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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, 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)
_________________________________________________________
| | | | | | | | | | | |
Delaware | | 27-2825503 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
620 8th Avenue, | 45th Floor | | |
New York, | NY | | 10018 |
(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 class | Trading Symbol(s) | Name of each exchange on which registered |
Class A common stock, par value $0.00001 per share | DDOG | 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, 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 filer | ☐ | | Small 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 26, 2022, there were 283,106,980 shares of the registrant’s Class A common stock and 31,910,401 shares of the registrant’s Class B common stock, each with a par value of $0.00001 per share, outstanding.
TABLE OF CONTENTS
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 the ongoing 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.
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DATADOG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 271,686 | | | $ | 270,973 | |
Marketable securities | 1,399,323 | | | 1,283,473 | |
Accounts receivable, net of allowance for credit losses of $3,425 and $2,997 as of March 31, 2022 and December 31, 2021, respectively | 275,342 | | | 268,824 | |
Deferred contract costs, current | 24,688 | | | 23,235 | |
Prepaid expenses and other current assets | 32,632 | | | 24,443 | |
Total current assets | 2,003,671 | | | 1,870,948 | |
Property and equipment, net | 90,713 | | | 75,152 | |
Operating lease assets | 61,921 | | | 61,355 | |
Goodwill | 292,032 | | | 292,176 | |
Intangible assets, net | 14,088 | | | 15,704 | |
Deferred contract costs, non-current | 42,753 | | | 42,062 | |
Restricted cash | 3,424 | | | 3,490 | |
Other assets | 20,413 | | | 19,907 | |
TOTAL ASSETS | $ | 2,529,015 | | | $ | 2,380,794 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
CURRENT LIABILITIES: | | | |
Accounts payable | $ | 18,629 | | | $ | 25,270 | |
Accrued expenses and other current liabilities | 108,211 | | | 111,284 | |
Operating lease liabilities, current | 20,320 | | | 20,157 | |
Deferred revenue, current | 454,812 | | | 371,985 | |
Total current liabilities | 601,972 | | | 528,696 | |
Operating lease liabilities, non-current | 51,817 | | | 52,106 | |
Convertible senior notes, net | 736,318 | | | 735,482 | |
Deferred revenue, non-current | 12,798 | | | 13,896 | |
Other liabilities | 9,253 | | | 9,411 | |
Total liabilities | 1,412,158 | | | 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 March 31, 2022 and December 31, 2021; 283,004,354 and 263,339,585 shares issued and outstanding as of March 31, 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 March 31, 2022 and December 31, 2021; 31,916,651 and 50,025,852 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | — | | | 1 | |
Additional paid-in capital | 1,271,777 | | | 1,197,136 | |
Accumulated other comprehensive loss | (12,555) | | | (3,830) | |
Accumulated deficit | (142,368) | | | (152,106) | |
Total stockholders’ equity | 1,116,857 | | | 1,041,203 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,529,015 | | | $ | 2,380,794 | |
See accompanying notes to condensed consolidated financial statements.
DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2022 | | 2021 | | | | | | | | |
Revenue | $ | 363,030 | | | $ | 198,549 | | | | | | | | | |
Cost of revenue | 74,462 | | | 46,666 | | | | | | | | | |
Gross profit | 288,568 | | | 151,883 | | | | | | | | | |
Operating expenses: | | | | | | | | | | | |
Research and development | 150,608 | | | 79,266 | | | | | | | | | |
Sales and marketing | 101,166 | | | 64,353 | | | | | | | | | |
General and administrative | 26,380 | | | 21,094 | | | | | | | | | |
Total operating expenses | 278,154 | | | 164,713 | | | | | | | | | |
Operating income (loss) | 10,414 | | | (12,830) | | | | | | | | | |
Other income: | | | | | | | | | | | |
Interest expense | (5,247) | | | (5,472) | | | | | | | | | |
Interest income and other income, net | 5,687 | | | 5,773 | | | | | | | | | |
Other income, net | 440 | | | 301 | | | | | | | | | |
Income (loss) before provision for income taxes | 10,854 | | | (12,529) | | | | | | | | | |
Provision for income taxes | (1,116) | | | (539) | | | | | | | | | |
Net income (loss) | $ | 9,738 | | | $ | (13,068) | | | | | | | | | |
Net income (loss) attributable to common stockholders | $ | 9,738 | | | $ | (13,068) | | | | | | | | | |
Basic net income (loss) per share | $ | 0.03 | | | $ | (0.04) | | | | | | | | | |
| | | | | | | | | | | |
Diluted net income (loss) per share | $ | 0.03 | | | $ | (0.04) | | | | | | | | | |
Weighted average shares used in calculating basic net income (loss) per share | 313,456 | | | 306,034 | | | | | | | | | |
Weighted average shares used in calculating diluted net income (loss) per share | 345,668 | | | 306,034 | | | | | | | | | |
| | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Net income (loss) | $ | 9,738 | | | $ | (13,068) | | | | | |
Other comprehensive loss: | | | | | | | |
Foreign currency translation adjustments | (539) | | | (853) | | | | | |
Unrealized loss on available-for-sale marketable securities | (8,186) | | | (682) | | | | | |
Other comprehensive loss | (8,725) | | | (1,535) | | | | | |
Comprehensive income (loss) | $ | 1,013 | | | $ | (14,603) | | | | | |
See accompanying notes to condensed consolidated financial statements.
