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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, 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: 001-36383
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 filer(Do not check if a smaller reporting Company)Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  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 22, 2022, there were 69,557,425 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 future events and our financial 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 set forth in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Part II, Item 1A, of this Quarterly Report, which we encourage you to carefully read, and include the following:
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 new clients or sell additional services and functionality to our existing clients, our revenue and revenue growth will be harmed;
our recent rapid 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;
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;
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;
we have established, and are continuing to increase, our network of master agents and resellers to sell our solution; our failure to effectively develop, manage, and maintain this network could materially harm our revenues;
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;
adverse economic conditions may harm our business;
we continue to expand our international operations, which exposes us to significant risks;
the effects of the COVID-19 pandemic have materially affected how we, our clients and business partners are operating, and the duration and extent to which it will impact our future results of operations and overall financial performance remain uncertain;
security breaches and improper access to 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 and our business;
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;
if our existing clients terminate their subscriptions or reduce their subscriptions and related usage, our revenues and gross margins will be harmed and we will be required to spend more money to grow our client base;
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;
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;
2

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;
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;
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 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, 2022December 31, 2021
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$100,151 $90,878 
Marketable investments377,519 378,980 
Accounts receivable, net77,912 83,731 
Prepaid expenses and other current assets32,534 30,342 
Deferred contract acquisition costs, net36,478 33,295 
Total current assets624,594 617,226 
Property and equipment, net91,476 77,785 
Operating lease right-of-use assets46,536 48,703 
Intangible assets, net36,950 39,897 
Goodwill165,420 165,420 
Marketable investments118,707 147,377 
Other assets11,748 11,871 
Deferred contract acquisition costs, net — less current portion92,964 84,663 
Total assets$1,188,395 $1,192,942 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$31,981 $20,510 
Accrued and other current liabilities91,411 78,577 
Operating lease liabilities10,135 9,826 
Accrued federal fees1,650 2,282 
Sales tax liabilities2,047 2,660 
Deferred revenue46,564 43,720 
Total current liabilities183,788 157,575 
Convertible senior notes737,865 768,599 
Sales tax liabilities — less current portion883 877 
Operating lease liabilities — less current portion44,818 47,088 
Other long-term liabilities6,682 7,671 
Total liabilities974,036 981,810 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock70 68 
Additional paid-in capital480,215 439,787 
Accumulated other comprehensive loss (3,370)(287)
Accumulated deficit(262,556)(228,436)
Total stockholders’ equity214,359 211,132 
Total liabilities and stockholders’ equity$1,188,395 $1,192,942 
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, 2022March 31, 2021
Revenue$182,777 $137,882 
Cost of revenue88,867 59,803 
Gross profit93,910 78,079 
Operating expenses:
Research and development35,824 22,121 
Sales and marketing64,611 44,799 
General and administrative24,314 22,245 
Total operating expenses124,749 89,165 
Loss from operations(30,839)(11,086)
Other (expense) income, net:
Interest expense(1,870)(1,938)
Interest income and other845 175 
Total other (expense) income, net(1,025)(1,763)
Loss before income taxes(31,864)(12,849)
Provision for (benefit from) income taxes2,256 (517)
Net loss$(34,120)$(12,332)
Net loss per share:
Basic and diluted$(0.49)$(0.18)
Shares used in computing net loss per share:
Basic and diluted68,974 66,721 
Comprehensive Loss:
Net loss$(34,120)$(12,332)
Other comprehensive (loss) income(3,083)44 
Comprehensive loss$(37,203)$(12,288)
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, 202066,496 $67 $476,941 $335 $(198,179)$279,164 
Cumulative effect adjustment due to adoption of ASU 2020-06(1)
— — (168,412)— 22,743 (145,669)
Issuance of common stock upon partial conversion of the 2023 convertible senior notes143 — (143)— — (143)
Partial unwind of capped calls and retirement of common stock related to the 2023 convertible senior notes(19)— 19 — — 19 
Issuance of common stock upon exercise of stock options123 — 2,215 — — 2,215 
Issuance of common stock upon vesting of restricted stock units286 — — — — — 
Stock-based compensation— — 20,908 — — 20,908 
Other comprehensive income— — — 44 — 44 
Net loss— — — — (12,332)(12,332)
Balance as of March 31, 202167,029 $67 $331,528 $379 $(187,768)$144,206 
Balance as of December 30, 202168,488 $68 $439,787 $(287)$(228,436)$211,132 
Issuance of common stock upon partial conversion of the 2023 convertible senior notes540 — (244)— — (244)
Partial unwind of capped calls and retirement of common stock related to the 2023 convertible senior notes(111)— 2 — — 2 
Issuance of common stock upon exercise of stock options281 1 1,276 — — 1,277 
Issuance of common stock upon vesting of restricted stock units323 1 — — — 1 
Stock-based compensation— — 39,394 — — 39,394 
Other comprehensive loss— — — (3,083)— (3,083)
Net loss— — — — (34,120)(34,120)
Balance as of March 31, 202269,521 $70 $480,215 $(3,370)$(262,556)$214,359 

