10-Q 1 msp-20210930.htm 10-Q msp-20210930
FALSE00017245702021Q3--12-31twenty-four months00017245702021-01-012021-09-30xbrli:shares00017245702021-10-31iso4217:USD00017245702021-09-3000017245702020-12-31iso4217:USDxbrli:shares0001724570msp:SubscriptionRevenueMember2021-07-012021-09-300001724570msp:SubscriptionRevenueMember2020-07-012020-09-300001724570msp:SubscriptionRevenueMember2021-01-012021-09-300001724570msp:SubscriptionRevenueMember2020-01-012020-09-300001724570msp:DeviceRevenueMember2021-07-012021-09-300001724570msp:DeviceRevenueMember2020-07-012020-09-300001724570msp:DeviceRevenueMember2021-01-012021-09-300001724570msp:DeviceRevenueMember2020-01-012020-09-300001724570msp:ProfessionalServicesAndOthersMember2021-07-012021-09-300001724570msp:ProfessionalServicesAndOthersMember2020-07-012020-09-300001724570msp:ProfessionalServicesAndOthersMember2021-01-012021-09-300001724570msp:ProfessionalServicesAndOthersMember2020-01-012020-09-3000017245702021-07-012021-09-3000017245702020-07-012020-09-3000017245702020-01-012020-09-300001724570us-gaap:CommonStockMember2020-12-310001724570us-gaap:TreasuryStockMember2020-12-310001724570us-gaap:AdditionalPaidInCapitalMember2020-12-310001724570us-gaap:RetainedEarningsMember2020-12-310001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001724570us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-3100017245702021-01-012021-03-310001724570us-gaap:CommonStockMember2021-01-012021-03-310001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001724570us-gaap:RetainedEarningsMember2021-01-012021-03-310001724570us-gaap:CommonStockMember2021-03-310001724570us-gaap:TreasuryStockMember2021-03-310001724570us-gaap:AdditionalPaidInCapitalMember2021-03-310001724570us-gaap:RetainedEarningsMember2021-03-310001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-3100017245702021-03-310001724570us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-3000017245702021-04-012021-06-300001724570us-gaap:CommonStockMember2021-04-012021-06-300001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-300001724570us-gaap:RetainedEarningsMember2021-04-012021-06-300001724570us-gaap:CommonStockMember2021-06-300001724570us-gaap:TreasuryStockMember2021-06-300001724570us-gaap:AdditionalPaidInCapitalMember2021-06-300001724570us-gaap:RetainedEarningsMember2021-06-300001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-3000017245702021-06-300001724570us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300001724570us-gaap:CommonStockMember2021-07-012021-09-300001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-300001724570us-gaap:RetainedEarningsMember2021-07-012021-09-300001724570us-gaap:CommonStockMember2021-09-300001724570us-gaap:TreasuryStockMember2021-09-300001724570us-gaap:AdditionalPaidInCapitalMember2021-09-300001724570us-gaap:RetainedEarningsMember2021-09-300001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300001724570us-gaap:CommonStockMember2019-12-310001724570us-gaap:TreasuryStockMember2019-12-310001724570us-gaap:AdditionalPaidInCapitalMember2019-12-310001724570us-gaap:RetainedEarningsMember2019-12-310001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-3100017245702019-12-310001724570us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-3100017245702020-01-012020-03-310001724570us-gaap:CommonStockMember2020-01-012020-03-310001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001724570us-gaap:RetainedEarningsMember2020-01-012020-03-310001724570us-gaap:CommonStockMember2020-03-310001724570us-gaap:TreasuryStockMember2020-03-310001724570us-gaap:AdditionalPaidInCapitalMember2020-03-310001724570us-gaap:RetainedEarningsMember2020-03-310001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