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 Loss | | Accumulated Deficit | | Total Stockholders' Equity |
Shares | | Amount | | | | |
BALANCE—December 31, 2021 | 313,365,437 | | | $ | 3 | | | $ | 1,197,136 | | | $ | (3,830) | | | $ | (152,106) | | | $ | 1,041,203 | |
Issuance of common stock upon exercise of stock options | 1,167,000 | | | — | | | 4,218 | | | — | | | — | | | 4,218 | |
Vesting of early exercised stock options | — | | | — | | | 33 | | | — | | | — | | | 33 | |
Vesting of restricted stock units | 388,568 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 70,390 | | | — | | | — | | | 70,390 | |
Change in accumulated other comprehensive loss | — | | | — | | | — | | | (8,725) | | | — | | | (8,725) | |
Net income | — | | | — | | | — | | | — | | | 9,738 | | | 9,738 | |
BALANCE—March 31, 2022 | 314,921,005 | | | $ | 3 | | | $ | 1,271,777 | | | $ | (12,555) | | | $ | (142,368) | | | $ | 1,116,857 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A and Class B Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders' Equity |
| Shares | | Amount | | | | |
BALANCE—December 31, 2020 | | 305,880,063 | | | $ | 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, 2021 | | 305,880,063 | | | 3 | | | 930,235 | | | 2,287 | | | (131,361) | | | 801,164 | |
Issuance of common stock upon exercise of stock options | | 1,320,113 | | | — | | | 3,290 | | | — | | | — | | | 3,290 | |
Vesting of early exercised stock options | | — | | | — | | | 293 | | | — | | | — | | | 293 | |
Vesting of restricted stock units | | 348,352 | | | — | | | — | | | — | | | — | | | — | |
Issuance of restricted shares of common stock from acquisitions | | 255,822 | | | — | | | 20,172 | | | — | | | — | | | 20,172 | |
| | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | | 31,014 | | | — | | | — | | | 31,014 | |
Change in accumulated other comprehensive loss | | — | | | — | | | — | | | (1,535) | | | — | | | (1,535) | |
Net loss | | — | | | — | | | — | | | — | | | (13,068) | | | (13,068) | |
BALANCE—March 31, 2021 | | 307,804,350 | | | $ | 3 | | | $ | 985,004 | | | $ | 752 | | | $ | (144,429) | | | $ | 841,330 | |
See accompanying notes to condensed consolidated financial statements.
DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2022 | | 2021 | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | |
Net income (loss) | $ | 9,738 | | | $ | (13,068) | | | | | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 7,394 | | | 4,402 | | | | | |
Amortization of discounts or premiums on marketable securities | 3,959 | | | 4,259 | | | | | |
Amortization of issuance costs | 840 | | | 835 | | | | | |
Amortization of deferred contract costs | 6,022 | | | 3,779 | | | | | |
Stock-based compensation, net of amounts capitalized | 66,884 | | | 28,861 | | | | | |
Non-cash lease expense | 4,411 | | | 4,012 | | | | | |
Allowance for credit losses on accounts receivable | 798 | | | 25 | | | | | |
Loss on disposal of property and equipment | 823 | | | 3 | | | | | |
Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable, net | (7,319) | | | 9,223 | | | | | |
Deferred contract costs | (8,166) | | | (6,711) | | | | | |
Prepaid expenses and other current assets | (8,391) | | | (5,998) | | | | | |
Other assets | (805) | | | 572 | | | | | |
Accounts payable | (7,624) | | | (9,226) | | | | | |
Accrued expenses and other liabilities | (2,911) | | | 9,682 | | | | | |
Deferred revenue | 81,735 | | | 21,000 | | | | | |
Net cash provided by operating activities | 147,388 | | | 51,650 | | | | | |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
Purchases of marketable securities | (329,706) | | | (150,331) | | | | | |
Maturities of marketable securities | 199,703 | | | 253,234 | | | | | |
Proceeds from sale of marketable securities | 2,007 | | | 6,497 | | | | | |
Purchases of property and equipment | (9,514) | | | (998) | | | | | |
Capitalized software development costs | (7,973) | | | (6,183) | | | | | |
Cash paid for acquisition of businesses; net of cash acquired | (4,871) | | | (11,509) | | | | | |
Net cash (used in) provided by investing activities | (150,354) | | | 90,710 | | | | | |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
Proceeds from exercise of stock options | 4,245 | | | 3,275 | | | | | |
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 activities | 4,242 | | | 3,030 | | | | | |
| | | | | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (629) | | | (782) | | | | | |
| | | | | | | |
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 647 | | | 144,608 | | | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period | 274,463 | | | 228,711 | | | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period | $ | 275,110 | | | $ | 373,319 | | | | | |
| | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | | |
Cash paid for income taxes | $ | 339 | | | $ | 327 | | | | | |
| | | | | | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | |
Accrued property and equipment purchases | $ | 2,994 | | | $ | 213 | | | | | |
Stock-based compensation included in capitalized software development costs | $ | 3,506 | | | $ | 2,153 | | | | | |
Vesting of early exercised options | $ | 33 | | | $ | 293 | | | | | |
Issuance of restricted shares of common stock for the acquisition of businesses | $ | — | | | $ | 20,172 | | | | | |
Acquisition holdback | $ | — | | | $ | 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 | $ | 271,686 | | | $ | 369,706 | | | | | |
Restricted cash | 3,424 | | | 3,613 | | | | | |
Total cash, cash equivalents and restricted cash | $ | 275,110 | | | $ | 373,319 | | | | | |
See accompanying notes to condensed consolidated financial statements.
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 Not Yet 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
the acquirer. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company is currently evaluating the impact of the adoption of this standard on its 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 March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Amortized Cost | | Unrealized Gain | | Unrealized Losses | | Fair Value |
Commercial debt securities | $ | 1,039,451 | | | $ | 12 | | | $ | (9,325) | | | $ | 1,030,138 | |
Certificates of deposit | 37,908 | | | 10 | | | (103) | | | 37,815 | |
U.S. government treasury securities | 98,501 | | | — | | | (895) | | | 97,606 | |
Commercial paper | 226,354 | | | 1 | | | (581) | | | 225,774 | |
Non-U.S. government securities | 8,049 | | | — | | | (59) | | | 7,990 | |
Marketable securities | $ | 1,410,263 | | | $ | 23 | | | $ | (10,963) | | | $ | 1,399,323 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Amortized Cost | | Unrealized Gain | | Unrealized Losses | | Fair Value |
Commercial debt securities | $ | 1,034,573 | | | $ | 43 | | | $ | (2,564) | | | $ | 1,032,052 | |
Certificates of deposit | 14,574 | | | 5 | | | (10) | | | 14,569 | |
U.S. government treasury securities | 77,628 | | | 18 | | | (204) | | | 77,442 | |
Commercial paper | 151,379 | | | 14 | | | (37) | | | 151,356 | |
Non-U.S. government securities | 8,071 | | | — | | | (17) | | | 8,054 | |
Marketable securities | $ | 1,286,225 | | | $ | 80 | | | $ | (2,832) | | | $ | 1,283,473 | |
As of March 31, 2022, the fair values of available-for-sale marketable securities, by remaining contractual maturity, were as follows (in thousands):
| | | | | |
Due within one year | $ | 1,034,278 | |
Due in one year through five years | 365,045 | |
Total | $ | 1,399,323 | |
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.