(1)Effective January 1, 2021, the Company adopted ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Accordingly, the Company recorded a net reduction to opening accumulated deficit of $22.7 million and a net reduction to opening additional paid-in capital of $168.4 million as of January 1, 2021 due to the cumulative impact of adopting this new standard.
See accompanying notes to the unaudited condensed consolidated financial statements.
6

FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31, 2022March 31, 2021
Cash flows from operating activities:
Net loss$(34,120)$(12,332)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization10,795 8,763 
Amortization of operating lease right-of-use assets2,403 2,389 
Amortization of deferred contract acquisition costs8,678 5,540 
Amortization of premium on marketable investments700 1,682 
Provision for doubtful accounts222 160 
Stock-based compensation39,394 20,908 
Amortization of discount and issuance costs on convertible senior notes930 974 
Deferred taxes1,889  
Change in fair of value of contingent consideration260 2,500 
Other210 186 
Changes in operating assets and liabilities:
Accounts receivable5,566 (3,543)
Prepaid expenses and other current assets(2,162)(3,524)
Deferred contract acquisition costs(20,160)(15,983)
Other assets234 101 
Accounts payable11,133 351 
Accrued and other current liabilities2,096 5,299 
Accrued federal fees and sales tax liabilities(1,239)738 
Deferred revenue2,659 322 
Other liabilities(764)(766)
Net cash provided by operating activities28,724 13,765 
Cash flows from investing activities:
Purchases of marketable investments(105,277)(163,683)
Proceeds from sales of marketable investments600  
Proceeds from maturities of marketable investments130,821 120,182 
Purchases of property and equipment(12,398)(8,229)
Capitalization of software development costs(569) 
Cash paid for an equity investment in a privately-held company(2,000) 
Net cash provided by (used in) investing activities11,177 (51,730)
Cash flows from financing activities:
Repurchase of a portion of 2023 convertible senior notes, net of costs(31,905)(7,840)
Proceeds from exercise of common stock options1,277 2,215 
Payments of finance leases (456)
Net cash used in financing activities(30,628)(6,081)
Net increase (decrease) in cash and cash equivalents9,273 (44,046)
Cash and cash equivalents:
Beginning of period90,878 220,372 
End of period$100,151 $176,326 
Supplemental disclosures of cash flow data:
Cash paid for interest$ $13 
Cash paid for income taxes$337 $73 
Non-cash investing and financing activities:
Equipment purchased and unpaid at period-end$22,365 $7,515 
Capitalization of leasehold improvements and furniture and fixtures through non-cash lease incentive$ $4,815 
See accompanying notes to the unaudited condensed consolidated financial statements.
7

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, 2021. 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 liabilities assumed through business combinations. 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
Except for the below significant accounting policy, which updates the significant accounting policies previously disclosed in our Annual Report on Form 10-K as filed with the SEC on February 28, 2022, there have been no material changes from the significant accounting policies previously disclosed in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Internal-use software development costs
The Company capitalizes certain qualifying costs incurred during the development stage of internal-use software. Costs related to preliminary project activities and post-implementation activities are expensed in research and development as incurred. Preliminary project activities include conceptual formulation, evaluation and final selection of alternatives, planning, proof of concept and requirement analysis of the selected alternative. Post-implementation stage begins when the inter-use software is ready for its intended use, and includes all internal and external training and application maintenance activities. Capitalized internal-use software costs are included within property and equipment, net on the condensed consolidated balance sheets, and are amortized over the estimated useful life of the software, which is typically three years. The related amortization expense is recognized in cost of revenue.
Recent Accounting Pronouncements Not Yet Effective
The Company has reviewed or is in the process of evaluating all issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such accounting pronouncements will cause a material impact on its condensed consolidated financial position, operating results or cash flows.
8