-3100017245702020-03-310001724570us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-3000017245702020-04-012020-06-300001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300001724570us-gaap:RetainedEarningsMember2020-04-012020-06-300001724570us-gaap:CommonStockMember2020-06-300001724570us-gaap:TreasuryStockMember2020-06-300001724570us-gaap:AdditionalPaidInCapitalMember2020-06-300001724570us-gaap:RetainedEarningsMember2020-06-300001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-3000017245702020-06-300001724570us-gaap:CommonStockMember2020-07-012020-09-300001724570us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001724570us-gaap:RetainedEarningsMember2020-07-012020-09-300001724570us-gaap:CommonStockMember2020-09-300001724570us-gaap:TreasuryStockMember2020-09-300001724570us-gaap:AdditionalPaidInCapitalMember2020-09-300001724570us-gaap:RetainedEarningsMember2020-09-300001724570us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-3000017245702020-09-300001724570us-gaap:IPOMember2020-10-232020-10-230001724570us-gaap:IPOMember2020-10-230001724570us-gaap:IPOMember2020-11-032020-11-030001724570us-gaap:IPOMember2020-11-030001724570msp:TermLoanMembermsp:TwoThousandAndNineteenCreditAgreementMember2020-10-232020-10-230001724570msp:TwoThousandAndTwentyCreditAgreementMember2020-10-232020-10-23xbrli:pure0001724570msp:VistaMember2021-09-300001724570msp:MerritHoldcoMember2021-09-300001724570msp:MerritHoldcoMembermsp:DattoIncMember2021-09-300001724570us-gaap:NonUsMember2021-09-300001724570us-gaap:NonUsMember2020-12-310001724570us-gaap:AccountingStandardsUpdate201602Member2021-01-010001724570msp:DeviceRevenueMemberus-gaap:TransferredAtPointInTimeMember2021-07-012021-09-300001724570msp:ProfesionalServicesAndOthersMemberus-gaap:TransferredAtPointInTimeMember2021-07-012021-09-300001724570us-gaap:TransferredAtPointInTimeMembermsp:SubscriptionRevenueMember2021-07-012021-09-300001724570us-gaap:TransferredAtPointInTimeMember2021-07-012021-09-300001724570msp:DeviceRevenueMemberus-gaap:TransferredOverTimeMember2021-07-012021-09-300001724570msp:ProfesionalServicesAndOthersMemberus-gaap:TransferredOverTimeMember2021-07-012021-09-300001724570us-gaap:TransferredOverTimeMembermsp:SubscriptionRevenueMember2021-07-012021-09-300001724570us-gaap:TransferredOverTimeMember2021-07-012021-09-300001724570msp:ProfesionalServicesAndOthersMember2021-07-012021-09-300001724570msp:DeviceRevenueMemberus-gaap:TransferredAtPointInTimeMember2020-07-012020-09-300001724570msp:ProfesionalServicesAndOthersMemberus-gaap:TransferredAtPointInTimeMember2020-07-012020-09-300001724570us-gaap:TransferredAtPointInTimeMembermsp:SubscriptionRevenueMember2020-07-012020-09-300001724570us-gaap:TransferredAtPointInTimeMember2020-07-012020-09-300001724570msp:DeviceRevenueMemberus-gaap:TransferredOverTimeMember2020-07-012020-09-300001724570msp:ProfesionalServicesAndOthersMemberus-gaap:TransferredOverTimeMember2020-07-012020-09-300001724570us-gaap:TransferredOverTimeMembermsp:SubscriptionRevenueMember2020-07-012020-09-300001724570us-gaap:TransferredOverTimeMember2020-07-012020-09-300001724570msp:ProfesionalServicesAndOthersMember2020-07-012020-09-300001724570msp:DeviceRevenueMemberus-gaap:TransferredAtPointInTimeMember2021-01-012021-09-300001724570msp:ProfesionalServicesAndOthersMemberus-gaap:TransferredAtPointInTimeMember2021-01-012021-09-300001724570us-gaap:TransferredAtPointInTimeMembermsp:SubscriptionRevenueMember2021-01-012021-09-300001724570us-gaap:TransferredAtPointInTimeMember2021-01-012021-09-300001724570msp:DeviceRevenueMemberus-gaap:TransferredOverTimeMember2021-01-012021-09-300001724570msp:ProfesionalServicesAndOthersMemberus-gaap:TransferredOverTimeMember2021-01-012021-09-300001724570us-gaap:TransferredOverTimeMembermsp:SubscriptionRevenueMember2021-01-012021-09-300001724570us-gaap:TransferredOverTimeMember2021-01-012021-09-300001724570msp:ProfesionalServicesAndOthersMember2021-01-012021-09-300001724570msp:DeviceRevenueMemberus-gaap:TransferredAtPointInTimeMember2020-01-012020-09-300001724570msp:ProfesionalServicesAndOthersMemberus-gaap:TransferredAtPointInTimeMember2020-01-012020-09-300001724570us-gaap:TransferredAtPointInTimeMembermsp:SubscriptionRevenueMember2020-01-012020-09-300001724570us-gaap:TransferredAtPointInTimeMember2020-01-012020-09-300001724570msp:DeviceRevenueMemberus-gaap:TransferredOverTimeMember2020-01-012020-09-300001724570msp:ProfesionalServicesAndOthersMemberus-gaap:TransferredOverTimeMember2020-01-012020-09-300001724570us-gaap:TransferredOverTimeMembermsp:SubscriptionRevenueMember2020-01-012020-09-300001724570us-gaap:TransferredOverTimeMember2020-01-012020-09-300001724570msp:ProfesionalServicesAndOthersMember2020-01-012020-09-300001724570country:US2021-07-012021-09-300001724570country:US2020-07-012020-09-300001724570country:US2021-01-012021-09-300001724570country:US2020-01-012020-09-300001724570us-gaap:NonUsMember2021-07-012021-09-300001724570us-gaap:NonUsMember2020-07-012020-09-300001724570us-gaap:NonUsMember2021-01-012021-09-300001724570us-gaap:NonUsMember2020-01-012020-09-3000017245702021-10-012021-09-3000017245702022-10-012021-09-300001724570srt:MinimumMembermsp:ServersMember2021-01-012021-09-300001724570srt:MaximumMembermsp:ServersMember2021-01-012021-09-300001724570msp:ServersMember2021-09-300001724570msp:ServersMember2020-12-310001724570us-gaap:LeaseholdImprovementsMember2021-09-300001724570us-gaap:LeaseholdImprovementsMember2020-12-310001724570srt:MinimumMemberus-gaap:ComputerEquipmentMember2021-01-012021-09-300001724570srt:MaximumMemberus-gaap:ComputerEquipmentMember2021-01-012021-09-300001724570us-gaap:ComputerEquipmentMember2021-09-300001724570us-gaap:ComputerEquipmentMember2020-12-310001724570us-gaap:SoftwareDevelopmentMember2021-01-012021-09-300001724570us-gaap:SoftwareDevelopmentMember2021-09-300001724570us-gaap:SoftwareDevelopmentMember2020-12-310001724570us-gaap:FurnitureAndFixturesMember2021-01-012021-09-300001724570us-gaap:FurnitureAndFixturesMember2021-09-300001724570us-gaap:FurnitureAndFixturesMember2020-12-310001724570msp:PurchasedSoftwareMember2021-01-012021-09-300001724570msp:PurchasedSoftwareMember2021-09-300001724570msp:PurchasedSoftwareMember2020-12-310001724570us-gaap:VehiclesMember2021-01-012021-09-300001724570us-gaap:VehiclesMember2021-09-300001724570us-gaap:VehiclesMember2020-12-310001724570msp:BitDamMember2021-03-310001724570us-gaap:DevelopedTechnologyRightsMembermsp:BitDamMember2021-01-012021-09-300001724570msp:BitDamMember2021-07-012021-09-300001724570msp:BitDamMember2021-01-012021-09-300001724570msp:BitDamMember2021-09-30msp:businessAcquired0001724570msp:GluhPtyLtdMember2020-07-012020-07-310001724570msp:TwoThousandAndTwentyCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-10-230001724570us-gaap:LetterOfCreditMembermsp:TwoThousandAndTwentyCreditAgreementMember2020-10-230001724570msp:AlternativeCurrencyLetterOfCreditMembermsp:TwoThousandAndTwentyCreditAgreementMember2020-10-230001724570us-gaap:FederalFundsEffectiveSwapRateMembermsp:TwoThousandAndTwentyCreditAgreementMember2021-01-012021-09-300001724570msp:TwoThousandAndTwentyCreditAgreementMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-01-012021-09-300001724570srt:MinimumMemberus-gaap:BaseRateMembermsp:TwoThousandAndTwentyCreditAgreementMember2021-01-012021-09-300001724570us-gaap:BaseRateMembermsp:TwoThousandAndTwentyCreditAgreementMembersrt:MaximumMember2021-01-012021-09-300001724570srt:MinimumMembermsp:TwoThousandAndTwentyCreditAgreementMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-01-012021-09-300001724570msp:TwoThousandAndTwentyCreditAgreementMemberus-gaap:LondonInterbankOfferedRateLIBORMembersrt:MaximumMember2021-01-012021-09-300001724570srt:MinimumMembermsp:TwoThousandAndTwentyCreditAgreementMember2021-01-012021-09-300001724570msp:TwoThousandAndTwentyCreditAgreementMembersrt:MaximumMember2021-01-012021-09-300001724570msp:TwoThousandAndTwentyCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-12-310001724570msp:TwoThousandAndTwentyCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2021-09-300001724570msp:TermLoanMembermsp:TwoThousandAndNineteenCreditAgreementMember2020-10-310001724570us-gaap:RevolvingCreditFacilityMembermsp:TwoThousandAndNineteenCreditAgreementMember2020-10-310001724570msp:A2020PlanMember2021-01-012021-09-300001724570msp:A2020PlanMember2021-09-300001724570msp:A2017PlanMember2021-09-300001724570msp:AutotaskPlanMember2021-09-30msp:stockOptionPlan0001724570msp:StockOptionPlansPriorTo2020PlanAdoptionMember2021-09-3000017245702020-01-012020-12-310001724570us-gaap:RestrictedStockUnitsRSUMember2020-12-310001724570us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-09-300001724570us-gaap:RestrictedStockUnitsRSUMember2021-09-300001724570msp:A2020PlanMember2020-12-310001724570msp:EmployeeStockPurchasePlanMemberus-gaap:EmployeeStockMember2021-09-300001724570msp:EmployeeStockPurchasePlanMemberus-gaap:EmployeeStockMember2021-01-012021-09-300001724570us-gaap:EmployeeStockMember2021-09-300001724570us-gaap:EmployeeStockMember2021-01-012021-09-300001724570us-gaap:CostOfSalesMembermsp:SubscriptionRevenueMember2021-07-012021-09-300001724570us-gaap:CostOfSalesMembermsp:SubscriptionRevenueMember2020-07-012020-09-300001724570us-gaap:CostOfSalesMembermsp:SubscriptionRevenueMember2021-01-012021-09-300001724570us-gaap:CostOfSalesMembermsp:SubscriptionRevenueMember2020-01-012020-09-300001724570msp:DeviceRevenueMemberus-gaap:CostOfSalesMember2021-07-012021-09-300001724570msp:DeviceRevenueMemberus-gaap:CostOfSalesMember2020-07-012020-09-300001724570msp:DeviceRevenueMemberus-gaap:CostOfSalesMember2021-01-012021-09-300001724570msp:DeviceRevenueMemberus-gaap:CostOfSalesMember2020-01-012020-09-300001724570msp:ProfessionalServicesAndOthersMemberus-gaap:CostOfSalesMember2021-07-012021-09-300001724570msp:ProfessionalServicesAndOthersMemberus-gaap:CostOfSalesMember2020-07-012020-09-300001724570msp:ProfessionalServicesAndOthersMemberus-gaap:CostOfSalesMember2021-01-012021-09-300001724570msp:ProfessionalServicesAndOthersMemberus-gaap:CostOfSalesMember2020-01-012020-09-300001724570us-gaap:SellingAndMarketingExpenseMember2021-07-012021-09-300001724570us-gaap:SellingAndMarketingExpenseMember2020-07-012020-09-300001724570us-gaap:SellingAndMarketingExpenseMember2021-01-012021-09-300001724570us-gaap:SellingAndMarketingExpenseMember2020-01-012020-09-300001724570us-gaap:ResearchAndDevelopmentExpenseMember2021-07-012021-09-300001724570us-gaap:ResearchAndDevelopmentExpenseMember2020-07-012020-09-300001724570us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-09-300001724570us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-09-300001724570us-gaap:GeneralAndAdministrativeExpenseMember2021-07-012021-09-300001724570us-gaap:GeneralAndAdministrativeExpenseMember2020-07-012020-09-300001724570us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-09-300001724570us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-09-300001724570us-gaap:CostOfSalesMember2020-01-012020-09-300001724570us-gaap:OperatingExpenseMember2020-01-012020-09-30