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 March 31, 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 March 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Financial Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 241,080 | | | $ | — | | | $ | — | | | $ | 241,080 | |
Commercial paper | — | | | — | | | — | | | — | |
Corporate debt securities | — | | | — | | | — | | | — | |
Marketable Securities: | | | | | | | |
Corporate debt securities | — | | | 1,030,138 | | | — | | | 1,030,138 | |
Certificates of deposit | — | | | 37,815 | | | — | | | 37,815 | |
U.S. government treasury securities | — | | | 97,606 | | | — | | | 97,606 | |
Commercial paper | — | | | 225,774 | | | — | | | 225,774 | |
Non-U.S. government treasury securities | — | | | 7,990 | | | — | | | 7,990 | |
Total financial assets | $ | 241,080 | | | $ | 1,399,323 | | | $ | — | | | $ | 1,640,403 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement as of December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Financial Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 241,571 | | | $ | — | | | $ | — | | | $ | 241,571 | |
Marketable Securities: | | | | | | | |
Corporate debt securities | — | | | 1,032,052 | | | — | | | 1,032,052 | |
Certificates of deposit | — | | | 14,569 | | | — | | | 14,569 | |
U.S. government treasury securities | — | | | 77,442 | | | — | | | 77,442 | |
Commercial paper | — | | | 151,356 | | | — | | | 151,356 | |
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 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.
5. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Computers and equipment | $ | 19,214 | | | $ | 16,885 | |
Furniture and fixtures | 7,534 | | | 6,595 | |
Leasehold improvements | 27,074 | | | 20,669 | |
Capitalized software development costs | 98,421 | | | 86,189 | |
Total property and equipment | $ | 152,243 | | | $ | 130,338 | |
Less: accumulated depreciation and amortization | (61,530) | | | (55,186) | |
Total property and equipment, net | $ | 90,713 | | | $ | 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 $5.8 million and $4.0 million for the three months ended March 31, 2022 and 2021, respectively.
6. Acquisitions, Intangible Assets and Goodwill
2021 Acquisitions
In October and December 2021, the Company entered into two Purchase Agreements, both of which 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 Agreements 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 whereby 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.
The purchase price allocation is preliminary with respect to certain income tax matters. The Company continues to collect information with regard to its estimates and assumptions, including potential liabilities and contingencies. The Company will record adjustments to the fair value of the assets acquired, liabilities assumed and goodwill within the 12 month measurement period, if necessary. 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 whereby 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 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Amortization Period |
Developed technology | $ | 17,186 | | | $ | (5,595) | | | $ | 11,591 | | | 3 years |
Customer relationships | 3,300 | | | (803) | | | 2,497 | | | 4 years |
Total | $ | 20,486 | | | $ | (6,398) | | | $ | 14,088 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Amortization Period |
Developed technology | $ | 17,186 | | | $ | (4,182) | | | $ | 13,004 | | | 3 years |
Customer relationships | 3,300 | | | (600) | | | 2,700 | | | 4 years |
Total | $ | 20,486 | | | $ | (4,782) | | | $ | 15,704 | | | |
Intangible amortization expense was approximately $1.6 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, future amortization expense by year is expected to be as follows (in thousands):
| | | | | |
| Amount |
Remainder of 2022 | $ | 4,892 | |
2023 | 5,986 | |
2024 | 2,985 | |
2025 | 225 | |
Total | $ | 14,088 | |
Goodwill
The changes in the carrying amount of goodwill were as follows (in thousands):
| | | | | |
| Amount |
Balance as of December 31, 2021 | $ | 292,176 | |
Foreign currency translation adjustments | (144) | |
Balance as of March 31, 2022 | $ | 292,032 | |
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 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 March 31, 2022, the conditional conversion feature of the 2025 Notes was triggered as 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 quarter ended March 31, 2022 was greater than or equal to 130% of the conversion price on each applicable trading day. Therefore the 2025 Notes are convertible, in whole or in part, at the option of the holders between April 1, 2022 through June 30, 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 March 31, 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 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):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Convertible senior notes, net: | | | |
Principal | $ | 747,496 | | | $ | 747,500 | |
Unamortized debt issuance costs | (11,178) | | | (12,018) | |
Net carrying amount | $ | 736,318 | | | $ | 735,482 | |
As of March 31, 2022, the total estimated fair value of the 2025 Notes was approximately $1,338.0 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):
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | |
| 2022 | | 2021 | | | | | | | | |
Contractual interest expense | $ | 234 | | | $ | 234 | | | | | | | | | |
Amortization of issuance costs | 840 | | | 835 | | | | | | | | | |
Total | $ | 1,074 | | | $ | 1,069 | | | | | | | | | |
Capped Calls
In connection with the pricing of the 2025 Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (“Capped Calls”). The Capped Calls each have an initial strike price of approximately $92.30 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2025 Notes. The Capped Calls have initial cap prices of $151.04 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s Class A common stock upon any conversion of the 2025 Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 8.1 million shares of the Company’s Class A common stock. For accounting purposes, the Capped Calls are separate transactions, and not part of the 2025 Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The cost of $89.6 million incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital and will not be remeasured.