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, 2022December 31, 2021
Accounts receivable, net$77,912 $83,731 
Deferred contract acquisition costs, net:
Current$36,478 $33,295 
Non-current92,964 84,663 
Total deferred contract acquisition costs, net$129,442 $117,958 
Contract assets and contract liabilities:
Contract assets (included in prepaid expenses and other current assets)$2,731 $2,593 
Contract liabilities (deferred revenue) 46,564 43,720 
Noncurrent contract liabilities (deferred revenue) (included in other long-term liabilities)1,913 2,097 
Net contract liabilities$(45,746)$(43,224)
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, 2022, the Company recognized revenue of $26.2 million related to its contract liabilities at December 31, 2021.
Remaining Performance Obligations
As of March 31, 2022, 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 $602.8 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 has elected the optional exemption, which allows for the exclusion of the 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 pursuant to ASC 606.
3. Investments and Fair Value Measurements
Marketable Investments
9

The Company’s marketable investments have been classified and accounted for as available-for-sale. The Company’s marketable investments as of March 31, 2022 and December 31, 2021 were as follows (in thousands):
March 31, 2022
Short-Term Marketable InvestmentsCostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$1,757 $ $(3)$1,754 
U.S. treasury82,148  (365)81,783 
U.S. agency securities145,428  (605)144,823 
Commercial paper42,755   42,755 
Municipal bonds96,519  (457)96,062 
Corporate bonds10,383  (41)10,342 
Total$378,990 $ $(1,471)$377,519 
March 31, 2022
Long-term Marketable InvestmentsCostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$497 $ $(8)$489 
U.S. treasury49,877  (1,061)48,816 
U.S. agency securities63,969  (1,367)62,602 
Municipal bonds6,944  (144)6,800 
Total$121,287 $ $(2,580)$118,707 
December 31, 2021
Short-Term Marketable InvestmentsCostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$1,615 $ $ $1,615 
U.S. treasury83,237  (24)83,213 
U.S. agency securities159,070  (65)159,005 
Commercial paper47,555   47,555 
Municipal bonds75,337  (96)75,241 
Corporate bonds12,355 2 (6)12,351 
Total$379,169 $2 $(191)$378,980 
December 31, 2021
Long-term Marketable InvestmentsCostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$746 $ $(2)$744 
U.S. treasury63,566  (251)63,315 
U.S. agency securities63,960  (254)63,706 
Municipal bonds18,655  (64)18,591 
Corporate bonds1,026  (5)1,021 
Total$147,953 $ $(576)$147,377 
10

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, 2022 and December 31, 2021 (in thousands):
March 31, 2022December 31, 2021
Gross Unrealized LossesFair ValueGross Unrealized LossesFair Value
Certificates of deposit$(11)$2,243 $(2)$2,010 
U.S. treasury(1,426)125,714 (275)140,527 
U.S. agency securities(1,972)207,425 (320)222,710 
Municipal bonds(601)102,862 (160)87,184 
Corporate bonds(41)10,342 (10)9,428 
Total$(4,051)$448,586 $(767)$461,859 
Although the Company had certain available-for-sale debt securities in an unrealized loss position as of March 31, 2022, 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 values of the Company’s marketable investments by contractual maturity as of March 31, 2022 and December 31, 2021 were as follows (in thousands):
March 31, 2022December 31, 2021
CostFair ValueCostFair Value
Due within one year$378,990 $377,519 $379,169 $378,980 
Due after one year121,287 118,707 147,953 147,377 
Total$500,277 $496,226 $527,122 $526,357 


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 source to ensure that appropriate fair values are recorded.
11

