capitalized software development costs within property and equipment, net.
Depreciation and amortization expense was approximately $7.2 million and $19.4 million for the three and nine months ended September 30, 2022, respectively. Depreciation and amortization expense was approximately $4.7 million and $13.1 million for the three and nine months ended September 30, 2021, respectively.
6. Acquisitions, Intangible Assets and Goodwill
2022 Acquisitions
In June 2022, the Company entered into two purchase agreements for acquisitions of businesses, both of which transactions were accounted for as business combinations in accordance with ASC 805, Business Combinations. The Company does not consider these acquisitions to be material, individually or in aggregate. The total purchase price was allocated to intangible assets in the amount of $5.6 million and goodwill in the amount of $44.4 million based on the respective estimated fair values. The resulting goodwill from both acquisitions is not deductible for income tax purposes. Pro forma results of operations from these acquisitions have not been presented because they were not material to the consolidated results of operations.
2021 Acquisitions
In October and December 2021, the Company entered into two purchase agreements for the acquisitions of businesses, both of which transactions were accounted for as business combinations in accordance with ASC 805, Business Combinations. The Company does not consider these acquisitions to be material, individually or in aggregate. The total purchase price was allocated to intangible assets in the amount of $4.3 million and goodwill in the amount of $36.6 million based on the respective estimated fair values. The resulting goodwill from both acquisitions is not deductible for income tax purposes. Pro forma results of operations from these acquisitions have not been presented because they were not material to the consolidated results of operations.
In April 2021, the Company entered into a Stock Purchase Agreement pursuant to which the Company acquired all of the issued and outstanding shares of a SaaS based security platform company. The consideration was approximately $219.4 million, comprising cash and Class A common stock. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations, and accordingly, the total fair value of the purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. The total preliminary purchase price allocated to intangible assets and goodwill was $12.0 million and $204.3 million, respectively. The resulting goodwill is not deductible for income tax purposes. Intangible assets consisted of developed technology in the amount of $8.7 million and customer relationships in the amount of $3.3 million. The useful life for developed technology and customer relationships are three and four years, respectively. Additionally, there was a one-time severance charge of $1.3 million recorded on the acquisition date. Goodwill resulted primarily from the expectation of enhancing the Company's current application security tools. Pro forma results of operations for this acquisition have not been presented because they were not material to the condensed consolidated results of operations.
In February 2021, the Company entered into a Stock Purchase Agreement pursuant to which the Company acquired all of the issued and outstanding shares of a target company with the purchase price paid in cash and Class A common stock. The
12


acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The purchase price was allocated to intangible assets in the amount of $1.7 million and goodwill in the amount of $34.3 million based on the respective estimated fair values. Goodwill resulted primarily from the expectation of enhancing the Company's current observability tools. The resulting goodwill is not deductible for income tax purposes. Pro forma results of operations for this acquisition have not been presented because they were not material to the condensed consolidated results of operations.
Intangible Assets
Intangible assets, net consisted of the following (in thousands):
September 30, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortization
Period
Developed technology$22,746 $(9,213)$13,533 3 years
Customer relationships3,300 (1,217)2,083 4 years
Total$26,046 $(10,430)$15,616 
December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortization
Period
Developed technology$17,186 $(4,182)$13,004 3 years
Customer relationships3,300 (600)2,700 4 years
Total$20,486 $(4,782)$15,704 
Intangible amortization expense was approximately $2.1 million and $1.5 million for the three months ended September 30, 2022 and 2021, respectively, and $5.4 million and $3.0 million for the nine months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, future amortization expense by year is expected to be as follows (in thousands):
 Amount
Remainder of 2022$2,052 
20237,755 
20244,755 
20251,054 
Total$15,616 
Goodwill
The changes in the carrying amount of goodwill were as follows (in thousands):
Amount
Balance as of December 31, 2021$292,176 
2022 Acquisitions44,446 
Foreign currency translation adjustments(3,973)
Balance as of September 30, 2022$332,649 
7. Convertible Senior Notes
On June 2, 2020, the Company issued $747.5 million aggregate principal amount of 0.125% convertible senior notes due 2025 (the “2025 Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Securities Act”). The total net proceeds from the sale of the 2025 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $730.2 million. The 2025 Notes bear interest at a rate of
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0.125% per year, payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The 2025 Notes will mature on June 15, 2025, unless earlier converted, redeemed or repurchased.
Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding March 15, 2025 only under the following circumstances:
(1)during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s Class A 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 on each applicable trading day;
(2)during the five business day period after any ten consecutive trading day period (the "Measurement Period") in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day;
(3)if the Company calls such 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
(4)upon the occurrence of specified corporate events, as set forth in the indenture governing the 2025 Notes (“the Indenture”).
On or after March 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in integral multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. The conversion rate for the 2025 Notes is initially 10.8338 shares of Class A common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $92.30 per share of Class A common stock), subject to adjustment as set forth in the Indenture. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of Class A common stock, the amount of cash and shares of Class A common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 30 trading day observation period as described in the Indenture. In addition, if specific corporate events occur prior to the applicable maturity date, or if the Company elects to redeem the 2025 Notes, the Company will increase the conversion rate for a holder who elects to convert their notes in connection with such a corporate event or redemption in certain circumstances.
During the three months ended September 30, 2022, the conditional conversion feature of the 2025 Notes was not triggered as the last reported sale price of the Company's Class A common stock was not greater than or equal to 130% of the conversion price 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 quarter ended September 30, 2022. Therefore the 2025 Notes are not convertible, in whole or in part, at the option of the holders between October 1, 2022 through December 31, 2022. Whether the 2025 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future.
When a conversion notice is received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination thereof. As of September 30, 2022, the Company has received an immaterial amount of conversion notices from the holders and the 2025 Notes were classified as long-term debt on the Company's condensed consolidated balance sheet.
The Company may not redeem the 2025 Notes prior to June 20, 2023. On or after June 20, 2023, and prior to the 31st scheduled trading day immediately preceding the maturity date, the Company may redeem for cash all or any portion of the 2025 Notes, at its option, if the last reported sale price of its Class A common stock was 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 the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
In accounting for the issuance of the 2025 Notes, the 2025 Notes were separated into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was
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determined by deducting the fair value of the liability component from the par value of the respective 2025 Notes. This difference represents the debt discount that is amortized to interest expense over the contractual terms of the 2025 Notes using the effective interest rate method. The carrying amount of the equity component representing the conversion option was $177.2 million. The equity component was recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the debt issuance costs of $17.3 million related to the 2025 Notes, the Company allocated the total amount incurred to the liability and equity components of the 2025 Notes in the same proportion as the allocation of the proceeds. Issuance costs attributable to the liability component were $13.2 million and will be amortized, along with the debt discount to interest expense over the contractual term of the 2025 Notes at an effective interest rate of 5.97%. Issuance costs attributable to the equity component were $4.1 million and are netted against the equity component in additional paid-in capital.
On January 1, 2021 the Company adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU No. 2020-06”). As a result of the adoption, the debt conversion option of $177.2 million and debt issuance costs of $4.1 million previously attributable to the equity component are no longer presented in equity. Similarly, the debt discount, that is equal to the carrying value of the embedded conversion feature upon issuance, is no longer amortized into income as interest expense over the life of the instrument. This resulted in a $16.8 million decrease to the opening balance of accumulated deficit, a $173.1 million decrease to the opening balance of additional paid-in capital and a $156.3 million increase to the opening balance of convertible senior notes, net on the condensed consolidated balance sheet.
The net carrying amount of the liability component of the 2025 Notes was as follows (in thousands):
September 30,
2022
December 31,
2021
Convertible senior notes, net:
Principal$747,496 $747,500 
Unamortized debt issuance costs(9,493)(12,018)
Net carrying amount$738,003 $735,482 
As of September 30, 2022, the total estimated fair value of the 2025 Notes was approximately $892.8 million. The fair value was determined based on the closing trading price per $100 of the 2025 Notes as of the last day of trading for the period. The fair value of the 2025 Notes is primarily affected by the trading price of the Company’s Class A common stock and market interest rates.
The following table sets forth the interest expense related to the 2025 Notes (in thousands):