8. Commitments and Contingencies
Non-cancelable Material Commitments—During the three months ended March 31, 2022, other than certain non-cancelable operating leases described in Note 9, Leases, there have been no other material changes outside the ordinary course of business to the Company's contractual obligations and commitments from those disclosed in the Annual Report.
401(k) Plan—The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. The Company is responsible for administrative costs of the 401(k) plan and beginning on January 1, 2022, the Company began making matching contributions to the 401(k) plan. For the three months ended March 31, 2022, the Company incurred expense of $1.2 million for matching contributions. The Company did not make any matching contributions to the 401(k) plan for the three months ended March 31, 2021.
Legal Matters—The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings will have a material adverse effect on its financial position or results of operations.
Indemnification—The Company enters into indemnification provisions under some agreements with other parties in the ordinary course of business, including business partners, investors, contractors, customers and the Company’s officers, directors and certain employees. The Company has agreed to indemnify and defend the indemnified party claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claim because of the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and
the unique facts and circumstances involved in each particular provision. To date, losses recorded in the Company’s condensed consolidated statements of operations in connection with the indemnification provisions have not been material.
9. Leases
The Company has entered into various non-cancelable operating leases for its facilities expiring between 2022 and 2030. Certain lease agreements contain an option for the Company to renew a lease for a term of up to four years or an option to terminate a lease early within two years. The Company considers these options, which may be elected at the Company’s sole discretion, in determining the lease term on a lease-by-lease basis.
Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.
The components of lease cost recognized within the Company’s condensed consolidated statements of operations were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2022 | | 2021 | | | | | | | | |
Operating lease cost(1) | $ | 5,237 | | | $ | 4,755 | | | | | | | | | |
| | | | | | | | | | | |
Short-term lease cost | 1,169 | | | 792 | | | | | | | | | |
1)Includes non-cash lease expense of $4.4 million and $4.0 million for the three months ended March 31, 2022 and 2021, respectively.
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Cash paid for amounts included in measurement of lease liabilities | $ | 5,837 | | | $ | 4,483 | |
Operating lease assets obtained in exchange for new lease liabilities | 5,181 | | | — | |
Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands):
| | | | | |
| Amount |
Remainder of 2022 | $ | 17,712 | |
2023 | 20,217 | |
2024 | 10,567 | |
2025 | 8,163 | |
2026 | 6,698 | |
2027 and beyond | 17,598 | |
Total lease payments | $ | 80,955 | |
Less: imputed interest | (8,818) | |
Present value of lease liabilities | $ | 72,137 | |
As of March 31, 2022, the Company had two additional operating leases that had not yet commenced, which are excluded from the table above. The operating leases will commence in fiscal year 2022 and have total undiscounted future payments of $9.8 million with a weighted-average lease term of 4.6 years.
Weighted average remaining lease term and discount rate for the Company’s operating leases are as follows:
| | | | | | | |
| March 31, 2022 | | |
Weighted-average remaining lease term (years) | 4.9 | | |
Weighted-average discount rate | 4.58 | % | | |
10. Revenue
Geographical Information
Revenue by location is determined by the billing address of the customer. The following table sets forth revenue by geographic area (in thousands):
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2022 | | 2021 | | | | | | | | |
North America | $ | 259,862 | | | $ | 142,890 | | | | | | | | | |
International | 103,168 | | | 55,659 | | | | | | | | | |
Total | $ | 363,030 | | | $ | 198,549 | | | | | | | | | |
Deferred Revenue and Remaining Performance Obligations
Certain of the Company’s customers pay in advance of satisfaction of performance obligations and other customers with monthly contract terms are billed in arrears on a monthly basis. The Company records contract liabilities to deferred revenue when customers are billed or when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts.
Revenue recognized during the three months ended March 31, 2022 and 2021, which was included in the deferred revenue balances at the beginning of each such period, was $165.4 million and $96.4 million, respectively.
Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include unearned revenue, multi-year contracts with future installment payments and certain unfulfilled orders against accepted customer contracts at the end of any given period. As of March 31, 2022 and December 31, 2021, the aggregate transaction price allocated to remaining performance obligations was $857.9 million and $815.0 million, respectively. There is uncertainty in the timing of revenues associated with the Company’s drawdown contracts, as future revenue can often vary significantly from past revenue. However, the Company expects to recognize substantially all of the remaining performance obligations over the next 24 months.
Accounts Receivable
Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. During the three months ended March 31, 2022 and 2021, the Company charged $0.4 million and $0.2 million, respectively, of accounts receivable deemed uncollectible against the allowance for credit losses.
Unbilled accounts receivable represents revenue recognized on contracts for which billings have not yet been presented to customers because the amounts were earned but not contractually billable as of the balance sheet date. The unbilled accounts receivable balance is due within one year. As of March 31, 2022 and December 31, 2021, unbilled accounts receivable of approximately $49.1 million and $44.2 million, respectively, was included in accounts receivable on the Company’s condensed consolidated balance sheets.
Deferred Contract Costs
Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit which is determined to be four years. Amounts expected to be recognized within one year of the balance sheet date are recorded as deferred contract costs, current; the remaining portion is recorded as deferred contract costs, non-current, in the condensed consolidated balance sheets.
Deferred contract costs on the Company’s condensed consolidated balance sheets were $67.4 million and $65.3 million as of March 31, 2022 and December 31, 2021, respectively. Amortization expense was $6.0 million and $3.8 million for the three months ended March 31, 2022 and 2021, respectively.
11.Stockholders’ Equity
Class A and Class B Common Stock
The Company has two classes of common stock, Class A and Class B. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder, and are automatically converted to Class A common stock upon sale or transfer, subject to certain limited exceptions.
During the three months ended March 31, 2022, 18,109,201 shares of Class B common stock were converted into Class A common stock.
As of March 31, 2022, the Company had authorized 2,000,000,000 shares of Class A common stock and 310,000,000 shares of Class B common stock, each at a par value per share of $0.00001, of which 283,004,354 shares of Class A common stock and 31,916,651 shares of Class B common stock were issued and outstanding.
Equity Incentive Plans
The Company has two equity incentive plans, the 2012 Equity Incentive Plan (the “2012 Plan”) and the 2019 Equity Incentive Plan (the “2019 Plan”). In connection with the Company's initial public offering of Class A common stock (the "IPO"), the Company ceased granting awards under the 2012 Plan, and all shares that remained available for issuance under the 2012 Plan at that time were transferred to the 2019 Plan. Additionally, as of March 31, 2022, there were 20,139,912 shares of Class A common stock issuable upon conversion of Class B common stock underlying options outstanding under the 2012 Plan. Under the 2019 Plan, the Board and any other committee or subcommittee of the Board may grant stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”) and performance-based and other awards, each equity award valued or based on the Company’s Class A common stock, to employees, directors, consultants and advisors of the Company. As of March 31, 2022, there were 68,675,859 shares available for grant under the 2019 Plan.
Stock Options
The following table summarizes the Company’s stock option activity and weighted-average exercise prices:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number Of Options Outstanding | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Life (in Years) | | Aggregate Intrinsic Value (in thousands) |
Balance outstanding—December 31, 2021 | 21,372,561 | | | $ | 3.31 | | | 5.5 | | $ | 3,735,819 | |
Options granted | — | | | — | | | | | |
Options exercised | (1,167,000) | | | 3.61 | | | | | |
Options forfeited or expired | (35,368) | | | 5.58 | | | | | |
Balance outstanding—March 31, 2022 | 20,170,193 | | | $ | 3.29 | | | 5.2 | | $ | 2,988,747 | |
Ending Exercisable—March 31, 2022 | 16,552,340 | | | $ | 2.21 | | | 4.8 | | $ | 2,470,661 | |
As of March 31, 2022, there were 30,281 shares of Class A common stock and 20,139,912 shares of Class B common stock issuable upon the exercise of options outstanding. As of December 31, 2021, there were 31,671 shares of Class A common stock and 21,340,890 shares of Class B common stock issuable upon the exercise of options outstanding.
Total compensation cost related to unvested awards not yet recognized was approximately $25.8 million and $31.6 million as of March 31, 2022 and December 31, 2021, respectively. The weighted-average period over which this compensation cost related to unvested employee awards will be recognized is 1.1 years and 1.3 years as of March 31, 2022 and December 31, 2021, respectively.
