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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 001-36383
Five9, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware94-3394123
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
3001 Bishop Drive, Suite 350
San Ramon, CA 94583
(Address of Principal Executive Offices) (Zip Code)
(925) 201-2000
(Registrant’s Telephone Number, Including Area Code)
_______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, par value $0.001 per shareFIVNThe NASDAQ Global 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 definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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.  Yes:  No: 
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, 2024, there were 73,867,985 shares of the Registrant’s common stock, par value $0.001 per share, outstanding.


FIVE9, INC.
FORM 10-Q
TABLE OF CONTENTS

1

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve substantial risks and uncertainties. These statements reflect the current views of our senior management with respect to our future events, strategies and financial trends and performance. These forward-looking statements include statements with respect to our business, expenses, strategies, losses, growth plans, product and client initiatives, market growth projections, and our industry. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.
Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. These factors include the information under the caption "Risk Factors" set forth in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and Part II, Item 1A, of this Quarterly Report, which we encourage you to carefully read, and include the following:
adverse economic conditions, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, and other factors, may continue to harm our business;
if we are unable to attract new clients or sell additional services and functionality to our existing clients, our revenue and revenue growth will be harmed;
if our existing clients terminate their subscriptions or reduce their subscriptions and related usage, or fail to grow subscriptions at the rate they have in the past or that we might expect, our revenues and gross margins will be harmed, and we will be required to spend more money to grow our client base;
because a significant percentage of our revenue is derived from existing clients, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern;
if we fail to manage our technical operations infrastructure, our existing clients may experience service outages, our new clients may experience delays in the deployment of our solution and we could be subject to, among other things, claims for credits or damages;
we have established, and are continuing to increase, our network of technology solution distributors and resellers to sell our solution; our failure to effectively develop, manage, and maintain this network could materially harm our revenues;
our quarterly and annual results may fluctuate significantly, including as a result of the timing and success of new product and feature introductions by us, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock;
if we are unable to attract and retain highly skilled leaders and other employees, our business and results of operations may be adversely affected;
our historical growth may not be indicative of our future growth, and even if we continue to grow rapidly, we may fail to manage our growth effectively;
failure to adequately retain and expand our sales force will impede our growth;
further development of our AI solutions may not be successful and may result in reputational harm and our future operating results could be materially harmed;
the AI technology and features incorporated into our solution include new and evolving technologies that may present both legal and business risks;
the use of AI by our workforce may present risks to our business;
the contact center software solutions market is subject to rapid technological change, and we must develop and sell incremental and new solutions in order to maintain and grow our business;
our growth depends in part on the success of our strategic relationships with third parties and our failure to successfully maintain, grow and manage these relationships could harm our business;
the markets in which we participate involve a high number of competitors that is continuing to increase, and if we do not compete effectively, our operating results could be harmed;
we continue to expand our international operations, which exposes us to significant macroeconomic and other risks;
2

security breaches and improper access to, use of, or disclosure of our data or our clients’ data, or other cyber attacks on our systems, could result in litigation and regulatory risk, harm our reputation, our business or financial results;
we may acquire other companies, or technologies or be the target of strategic transactions, or be impacted by transactions by other companies, which could divert our management’s attention, result in additional dilution to our stockholders or use a significant amount of our cash resources and otherwise disrupt our operations and harm our operating results;
we sell our solution to larger organizations that require longer sales and implementation cycles and often demand more configuration and integration services or customized features and functions that we may not offer, any of which could delay or prevent these sales and harm our growth rates, business and operating results;
we rely on third-party telecommunications and internet service providers to provide our clients and their customers with telecommunication services and connectivity to our cloud contact center software and any failure by these service providers to provide reliable services could cause us to lose clients and subject us to claims for credits or damages, among other things;
we have a history of losses and we may be unable to achieve or sustain profitability;
our stock price has been volatile, may continue to be volatile and may decline, including due to factors beyond our control;
we may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs;
failure to comply with laws and regulations could harm our business and our reputation; and
we may not have sufficient cash to service our convertible senior notes and repay such notes, if required.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in, or incorporated into, this report. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may differ materially from what we anticipate. You should not place undue reliance on our forward-looking statements. Any forward-looking statements you read in this report reflect our views only as of the date of this report with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.

3

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
FIVE9, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31, 2024December 31, 2023
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$240,190 $143,201 
Marketable investments843,212 587,096 
Accounts receivable, net103,157 97,424 
Prepaid expenses and other current assets35,627 34,622 
Deferred contract acquisition costs, net67,169 61,711 
Total current assets1,289,355 924,054 
Property and equipment, net113,640 108,572 
Operating lease right-of-use assets36,215 38,873 
Finance lease right-of-use assets4,108 4,564 
Intangible assets, net35,675 38,323 
Goodwill227,269 227,412 
Other assets16,668 16,199 
Deferred contract acquisition costs, net — less current portion148,408 136,571 
Total assets$1,871,338 $1,494,568 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$25,671 $24,399 
Accrued and other current liabilities79,185 62,131 
Operating lease liabilities9,880 10,731 
Finance lease liabilities1,791 1,767 
Deferred revenue67,019 68,187 
Total current liabilities183,546 167,215 
Convertible senior notes 1,160,972 742,125 
Operating lease liabilities — less current portion34,207 36,378 
Finance lease liabilities — less current portion2,414 2,877 
Other long-term liabilities6,601 7,888 
Total liabilities1,387,740 956,483 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock74 73 
Additional paid-in capital895,754 942,280 
Accumulated other comprehensive (loss) income (303)582 
Accumulated deficit(411,927)(404,850)
Total stockholders’ equity483,598 538,085 
Total liabilities and stockholders’ equity$1,871,338 $1,494,568 
See accompanying notes to the unaudited condensed consolidated financial statements.
4

FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except per share data)
Three Months Ended
March 31, 2024March 31, 2023
Revenue$247,010 $218,439 
Cost of revenue114,530 104,756 
Gross profit132,480 113,683 
Operating expenses:
Research and development41,518 38,108 
Sales and marketing81,109 76,314 
General and administrative30,548 28,258 
Total operating expenses153,175 142,680 
Loss from operations(20,695)(28,997)
Other income (expense), net:
Interest expense(2,567)(1,845)
Gain on early extinguishment of debt6,615  
Interest income and other10,559 4,121 
Total other income (expense), net14,607 2,276 
Loss before income taxes(6,088)(26,721)
Provision for income taxes989 527 
Net loss$(7,077)$(27,248)
Net loss per share:
Basic and diluted$(0.10)$(0.38)
Shares used in computing net loss per share:
Basic and diluted73,488 71,259 
Comprehensive Loss:
Net loss$(7,077)$(27,248)
Other comprehensive (loss) income(885)1,727 
Comprehensive loss$(7,962)$(25,521)
See accompanying notes to the unaudited condensed consolidated financial statements.
5


FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
Common StockAdditional Paid-In CapitalAccumulated
Other Comprehensive Income (Loss)
Accumulated
Deficit
Total Stockholders’ Equity
SharesAmount
Balance as of December 31, 202271,047 $71 $635,668 $(2,688)$(323,086)$309,965 
Issuance of common stock upon exercise of stock options139 — 3,125 — — 3,125 
Issuance of common stock upon vesting of restricted stock units358 1 — — — 1 
Stock-based compensation— — 51,516 — — 51,516 
Other comprehensive income— — — 1,727 — 1,727 
Net loss— — — — (27,248)(27,248)
Balance as of March 31, 202371,544 $72 $690,309 $(961)$(350,334)$339,086 
Balance as of December 31, 202373,317 $73 $942,280 $582 $(404,850)$538,085 
Issuance of new capped calls associated with the 2029 convertible senior notes— — (93,438)— — (93,438)
Partial termination of existing capped calls associated with the 2025 convertible senior notes— — 539 — — 539 
Issuance of common stock upon exercise of stock options14 — 386 — — 386 
Issuance of common stock upon vesting of restricted stock units518 1 — — — 1 
Stock-based compensation— — 45,987 — — 45,987 
Other comprehensive loss— — — (885)— (885)
Net loss— — — — (7,077)(7,077)
Balance as of March 31, 202473,849 $74 $895,754 $(303)$(411,927)$483,598 


See accompanying notes to the unaudited condensed consolidated financial statements.
6


7

FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31, 2024March 31, 2023
Cash flows from operating activities:
Net loss$(7,077)$(27,248)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization12,183 11,347 
Amortization of operating lease right-of-use assets3,323 2,934 
Amortization of deferred contract acquisition costs16,269 12,423 
Accretion of discount on marketable investments(4,935)(1,863)
Provision for credit losses352 317 
Stock-based compensation44,684 50,743 
Amortization of discount and issuance costs on convertible senior notes1,074 908 
Gain on early extinguishment of debt(6,615) 
Deferred taxes248 59 
Other(286)439 
Changes in operating assets and liabilities:
Accounts receivable(6,085)(908)
Prepaid expenses and other current assets(1,003)(2,307)
Deferred contract acquisition costs(33,565)(20,665)
Other assets(781)(4,231)
Accounts payable1,279 1,557 
Accrued and other current liabilities15,832 7,725 
Deferred revenue(1,452)181 
Other liabilities(1,092)2,001 
Net cash provided by operating activities32,353 33,412 
Cash flows from investing activities:
Purchases of marketable investments(524,865)(140,892)
Proceeds from sales of marketable investments12,517  
Proceeds from maturities of marketable investments260,619 76,940 
Purchases of property and equipment(11,951)(9,928)
Capitalization of software development costs(3,242)(1,806)
Cash paid to acquire Aceyus, Inc.99  
Net cash used in investing activities(266,823)(75,686)
Cash flows from financing activities:
Proceeds from issuance of 2029 convertible senior notes, net of issuance costs 728,873  
Payments for capped call transactions associated with the 2029 convertible senior notes(93,438) 
Repurchase of a portion of 2025 convertible senior notes, net of costs(304,485) 
Cash received from partial termination of capped calls associated with the 2025 convertible senior notes539  
Proceeds from exercise of common stock options386 3,125 
Payment of finance lease liabilities(479) 
Net cash provided by financing activities331,396 3,125 
Net increase (decrease) in cash, cash equivalents and restricted cash96,926 (39,149)
Cash, cash equivalents and restricted cash:
Beginning of period144,842 180,987 
End of period$241,768 $141,838 
Supplemental disclosures of cash flow data:
Cash paid for interest$458 $2 
Cash paid for income taxes$12 $32 
Non-cash investing and financing activities:
Property and equipment unpaid at period-end$9,335 $8,310 
Stock-based compensation included in capitalized software development costs$1,303 $773 
Reconciliation of Cash, Cash Equivalents and Restricted Cash to the Condensed Consolidated Balance Sheets - Beginning of Period:
Cash and cash equivalents$143,201 $180,520 
Restricted cash in other assets1,641 467 
Total cash, cash equivalents and restricted cash$144,842 $180,987 
Reconciliation of Cash, Cash Equivalents and Restricted Cash to the Condensed Consolidated Balance Sheets - End of Period:
Cash and cash equivalents$240,190 $141,359 
Restricted cash in other assets1,578 479 
Total cash, cash equivalents and restricted cash$241,768 $141,838 
See accompanying notes to the unaudited condensed consolidated financial statements.
8

FIVE9, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Five9, Inc. and its wholly-owned subsidiaries (the “Company”) is a provider of cloud software for contact centers. The Company was incorporated in Delaware in 2001 and is headquartered in San Ramon, California. The Company has offices in Europe, Asia and Australia, which primarily provide research, development, sales, marketing, and client support services.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The significant estimates made by management affect revenue and related reserves, as well as the fair value of assets acquired and liabilities assumed through business combinations and the fair value of performance-based restricted stock units ("PRSUs"). Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation. Actual results could differ from those estimates.
Significant Accounting Policies
There have been no material changes from the significant accounting policies previously disclosed in Part II, Item 8, of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC on February 22, 2024.
Recent Accounting Pronouncements Not Yet Effective
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ ASU”) No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, which provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others. This ASU is effective for the Company’s fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively. The Company is currently evaluating the impact of this ASU on its consolidated financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires disclosure of specific categories in the effective tax rate reconciliation and additional information on income taxes paid. This ASU is effective for the Company’s fiscal years beginning after December 15, 2024. Early adoption is permitted and may be adopted on a prospective or retrospective basis. The Company is currently evaluating the impact of this ASU on its consolidated financial statement disclosures.

9

2. Revenue
Contract Balances
The following table provides information about accounts receivable, net, deferred contract acquisition costs, net, contract assets and contract liabilities from contracts with customers (in thousands):
March 31, 2024December 31, 2023
Accounts receivable, net$103,157 $97,424 
Deferred contract acquisition costs, net:
Current$67,169 $61,711 
Non-current148,408 136,571 
Total deferred contract acquisition costs, net$215,577 $198,282 
Contract assets and contract liabilities:
Contract assets (included in prepaid expenses and other current assets)$652 $4,106 
Contract liabilities (deferred revenue) (67,019)(68,187)
Noncurrent contract liabilities (deferred revenue) (included in other long-term liabilities)(1,066)(1,350)
Net contract liabilities$(67,433)$(65,431)
The Company receives payments from customers based upon billing cycles. Invoice payment terms are usually 30 days or less. Accounts receivable are recorded when the right to consideration becomes unconditional.
Deferred contract acquisition costs are recorded when incurred and are amortized over an estimated customer benefit period of five years.
The Company’s contract assets consist of unbilled amounts typically resulting from professional services revenue recognition when it exceeds the total amounts billed to the customer. The Company’s contract liabilities consist of advance payments and billings in excess of revenue recognized.
In the three months ended March 31, 2024, the Company recognized revenue of $35.6 million related to its contract liabilities at December 31, 2023.
Remaining Performance Obligations
As of March 31, 2024, the aggregate amount of the total transaction price allocated in contracts with original duration of greater than one year to the remaining performance obligations was $1,048.6 million. The Company expects to recognize revenue on approximately three-fourths of the remaining performance obligations over the next 24 months, with the balance recognized thereafter. The Company excludes amounts for remaining performance obligations that are part of contracts with an original expected duration of one year or less. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligations.
3. Investments and Fair Value Measurements
Marketable Investments
The Company’s marketable investments have been classified and accounted for as available-for-sale. The Company’s intent is that all marketable investments are available for use in its current operations, including marketable investments with maturity dates greater than one year from March 31, 2024. The Company’s marketable
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investments as of March 31, 2024 and December 31, 2023 were as follows (in thousands):
March 31, 2024
Short-Term Marketable InvestmentsCostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$1,220 $1 $ $1,221 
U.S. treasury securities581,951 12 (640)581,323 
U.S. agency and government-sponsored securities197,191 23 (130)197,084 
Commercial paper32,768 1 (23)32,746 
Municipal bonds1,925  (1)1,924 
Corporate bonds28,975 2 (63)28,914 
Total$844,030 $39 $(857)$843,212 
December 31, 2023
Short-Term Marketable InvestmentsCostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$1,463 $ $ $1,463 
U.S. treasury securities315,608 191 (362)315,437 
U.S. agency and government-sponsored securities239,358 78 (177)239,259 
Commercial paper17,382 9  17,391 
Municipal bonds927 1  928 
Corporate bonds12,630 4 (16)12,618 
Total$587,368 $283 $(555)$587,096 
The following table presents the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than 12 months as of March 31, 2024 and December 31, 2023 (in thousands):
March 31, 2024December 31, 2023
Gross Unrealized LossesFair ValueGross Unrealized LossesFair Value
U.S. treasury securities$(640)$469,875 $(362)$79,644 
U.S. agency and government-sponsored securities(130)126,023 (177)165,493 
Commercial paper(23)31,559   
Municipal bonds(1)1,924   
Corporate bonds(63)24,840 (16)7,550 
Total$(857)$654,221 $(555)$252,687 
Although the Company had certain available-for-sale debt securities in an unrealized loss position as of March 31, 2024, no impairment loss was recorded since it did not intend to sell them, did not anticipate a need to sell them, and the decline in fair value was not due to any credit-related factors.
The amortized cost and fair value of the Company’s marketable investments by contractual maturity as of March 31, 2024 were as follows (in thousands):
CostFair Value
Due within one year$682,459 $681,865 
Due after one year through two years161,571 161,347 
Total$844,030 $843,212 
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Fair Value Measurements
The Company carries cash equivalents and marketable investments at fair value. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 — Observable inputs, which include unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 inputs, such as quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are based on management’s assumptions, including fair value measurements determined by using pricing models, discounted cash flow methodologies or similar techniques.
The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.
Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. The Company performs routine procedures such as comparing prices obtained from independent sources to ensure that appropriate fair values are recorded.
The following tables set forth the Company’s assets measured at fair value by level within the fair value hierarchy (in thousands):
March 31, 2024
Level 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$93,396 $ $ $93,396 
Certificates of deposit 488  488 
U.S. treasury securities67,030   67,030 
U.S. agency and government sponsored securities 1,058  1,058 
Total cash equivalents$160,426 $1,546 $ $161,972 
Marketable investments
Certificates of deposit$ $1,221 $ $1,221 
U.S. treasury securities581,323   581,323 
U.S. agency and government sponsored securities 197,084  197,084 
Commercial paper 32,746  32,746 
Municipal bonds 1,924  1,924 
Corporate bonds 28,914  28,914 
Total marketable investments$581,323 $261,889 $ $843,212 