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2021
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 001-39637 
DATTO HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 81-3345706
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
101 Merritt 7
Norwalk,CT06851
(Address of principal executive offices)
(Zip Code)
888-995-1431
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading
Symbol(s)
 Name of each exchange
on which registered
Common Stock, $0.001 par value MSP The New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒  No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer    Accelerated filer  
Non-accelerated filer    Smaller reporting company  
   Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes     No  ☒
At October 31, 2021, there were approximately 163,073,476 shares of the Registrant’s Common Stock outstanding (excluding treasury shares of 362,126).



TABLE OF CONTENTS
 
  Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
OTHER AVAILABLE INFORMATION
Please note that in addition to filing our periodic and current reports, we may announce material business and financial information to our investors using filings we make with the Securities and Exchange Commission (“SEC”), webcasts, press releases, conference calls, and our investor relations website which can be found at www.investors.datto.com. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. We use these media, including our website, to communicate with our stockholders and the public about our company. It is possible that the information that we make available through these media may be deemed to be material information. We therefore encourage investors and others interested in our company to review all such media.
The information contained on the website referenced in this Quarterly Report on Form 10-Q is not incorporated by reference into this filing, and the website address is provided only as a reference.

2


PART I – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
DATTO HOLDING CORP.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

3


DATTO HOLDING CORP.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(unaudited)
September 30,
2021
December 31,
2020
ASSETS
Current assets
Cash and cash equivalents$205,862 $168,877 
Restricted cash1,309 1,536 
Accounts receivable, net9,400 13,946 
Inventory31,739 13,811 
Prepaid expenses and other current assets33,640 28,316 
Total current assets281,950 226,486 
Property and equipment, net100,420 91,876 
Operating lease assets30,290  
Goodwill1,144,496 1,120,954 
Intangible assets, net295,264 287,395 
Other assets82,486 66,560 
Total assets$1,934,906 $1,793,271 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$12,549 $7,574 
Accrued expenses and other current liabilities47,538 39,461 
Deferred revenue21,634 23,763 
Total current liabilities81,721 70,798 
Deferred revenue, noncurrent3,108 3,322 
Deferred income taxes30,476 18,947 
Operating lease liabilities, noncurrent30,849  
Other long-term liabilities3,537 11,736 
Total liabilities149,691 104,803 
Commitments and contingencies (Note 8)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value; 50,000,000 authorized at September 30, 2021 and December 31, 2020; no shares issued or outstanding at September 30, 2021 or December 31, 2020
  
Common stock, $0.001 par value; 500,000,000 shares authorized at September 30, 2021 and December 31, 2020; 163,212,109 and 161,420,016 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively (inclusive of treasury stock)
163 161 
Additional paid-in capital1,807,533 1,755,387 
Treasury stock, at cost; 362,126 shares at September 30, 2021 and December 31, 2020
(3,621)(3,621)
Accumulated deficit(19,539)(65,226)
Accumulated other comprehensive income679 1,767 
Total stockholders’ equity1,785,215 1,688,468 
Total liabilities and stockholders’ equity$1,934,906 $1,793,271 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