There were no options granted during the three months ended March 31, 2022 and 2021. The Company received approximately $4.2 million and $3.3 million in cash proceeds from options exercised during the three months ended March 31, 2022 and 2021, respectively. The intrinsic value of options exercised during the three months ended March 31, 2022 and 2021 was approximately $165.5 million and $123.6 million, respectively. The aggregate fair value of options vested during the three months ended March 31, 2022 and 2021 was $6.5 million and $7.4 million, respectively.
Common stock purchased pursuant to an early exercise of stock options is not deemed to be outstanding for accounting purposes until those shares vest. The consideration received for an exercise of an option is considered to be a deposit of the
exercise price and the related dollar amount is recorded as a liability. The shares issued upon the early exercise of these unvested stock option awards, which are reflected as exercises in the table above, are considered to be legally issued and outstanding on the date of exercise. Upon termination of service, the Company may repurchase unvested shares acquired through early exercise of stock options at a price equal to the price per share paid upon the exercise of such options. The Company has no liability recorded related to early exercises of options as of March 31, 2022. As of December 31, 2021, the Company had recorded liabilities related to early exercises of options for 31,500 shares of Class B common stock.
Restricted Stock Units and Restricted Stock Awards
The following table summarizes the activity for the Company’s unvested RSUs:
| | | | | | | | | | | |
| Shares | | Weighted- Average Fair Value |
Balance—December 31, 2021 | 8,081,269 | | | $ | 101.21 | |
Awarded | 1,496,539 | | | 139.96 | |
Vested | (388,568) | | | 69.88 | |
Forfeited/canceled | (189,438) | | | 97.23 | |
Unvested and outstanding—March 31, 2022 | 8,999,802 | | | $ | 109.09 | |
The Company granted 244,445, 96,210, 117,538, 245,761 and 98,593 restricted shares of Class A common stock in November 2019, June 2020, February 2021, April 2021, and December 2021, respectively, in connection with acquisitions which are subject to service-based vesting conditions over approximately four years from the respective grant dates.
Total compensation cost related to unvested RSUs and restricted shares of common stock not yet recognized was approximately $902.2 million and $773.6 million as of March 31, 2022 and December 31, 2021, respectively. The weighted-average period over which this compensation cost related to unvested RSUs and restricted shares will be recognized is 3.0 years and 3.1 years as of March 31, 2022 and December 31, 2021, respectively.
Employee Stock Purchase Plan
In September 2019, the Board adopted and approved the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective on the date of the final prospectus for the IPO.
The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of the Company’s Class A common stock on specified dates during such offerings. Under the ESPP, the Company may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s Class A common stock on the first trading day of the offering period, or (2) the fair market value of the Company’s Class A common stock on the purchase date, as defined in the ESPP.
The Company recognized $2.2 million of stock-based compensation expense related to the ESPP during the three months ended March 31, 2022. As of March 31, 2022, $11.4 million has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions. There were no purchases related to the ESPP in the three months ended March 31, 2022. As of March 31, 2022, 15,123,466 shares of Class A common stock remain available for grant under the ESPP.
Stock-Based Compensation
The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options on the date of grant. The Company recognizes and measures compensation expense for all stock-based payment awards granted to employees, directors and nonemployees based on the fair value of the awards on the date of grant. The determination of the grant date fair value using an option-pricing model is affected by the estimated fair value of the Company’s common stock as well as assumptions regarding a number of other complex and subjective variables. These variables include expected stock price volatility over the expected term of the award, actual and projected employee stock option exercise behaviors, the risk-free interest rate for the expected term of the award and expected dividends. The fair value of RSUs is determined by the closing price on the date of grant of the Company’s Class A common stock, as reported on the Nasdaq Global Select Market. The Company estimates the fair value of the rights to acquire stock under the ESPP using the Black-Scholes option-pricing model. Stock-based compensation is recognized on a straight-line basis over the requisite service period and account for forfeitures as they occur.
Stock-based compensation expense was included in the condensed consolidated statement of operations as follows (in thousands):
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2022 | | 2021 | | | | | | | | |
Cost of revenue | $ | 1,653 | | | $ | 701 | | | | | | | | | |
Research and development | 44,696 | | | 16,069 | | | | | | | | | |
Sales and marketing | 14,595 | | | |