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December 31, 2023
Level 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$66,661 $ $ $66,661 
Certificates of deposit 493  493 
U.S. treasury securities4,983   4,983 
Commercial paper 1,498  1,498 
Total cash equivalents$71,644 $1,991 $ $73,635 
Marketable investments
Certificates of deposit$ $1,463 $ $1,463 
U.S. treasury securities315,437   315,437 
U.S. agency and government-sponsored securities 239,259  239,259 
Commercial paper 17,391  17,391 
Municipal bonds 928  928 
Corporate bonds 12,618  12,618 
Total marketable investments$315,437 $271,659 $ $587,096 
In March 2024, the Company issued $747.5 million aggregate principal amount of 1.00% convertible senior notes due 2029 (the "2029 convertible senior notes") in a private offering. In connection with the issuance of the 2029 convertible senior notes, the Company used part of the net proceeds from the issuance to repurchase approximately $313.1 million aggregate principal amount of its 0.50% convertible senior notes due 2025 (the "2025 convertible senior notes"). As of March 31, 2024 and December 31, 2023, the estimated fair value of the Company's outstanding 2025 convertible senior notes was $409.9 million and $718.3 million, respectively. As of March 31, 2024, the estimated fair value of the Company's outstanding 2029 convertible senior notes was $775.2 million. The fair values were determined based on the quoted price of the convertible senior notes in an inactive market on the last trading day of the reporting period and have been classified as Level 2 in the fair value hierarchy. See Note 6 for further information on the Company’s convertible senior notes.
In February 2022, the Company made a $2.0 million equity investment in a privately-held company that the Company does not have the ability to exercise significant influence over. The Company elected to utilize the measurement alternative for an equity security without a readily determinable fair value. Accordingly, this investment is accounted for at its cost minus impairment, if any, and is classified within Level 3. If the Company identifies observable price changes in orderly transactions for such investment or a similar investment, it will measure the investment at fair value as of the date that the observable transactions or events occurred. The Company concluded that there was no indicator of impairment of this investment as of March 31, 2024.
Except for the $2.0 million equity investment described above, there were no assets or liabilities measured at fair value on a non-recurring basis as of March 31, 2024 and December 31, 2023.
The fair value of the Company’s other financial instruments, including accounts receivable, accounts payable and other current liabilities, approximate their carrying value due to the relatively short maturity of those instruments. The carrying amounts of the Company’s operating and finance leases approximate their fair value, which is the present value of expected future cash payments based on assumptions about current interest rates and the creditworthiness of the Company.
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4. Financial Statement Components
Cash and cash equivalents consisted of the following (in thousands):
March 31, 2024December 31, 2023
Cash$78,218 $69,566 
Money market funds93,396 66,661 
Certificates of deposit488 493 
U.S. treasury securities67,030 4,983 
U.S. agency and government sponsored securities1,058  
Commercial paper 1,498 
Total cash and cash equivalents$240,190 $143,201 
Accounts receivable, net consisted of the following (in thousands):
March 31, 2024December 31, 2023
Trade accounts receivable$93,524 $86,912 
Unbilled trade accounts receivable, net of advance client deposits9,914 10,776 
Provision for credit losses(281)(264)
Accounts receivable, net$103,157 $97,424 
As of March 31, 2024 and December 31, 2023, there was one client that represented 11% of accounts receivable.
Prepaid expenses and other current assets consisted of the following (in thousands):
March 31, 2024December 31, 2023
Prepaid expenses$26,148 $22,023 
Other current assets8,827 8,493 
Contract assets652 4,106 
Prepaid expenses and other current assets$35,627 $34,622 
Property and equipment, net consisted of the following (in thousands):
March 31, 2024December 31, 2023
Computer and network equipment$161,960 $155,997 
Computer software61,993 59,452 
Internal-use software development costs24,279 19,734 
Furniture and fixtures4,705 4,666 
Leasehold improvements6,440 6,425 
Property and equipment259,377 246,274 
Accumulated depreciation and amortization(145,737)(137,702)
Property and equipment, net$113,640 $108,572 
Depreciation and amortization expense associated with property and equipment was $9.5 million and $8.5 million for the three months ended March 31, 2024 and 2023, respectively.
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Other assets consisted of the following (in thousands):
March 31, 2024December 31, 2023
Other assets$11,150 $10,433 
Equity investment in a privately-held company2,000 2,000 
Deferred tax assets3,518 3,766 
Other assets$16,668 $16,199 
Accrued and other current liabilities consisted of the following (in thousands):
March 31, 2024December 31, 2023
Accrued expenses$18,130 $18,282 
Accrued compensation and benefits53,525 35,927 
Accrued federal fees4,651 4,166 
Sales tax liabilities2,879 3,756 
Accrued and other current liabilities$79,185 $62,131 
Other long-term liabilities consisted of the following (in thousands):
March 31, 2024December 31, 2023
Deferred revenue$1,066 $1,350 
Sales tax liabilities933 926 
Other long-term liabilities4,602 5,612 
Other long-term liabilities$6,601 $7,888 

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5. Goodwill and Intangible Assets
Goodwill of $61.8 million and intangible assets of $22.1 million were recognized as a result of the Company's acquisition of Aceyus, Inc. ("Aceyus") in August 2023. See Note 13 for further details. The following table summarizes the activity in the Company's goodwill and intangible asset balances during the three months ended March 31, 2024 (in thousands):
GoodwillIntangible Assets
Beginning of the period, December 31, 2023$227,412 $38,323 
  Measurement period adjustment (Aceyus)(143)— 
  Amortization— (2,648)
End of the period, March 31, 2024$227,269 $35,675 
The components of intangible assets were as follows (in thousands):
March 31, 2024December 31, 2023
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountWeighted Average Remaining Amortization period (Years)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountWeighted Average Remaining Amortization period (Years)
Developed technology$75,314 $(42,725)$32,589 5.1$75,314 $(40,327)$34,987 5.2
Acquired workforce470 (470) 0.0470 (470) 0.0
Customer relationships4,150 (1,460)2,690 3.94,150 (1,252)2,898 4.1
Trademarks500 (104)396 2.41,000 (562)438 2.6
Total$80,434 $(44,759)$35,675 5.0$80,934 $(42,611)$38,323 5.1
Amortization expense related to intangible assets was $2.6 million and $2.8 million for the three months ended March 31, 2024 and 2023, respectively.
As of March 31, 2024, the expected future amortization expense for intangible assets was as follows (in thousands):
PeriodExpected Future Amortization Expense
Remaining 2024$7,943 
20258,660 
20267,201 
20272,898 
20282,706 
Thereafter6,267 
Total$35,675 