DATTO HOLDING CORP.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Revenue:
Subscription$146,764 $122,753 $424,097 $356,348 
Device10,242 6,964 27,652 21,098 
Professional services and other886 950 2,654 2,347 
Total revenue157,892 130,667 454,403 379,793 
Cost of revenue:
Subscription22,776 18,915 65,344 60,786 
Device12,930 10,089 33,552 26,464 
Professional services and other1,470 1,332 4,521 4,399 
Depreciation and amortization8,572 5,526 23,795 15,746 
Total cost of revenue45,748 35,862 127,212 107,395 
Gross profit112,144 94,805 327,191 272,398 
Operating expenses:
Sales and marketing35,173 24,709 99,234 83,828 
Research and development26,872 15,257 76,690 48,000 
General and administrative27,802 17,433 78,908 59,389 
Depreciation and amortization6,531 6,820 19,554 20,600 
Total operating expenses96,378 64,219 274,386 211,817 
Income from operations15,766 30,586 52,805 60,581 
Other expense:
Interest expense156 7,065 433 23,590 
Other expense (income), net338 (987)224 (1,402)
Total other expense494 6,078 657 22,188 
Income before income taxes15,272 24,508 52,148 38,393 
Provision for income taxes(1,787)(4,962)(6,461)(8,727)
Net income$13,485 $19,546 $45,687 $29,666 
Net income per share attributable to common stockholders:
Basic$0.08 $0.14 $0.28 $0.22 
Diluted$0.08 $0.14 $0.28 $0.22 
Weighted-average shares used in computing net income per share:
Basic162,424,260 135,553,097 161,657,479 135,496,696 
Diluted166,248,941 138,590,770 165,483,710 137,006,921 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

DATTO HOLDING CORP.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Net income$13,485 $19,546 $45,687 $29,666 
Other comprehensive income (loss):
Currency translation adjustment(1,437)719 (1,088)(60)
Total comprehensive income$12,048 $20,265 $44,599 $29,606 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

DATTO HOLDING CORP.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)
 
 Common StockTreasury
Stock
Additional
Paid in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
SharesAmount
Balance at January 1, 2021161,420,016 $161 $(3,621)$1,755,387 $(65,226)$1,767 $1,688,468 
Stock-based compensation— — — 11,511 — — 11,511 
Shares issued upon exercise of stock options and vesting of restricted stock units19,139 — — 117 — — 117 
Other comprehensive loss— — — — — (1,012)(1,012)
Net income— — — — 15,286 — 15,286 
Balance at March 31, 2021161,439,155 $161 $(3,621)$1,767,015 $(49,940)$755 $1,714,370 
Stock-based compensation— — — 12,241 — — 12,241 
Shares issued upon exercise of stock options and vesting of restricted stock units951,278 1 — 9,587 — — 9,588 
Other comprehensive income— — — — — 1,361 1,361 
Net income— — — — 16,916 — 16,916 
Balance at June 30, 2021162,390,433 $162 $(3,621)$1,788,843 $(33,024)$2,116 $1,754,476 
Stock-based compensation— — — 11,603 — — 11,603 
Shares issued upon exercise of stock options and vesting of restricted stock units821,676 1 — 7,087 — — 7,088 
Other comprehensive loss— — — — — (1,437)(1,437)
Net income— — — — 13,485 — 13,485 
Balance at September 30, 2021163,212,109 $163 $(3,621)$1,807,533 $(19,539)$679 $1,785,215 
 