The following tables set forth the Company’s assets measured at fair value by level within the fair value hierarchy (in thousands):
March 31, 2022
Level 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$21,311 $ $ $21,311 
U.S. agency securities and government sponsored securities 200  200 
Total cash equivalents$21,311 $200 $ $21,511 
Marketable investments (short and long term)
Certificates of deposit$ $2,243 $ $2,243 
U.S. treasury130,599   130,599 
U.S. agency securities and government sponsored securities 207,425  207,425 
Commercial paper 42,755  42,755 
Municipal bonds 102,862  102,862 
Corporate bonds 10,342  10,342 
Total marketable investments$130,599 $365,627 $ $496,226 
Liabilities
Contingent consideration$ $ $24,000 $24,000 
December 31, 2021
Level 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$31,380 $ $ $31,380 
Certificates of deposit 747  747 
Total cash equivalents$31,380 $747 $ $32,127 
Marketable investments (short and long-term)
Certificates of deposit$ $2,359 $ $2,359 
U.S. treasury146,528   146,528 
U.S. agency and government sponsored securities 222,711  222,711 
Commercial paper 47,555  47,555 
Municipal bonds 93,832  93,832 
Corporate bonds 13,372  13,372 
Total marketable investments$146,528 $379,829 $ $526,357 
Liabilities
Contingent consideration$ $ $23,740 $23,740 
As of March 31, 2022 and December 31, 2021, the estimated fair value of the Company’s outstanding 2023 convertible senior notes was $6.2 million and $114.9 million, respectively. As of March 31, 2022 and December 31, 2021, the estimated fair value of the Company's outstanding 2025 convertible senior notes was $812.1 million and $917.3 million, respectively. 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.
12

As part of the agreement to acquire Inference Solutions Inc. ("Inference") in November 2020, the Company was obligated to pay contingent earn out consideration of up to $24.0 million based upon achievement of certain milestones and relative thresholds during the earn out measurement period which ended on December 31, 2021. The fair value of the contingent consideration arrangement was classified within Level 3 and was determined using a probability-based scenario analysis approach. The resulting probability-weighted contingent consideration amounts were discounted based on the Company’s estimated cost of debt. During the three months ended March 31, 2022, the Company concluded that the final contingent consideration amount was $24.0 million and recognized an additional $0.3 million of contingent consideration expense to adjust the fair value from $23.7 million at December 31, 2021 to $24.0 million at March 31, 2022. The Company paid the $24.0 million earn out consideration in April 2022.
A reconciliation of the beginning and ending balance for contingent consideration consisted of the following (in thousands):
Three Months Ended March 31, 2022
Balance, beginning of period$23,740 
  Change in fair value of contingent consideration260 
Balance, end of period$24,000 
In February 2022, the Company made a $2.0 million equity investment in a privately-held company that it does not have the ability to exercise significant influence over. The Company elected the measurement alternative for an equity security without a readily determinable fair value. Accordingly, this investment will be 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 transaction occurred.
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, 2022 and December 31, 2021.
The fair value of the Company’s other financial instruments’ fair value, 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 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, 2022December 31, 2021
Cash$78,640 $58,751 
Certificates of deposit 747 
Money market funds21,311 31,380 
U.S. agency securities200  
Total cash and cash equivalents$100,151 $90,878 
Accounts receivable, net consisted of the following (in thousands):
March 31, 2022December 31, 2021
Trade accounts receivable$66,538 $75,970 
Unbilled trade accounts receivable, net of advance client deposits11,607 7,981 
Allowance for doubtful accounts
(233)(220)
Accounts receivable, net$77,912 $83,731 
Prepaid expenses and other current assets consisted of the following (in thousands):
March 31, 2022December 31, 2021
Prepaid expenses$24,717 $21,306 
Other current assets5,086 6,443 
Contract assets2,731 2,593 
Prepaid expenses and other current assets$32,534 $30,342 
Property and equipment, net consisted of the following (in thousands):
March 31, 2022December 31, 2021
Computer and network equipment$136,645 $116,701 
Computer software44,645 44,268 
Internal-use software development costs1,069 500 
Furniture and fixtures4,044 3,953 
Leasehold improvements6,032 5,914 
Property and equipment192,435 171,336 
Accumulated depreciation and amortization(100,959)(93,551)
Property and equipment, net$91,476 $77,785 
Depreciation and amortization expense associated with property and equipment was $7.8 million and $5.8 million for the three months ended March 31, 2022 and 2021, respectively.
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Property and equipment capitalized under finance lease obligations consists primarily of computer and network equipment and was as follows (in thousands):
March 31, 2022December 31, 2021
Gross$42,541 $42,541 
Less: accumulated depreciation and amortization(42,022)(41,689)
Total$519 $