6. Debt
Repurchase Transaction
In connection with the issuance of the 2029 convertible senior notes on March 1, 2024, the Company used part of the net proceeds from the issuance to repurchase approximately $313.1 million aggregate principal amount of the outstanding 2025 convertible senior notes in privately-negotiated transactions for aggregate cash consideration of approximately $304.9 million (the “Repurchase Transaction”).
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The Repurchase Transaction was accounted for as a debt extinguishment. The difference between the consideration used to extinguish the 2025 convertible senior notes and the carrying value of the 2025 convertible senior notes (including unamortized debt discount and issuance costs) resulted in an extinguishment gain of approximately $6.6 million recorded through Other income (expense), net on the Company’s condensed consolidated statements of operations and comprehensive loss.
In connection with the Repurchase Transaction, the Company also entered into a partial termination agreement with each bank counterparty and unwound a corresponding portion of the previously purchased capped call instruments entered into in connection with the issuance of the 2025 convertible senior notes (the “2025 Capped Calls”). The Company received approximately $0.5 million in cash in connection with these partial terminations, representing the fair value at the date of settlement of the unwound 2025 Capped Calls.
2029 Convertible Senior Notes and Related Capped Call Transactions
In March 2024, the Company issued $747.5 million aggregate principal amount of 2029 convertible senior notes in a private offering, which aggregate principal amount included the exercise in full of the initial purchasers’ option to purchase up to an additional $97.5 million principal amount of the 2029 convertible senior notes. The 2029 convertible senior notes mature on March 15, 2029 and bear interest at a fixed rate of 1.00% per annum, payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2024. The total net proceeds from the issuance of the 2029 convertible senior notes, after deducting initial purchasers' discounts and commissions and estimated debt issuance costs, were approximately $728.9 million.
Each $1,000 principal amount of the 2029 convertible senior notes is initially convertible into 12.5918 shares of the Company’s common stock (the “2029 Conversion Option”), which is equivalent to an initial conversion price of approximately $79.42 per share of common stock, subject to adjustment upon the occurrence of specified events. The initial conversion price represents a premium of approximately 30% to the $61.09 per share closing price of the Company’s common stock on The Nasdaq Global Market on February 27, 2024. There have been no changes to the initial conversion price of the 2029 convertible senior notes since issuance. The 2029 convertible senior notes are convertible, in multiples of $1,000 principal amount, at the option of the holders prior to the close of business on the business day immediately preceding December 15, 2028, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2024 (and only during such calendar quarter), if the last reported sale price of the Company’s 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 five consecutive trading day period (the “2029 Measurement Period”) in which the trading price (as defined in the 2029 Indenture governing the 2029 convertible senior notes) per $1,000 principal amount of the 2029 convertible senior notes for each trading day of the 2029 Measurement Period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate in effect on each such trading day; (3) if the Company calls any or all of the 2029 convertible senior notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after December 15, 2028 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 2029 convertible senior notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. If the Company undergoes a fundamental change (as defined in the indenture governing the 2029 convertible senior notes), subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their 2029 convertible senior notes, in principal amounts of $1,000 or a multiple thereof, at a fundamental change repurchase price equal to 100% of the principal amount of the 2029 convertible senior notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their notes in connection with such corporate event or during the relevant redemption period.
The Company may not redeem the 2029 convertible senior notes prior to March 22, 2027. The Company may redeem for cash all or any portion of the 2029 convertible senior notes, at its option, on or after March 22, 2027 and prior to December 15, 2028, if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2029 convertible senior notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. However, the Company may not redeem less than all of the
17

outstanding 2029 convertible senior notes unless at least $100.0 million aggregate principal amount of 2029 convertible senior notes are outstanding and not called for redemption at the time the redemption notice is sent. No sinking fund is provided for the 2029 convertible senior notes.
The 2029 convertible senior notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2029 convertible senior notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated (including the 2025 convertible senior notes); effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities.
The net carrying amount of the 2029 convertible senior notes as of March 31, 2024 was as follows (in thousands):
March 31, 2024
Principal$747,500 
Unamortized issuance costs(18,343)
Net carrying amount$729,157 
Interest expense related to the 2029 convertible senior notes was as follows (in thousands):
Three Months Ended
March 31, 2024
Contractual interest expense$623 
Amortization of issuance costs284 
Total interest expense$907 
The debt issuance costs are amortized into interest expense over the term of the 2029 convertible senior notes at an effective interest rate of 1.49%.
In connection with the issuance of the 2029 convertible senior notes, the Company entered into privately negotiated capped call transactions (each a “2029 Capped Call,” and collectively the "2029 Capped Calls") with certain financial institutions. The 2029 Capped Call has an initial strike price of approximately $79.42, subject to certain adjustments, which corresponds to the initial conversion price of the 2029 convertible senior notes. The 2029 Capped Calls have an initial cap price of $122.18 per share, subject to certain adjustments. The 2029 Capped Calls are expected to partially offset the potential dilution to the Company’s common stock upon any conversion of the 2029 convertible senior notes, with such offset subject to a cap based on the cap price. Each 2029 Capped Call covers, subject to anti-dilution adjustments, approximately 9.4 million shares of the Company’s common stock. The 2029 Capped Call is subject to adjustment upon the occurrence of specified extraordinary events affecting the Company, including merger events, tender offers, and announcement events. In addition, each 2029 Capped Call is subject to certain specified additional disruption events that may give rise to a termination of the 2029 Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings, and hedging disruptions. For accounting purposes, each 2029 Capped Call is treated as a separate transaction from, and not part of the terms of the 2029 convertible senior notes. As these transactions meet certain accounting criteria, the 2029 Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The 2029 Capped Calls will not be remeasured as long as they continue to meet the conditions for equity classification.
2025 Convertible Senior Notes and Related Capped Call Transactions
In May and June 2020, the Company issued $747.5 million aggregate principal amount of 2025 convertible senior notes in a private offering, which aggregate principal amount included the exercise in full of the initial purchasers’ option to purchase up to an additional $97.5 million principal amount of the 2025 convertible senior notes. The 2025 convertible senior notes mature on June 1, 2025 and bear interest at a fixed rate of 0.500% per annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The total net proceeds from the issuance of the 2025 convertible senior notes, after deducting initial purchasers' discounts and commissions and estimated debt issuance costs, were approximately $728.8 million.
In March 2024, the Company used part of the net proceeds from the issuance of the 2029 convertible senior notes to repurchase $313.1 million aggregate principal amount of the 2025 convertible senior notes in privately-negotiated transactions. As of March 31, 2024, after giving effect to the Repurchase Transaction, approximately $434.4 million aggregate principal amount of 2025 convertible senior notes remained outstanding.
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Each $1,000 principal amount of the 2025 convertible senior notes is initially convertible into 7.4437 shares of the Company’s common stock (the “2025 Conversion Option”), which is equivalent to an initial conversion price of approximately $134.34 per share of common stock, subject to adjustment upon the occurrence of specified events. The initial conversion price represents a premium of approximately 30% to the $103.34 per share closing price of the Company’s common stock on The Nasdaq Global Market on May 21, 2020. The 2025 convertible senior notes are convertible, in multiples of $1,000 principal amount, at the option of the holders prior to the close of business on the business day immediately preceding March 1, 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 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 five consecutive trading day period (the “2025 Measurement Period”) in which the trading price (as defined in the 2025 Indenture governing the 2025 convertible senior notes) per $1,000 principal amount of the 2025 convertible senior notes for each trading day of the 2025 Measurement Period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate in effect on each such trading day; (3) if the Company calls any or all of the 2025 convertible senior notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after March 1, 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 2025 convertible senior notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. 
Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. If the Company undergoes a fundamental change (as defined in the indenture governing the 2025 convertible senior notes), subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their 2025 convertible senior notes, in principal amounts of $1,000 or a multiple thereof, at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 convertible senior notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their notes in connection with such corporate event or during the relevant redemption period.
There have been no changes to the initial conversion price of the 2025 convertible senior notes since issuance. The closing market price of the Company's common stock of $62.11 per share on March 31, 2024, the last trading day during the three months ended March 31, 2024, was below $174.64 per share, which represents 130% of the initial conversion price of $134.34 per share. Additionally, the last reported sale price of the Company’s 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, March 31, 2024, was not greater than or equal to 130% of the initial conversion price. As such, during the three months ended March 31, 2024, the conditions allowing holders of the 2025 convertible senior notes to convert were not met. The 2025 convertible senior notes are therefore not convertible during the three months ending June 30, 2024.
The 2025 convertible senior notes became redeemable at the Company's option on June 6, 2023. The Company may redeem for cash all or any portion of the 2025 convertible senior notes, at its option, prior to March 1, 2025, if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending not more than two trading days immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 convertible senior notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. No sinking fund is provided for the 2025 convertible senior notes. During the three months ended March 31, 2024, the conditions allowing the Company to redeem for cash all or any portion of the 2025 convertible senior notes were not met.
The 2025 convertible senior notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2025 convertible senior notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.
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The net carrying amount of the 2025 convertible senior notes as of March 31, 2024 and as of December 31, 2023 was as follows (in thousands):
March 31, 2024December 31, 2023
Principal$747,500 $747,500 
Unamortized issuance costs(2,590)(5,375)
Principal repaid(313,095) 
Net carrying amount$431,815 $742,125 
Interest expense related to the 2025 convertible senior notes was as follows (in thousands):
Three Months Ended
March 31, 2024March 31, 2023
Contractual interest expense$804 $934 
Amortization of issuance costs790 908 
Total interest expense$1,594 $1,842 
The debt issuance costs are amortized into interest expense over the term of the 2025 convertible senior notes at an effective interest rate of 1.00%.
In connection with the issuance of the 2025 convertible senior notes, the Company entered into privately negotiated capped call transactions (each a “2025 Capped Call,” and collectively the "2025 Capped Calls") with certain financial institutions. The 2025 Capped Calls each have an initial strike price of approximately $134.34, which corresponds to the initial conversion price of the 2025 convertible senior notes. The initial cap price of the 2025 Capped Calls was $206.68 per share and is subject to certain adjustments under the terms of the 2025 Capped Calls. In connection with the Repurchase Transaction, the Company unwound a portion of the 2025 Capped Calls. Refer to the Repurchase Transaction section above for further information. There are no changes or amendments made to the remaining 2025 Capped Calls. The remaining 2025 Capped Calls cover, subject to anti-dilution adjustments, approximately 3.2 million shares of the Company’s common stock. Each 2025 Capped Call is subject to adjustment upon the occurrence of specified extraordinary events affecting the Company, including merger events, tender offers, and announcement events. In addition, each 2025 Capped Call is subject to certain specified additional disruption events that may give rise to a termination of each 2025 Capped Call, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings, and hedging disruptions. For accounting purposes, each 2025 Capped Call is a separate transaction from, and not part of the terms of the 2025 convertible senior notes. As these transactions meet certain accounting criteria, the 2025 Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The 2025 Capped Calls will not be remeasured as long as they continue to meet the conditions for equity classification.
7. Stockholders’ Equity
Capital Structure
Common Stock
The Company is authorized to issue 450,000,000 shares of common stock with a par value of $0.001 per share. As of March 31, 2024 and December 31, 2023, the Company had 73,849,081 and 73,316,968 shares of common stock issued and outstanding, respectively.
Preferred Stock
The Company is authorized to designate and issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share in one or more series without stockholder approval and to fix the rights, preferences, privileges and restrictions thereof. As of March 31, 2024 and December 31, 2023, there were no shares of preferred stock issued and outstanding.
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Common Stock Reserved for Future Issuance
Shares of common stock reserved for future issuance related to outstanding equity awards and employee equity incentive plans as of March 31, 2024 were as follows (in thousands):
March 31, 2024
Stock options outstanding902
RSUs (including PRSUs) outstanding5,705
Shares available for future grant under 2014 Plan17,173
Shares available for future issuance under ESPP4,670
Total shares of common stock reserved28,450
Stock Options
A summary of the Company’s stock option activity during the three months ended March 31, 2024 is as follows (in thousands, except per share data):
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(Years)
Aggregate
Intrinsic
Value
Outstanding as of December 31, 2023918 $55.96 
Options granted   
Options exercised(14)26.85 
Options forfeited or expired(2)174.78 
Outstanding as of March 31, 2024902 $56.23 4.5$22,648 
The aggregate intrinsic value amounts are computed based on the difference between the exercise price of the stock options and the fair market value of the Company’s common stock of $62.11 per share as of March 28, 2024 for all in-the-money stock options outstanding.
Restricted Stock Units (including PRSUs)
A summary of the Company’s restricted stock unit ("RSU") activity, including PRSUs, during the three months ended March 31, 2024 is as follows (in thousands, except per share data):     
Number of SharesWeighted Average Grant Date Fair Value Per Share
Outstanding as of December 31, 20234,076 $83.25 
RSUs granted(1)
2,210 59.04 
RSUs vested and released(518)82.33 
RSUs forfeited or cancelled(63)87.09 
Outstanding as of March 31, 20245,705 73.57 
(1) Includes 159,016 PRSUs granted during the three months ended March 31, 2024.     
PRSUs with Market and Service Conditions In 2022, the Company granted 284,282 PRSUs subject to market and service conditions (“market-based PRSUs”) with a grant date fair value of $30.6 million as part of its annual grant of equity incentive awards to certain executives and in connection with the appointment of Michael Burkland as its new Chief Executive Officer. In 2023, the Company granted 35,921 market-based PRSUs with a grant date fair value of $3.1 million. During the three months ended March 31, 2024, the Company granted an additional 159,016 market-based PRSUs with a grant date fair value of $9.6 million. The amount that may be earned pursuant to the market-based PRSUs ranges from 0% to 200% of the target number based on the Company’s relative total shareholder return (“RTSR”) performance as compared to the companies in the S&P Software and Services Select Index during three one-year performance periods. One-third of the total market-based PRSUs may be earned and settled in shares following the end of each performance period based on RTSR performance and subject to continued employment through the payment date. If the Company’s absolute total shareholder return for any performance period is negative, then no more than 100% of the target amount of market-based PRSUs for such period may be
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earned. If an executive's employment with the Company terminates before the end of the final one-year performance period due to death or disability, 100% (if due to death) or 50% (if due to disability) of the unvested market-based PRSUs may be earned subject to ultimate RTSR performance in each remaining performance period. Upon a qualifying termination of employment in connection with a change in control of the Company, the unvested market-based PRSUs will vest on a double-trigger basis (i) at the target level for the market-based PRSUs subject to the 2022-2024 performance period, (ii) for the market-based PRSUs subject to the 2023-2025 performance period, and (iii) for the market-based PRSUs subject to the 2024-2026 performance period, (a) at the target level for the uncompleted portions of the performance periods and (b) at the actual level of performance measured through the date of the change in control of the Company, based on the price per share paid in such change in control. The fair value of the market-based PRSUs is determined on their grant date using a Monte Carlo Simulation model based upon assumptions presented below. The Company recognizes the fair value of the market-based PRSUs ratably over their requisite service period.
During the first quarter of 2023, the Company certified the performance results for the 2022 measurement period for the market-based PRSUs subject to the 2022-2024 performance period. Under the market-based PRSU agreements, the TSR payout percentage ranges from 0% to 200%, with a 50% payout at the 25th TSR percentile (threshold), 100% payout at the 55th TSR percentile (target), 200% payout at the 90th percentile or greater (maximum) and no payout below the threshold performance level. The Company determined that its actual total shareholder return was -52.64% for 2022, and that its relative total shareholder return ranking was in the 30.2 percentile relative to companies in the S&P Software & Services Select Index, which resulted in a payout percentage of 58.7% of target. During the first quarter of 2024, the Company certified the performance results for the 2023 measurement period for the market-based PRSUs subject to the 2022-2024 performance period. The Company determined that its actual total shareholder return was 19.95% for 2023, and that its relative total shareholder return ranking was in the 53.8 percentile relative to companies in the S&P Software & Services Select Index, which resulted in a payout percentage of 98.0% of target. During the first quarter of 2024, the Company also certified the performance results for the 2023 measurement period for the market-based PRSUs subject to the 2023-2025 performance period. The Company determined that its actual total shareholder return was 19.95% for 2023, and that its relative total shareholder return ranking was in the 50.5 percentile relative to companies in the S&P Software & Services Select Index, which resulted in a payout percentage of 92.5% of target.
PRSUs with Revenue and Service Conditions In 2022, the Company granted 66,167 PRSUs subject to revenue-based performance and service conditions (“revenue-based PRSUs”) with a grant date fair value of $6.6 million. The amount of revenue-based PRSUs that may be earned will be determined based on achievement of two quarterly revenue goals. One third of the revenue-based PRSUs may be earned based on achievement of the first revenue target and, if achieved, will vest in four quarterly installments, with the first installment occurring on the date such achievement is certified, subject to the executive's continuous service through the applicable vesting dates. Two thirds of the revenue-based PRSUs may be earned based on achievement of the second revenue target and, if achieved, will vest in eight quarterly installments, with the first installment occurring on the date such achievement is certified, subject to the executive's continuous service through the applicable vesting dates. The revenue-based PRSUs are otherwise on the Company's standard award terms for its market-based PRSUs. During 2023, the Company certified that the first revenue target was achieved, and thus recognized the related stock-based compensation expense for this first revenue target. However, the Company certified during the first quarter of 2024
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that, as of December 31, 2023, the second revenue target was not achieved, and thus did not recognize the related stock-based compensation expense and cancelled the shares associated with this target.
Stock-Based Compensation
Stock-based compensation expense was as follows (in thousands):
Three Months Ended
March 31, 2024March 31, 2023
Cost of revenue$7,603 $9,333 
Research and development10,930 12,382 
Sales and marketing14,020 17,045 
General and administrative12,131 11,983 
Total stock-based compensation expense$44,684 $50,743 
As of March 31, 2024, unrecognized stock-based compensation expense by award type and expected weighted-average recognition periods are summarized in the following table (in thousands, except years).
Stock OptionRSU
(excluding PRSUs)
PRSUESPP
Unrecognized stock-based compensation expense$3,626 $369,349 $19,581 $952 
Weighted-average amortization period1.4 years3.1 years1.9 years0.1 years
The weighted-average assumptions used to value PRSUs with market conditions granted during the periods presented were as follows:
PRSUs (Market Conditions)
Three Months Ended
March 31, 2024March 31, 2023
Closing price of common stock as of grant date$63.38 $68.15 
Expected term (years)2.852.84
Volatility49.4 %51.1 %
Risk-free interest rate4.5 %4.5 %
Dividend yield (1)
  
(1)The Company has not paid, and does not anticipate paying, cash dividends on its shares of common stock. Accordingly, the expected dividend yield is zero.
8. Net Loss Per Share
Basic net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the period, and excludes any dilutive effects of employee stock-based awards and potential shares upon conversion of the convertible senior notes. Diluted net loss per share is computed giving effect to all potentially dilutive shares of common stock, including common stock issuable upon exercise of stock options, vesting of RSUs and PRSUs, and shares of common stock issuable upon conversion of convertible senior notes. As the Company had net losses for the three months ended March 31, 2024 and 2023, all potentially issuable shares of common stock were determined to be anti-dilutive.
The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):
Three Months Ended
March 31, 2024March 31, 2023
Net loss$(7,077)$(27,248)
Weighted-average shares used in computing basic and diluted net loss per share73,488 71,259 
Basic and diluted net loss per share$(0.10)$(0.38)
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The following securities were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive (in thousands):
Three Months Ended
March 31, 2024March 31, 2023
Stock options902 1,303 
RSUs (including PRSUs)
5,705 4,842 
Convertible senior notes
7,899 5,568 
Total14,506 11,713 
The Company used the if-converted method for calculating any potential dilutive effect of its convertible senior notes for the three months ended March 31, 2024 and 2023. Under this method, the Company calculates diluted earnings per share under both the cash and share settlement assumptions to determine which is more dilutive. If share settlement is more dilutive, the Company calculates diluted earnings per share assuming that all of the convertible senior notes were converted solely into shares of common stock at the beginning of the reporting period. The potential impact upon the conversion of the convertible senior notes were excluded from the calculation of diluted net loss per share for the three months ended March 31, 2024 and 2023 because the effect would have been anti-dilutive.
9. Income Taxes
The provision for income taxes for the three months ended March 31, 2024 and 2023 was approximately $1.0 million and $0.5 million, respectively.

The provision for income taxes for the three months ended March 31, 2024 consisted primarily of U.S. federal and U.S. state tax expense as a result of IRC Section 174 research and experimental capitalization requirements, and foreign current income tax expense due to the Company's intercompany cost-plus operating model. The provision for income taxes for the three months ended March 31, 2023 consisted primarily of state and foreign current income tax expense.
For the three months ended March 31, 2024, the provision for income taxes differed from the statutory amount primarily due to certain U.S. and foreign jurisdictions where a full valuation allowance was maintained against the net deferred tax assets. For the three months ended March 31, 2023, the provision for income taxes differed from the statutory amount primarily due to domestic state income taxes, foreign income taxes and the Company realizing no benefit for prior year domestic losses due to maintaining a full valuation allowance against its domestic net deferred tax assets.
The realization of tax benefits from deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the weight of the available objective evidence, the Company does not believe it is more likely than not that the U.S. or U.K. net deferred tax assets will be realizable. Accordingly, the Company has provided a full valuation allowance against such net deferred tax assets as of March 31, 2024 and December 31, 2023. The Company intends to maintain the valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance. During the three months ended March 31, 2024, there were no material changes to the total amount of unrecognized tax benefits.
10. Commitments and Contingencies
Commitments
The Company’s principal commitments consist of future payment obligations under its convertible senior notes, finance leases to finance data centers and other computer and networking equipment, operating leases for office facilities, cloud services and software and maintenance agreements, and agreements with third parties to provide co-location hosting and telecommunication services. These commitments as of December 31, 2023 are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and material updates to these commitments during the three months ended March 31, 2024 are disclosed herein, including in this Note 10 and in Note 12.
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As of March 31, 2024, the Company’s commitments under various co-location hosting and telecommunications agreements totaled $13.6 million for terms ranging up to 57 months. These agreements require the Company to make monthly payments over the service term in exchange for certain network services.
As of March 31, 2024, the Company had outstanding cloud services and software and maintenance agreement commitments totaling $89.2 million, of which $14.3 million is expected to be purchased in 2024, $47.3 million is expected to be purchased in 2025, and the remaining $27.6 million is expected to be purchased in 2026.
As of March 31, 2024, $434.4 million of aggregate principal of the 2025 convertible senior notes was outstanding and is due on June 1, 2025 and $747.5 million of aggregate principal of the 2029 convertible senior notes was outstanding and is due on March 15, 2029. See Note 6 for more information concerning the convertible senior notes.
Legal Matters
The Company is involved in various legal and regulatory matters arising in the normal course of business. In management’s opinion, resolution of these matters is not expected to have a material impact on the Company’s consolidated results of operations, cash flows, or its financial position. However, due to the uncertain nature of legal matters, an unfavorable resolution of a matter could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. The Company expenses legal fees as incurred.
Indemnification Agreements
In the ordinary course of business, the Company enters into agreements of varying scope and terms pursuant to which it agrees to indemnify clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, including breach of security, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors, officers and certain employees that requires it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. There are no claims that the Company is aware of that could have a material effect on the consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.
11. Geographical Information
The following table summarizes revenues by geographic region based on client billing address (in thousands):
Three Months Ended
March 31, 2024March 31, 2023
United States$219,260 $195,363 
International27,750 23,076 
Total revenue$247,010