7

 Common StockTreasury
Stock
Additional
Paid in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
SharesAmount
Balance at January 1, 2020135,655,428 $136 $(3,621)$1,083,082 $(87,724)$430 $992,303 
Stock-based compensation— — — 1,914 — — 1,914 
Exercise of common stock options255,438 — — 2,500 — — 2,500 
Other comprehensive loss— — — — — (700)(700)
Net income— — — — 1,353 — 1,353 
Balance at March 31, 2020135,910,866 $136 $(3,621)$1,087,496 $(86,371)$(270)$997,370 
Stock-based compensation— — — 1,858 — — 1,858 
Other comprehensive loss— — — — — (79)(79)
Net income— — — — 8,767 — 8,767 
Balance at June 30, 2020135,910,866 $136 $(3,621)$1,089,354 $(77,604)$(349)$1,007,916 
Net share settlement of stock-based payment awards4,661 — — (53)— — (53)
Stock-based compensation— — — 2,789 — — 2,789 
Other comprehensive income— — — — — 719 719 
Net income— — — — 19,546 — 19,546 
Balance at September 30, 2020135,915,527 $136 $(3,621)$1,092,090 $(58,058)$370 $1,030,917 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8

DATTO HOLDING CORP.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Nine Months Ended September 30,
 20212020
OPERATING ACTIVITIES
Net income$45,687 $29,666 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation23,368 19,615 
Amortization of acquired intangible assets19,981 16,731 
Amortization of debt issuance costs255 1,265 
Reserve for inventory obsolescence54 1,508 
Non-cash operating lease expense5,273  
Stock-based compensation35,355 6,561 
Provision for bad debt2,630 4,793 
Deferred income taxes4,727 7,556 
Unrealized foreign exchange(296)(647)
Changes in operating assets and liabilities:
Accounts receivable1,878 (766)
Inventory(18,043)(6,337)
Prepaid expenses and other current assets(5,490)2,099 
Other assets(16,719)(8,446)
Accounts payable, accrued expenses and other2,928 109 
Deferred revenue(2,479)348 
Net cash provided by operating activities99,109 74,055 
INVESTING ACTIVITIES
Purchase of property and equipment(32,170)(28,519)
Acquisition of business, net of cash acquired(45,486)(4,371)
Net cash used in investing activities(77,656)(32,890)
FINANCING ACTIVITIES
Proceeds from debt 32,100 
Repayments of debt and capital leases(73)(4,468)
Capitalized transaction costs(684)(980)
Proceeds from stock option exercises16,839 2,500 
Net share settlement and settlement of stock-based payment awards (53)
Net cash provided by financing activities16,082 29,099 
Effect of exchange rate changes on cash and cash equivalents (777)720 
Net increase in cash and cash equivalents 36,758 70,984 
Cash and cash equivalents and restricted cash, beginning of year170,413 29,066 
Cash and cash equivalents and restricted cash, end of period$207,171 $100,050 
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents$205,862 $98,614 
Restricted cash$1,309 $1,436 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes$3,533 $151 
Cash paid for interest$ $22,317 
NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchase of property and equipment included in accounts payable$251 $40 
Unpaid initial public offering costs in total current liabilities$ $2,620 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9

DATTO HOLDING CORP.

INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10

DATTO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1.Business

Description of Business
Datto Holding Corp. (“Datto Holding”) provides cloud-based software and security solutions purpose-built for delivery through the managed service provider (“MSP”) channel to small and medium businesses (“SMB”). Unless the context otherwise indicates or requires, references to “Datto”, “we,” “us,” “our” and “the Company” shall refer to Datto Holding and its wholly-owned subsidiaries as a combined entity.

The Company’s platform enables its MSP partners to serve the SMB information technology market and includes mission-critical cloud-based software and technologies that MSPs sell to SMBs, business management software to help MSPs scale their own businesses, and marketing tools, content, training and industry-leading events that cultivate an empowered and highly engaged MSP partner community. The Company typically has no contractual relationship with the SMBs and considers its MSP partners to be the customers. By selling through the MSP channel, the Company is able to cost-effectively scale the reach of the Company’s solutions and support the global requirements of SMBs without a direct-to-SMB sales and support model.

Initial Public Offering

On October 23, 2020, the Company completed an initial public offering (“IPO”) of its common stock. As part of the IPO, the Company issued and sold 22,000,000 shares of its common stock at a public offering price of $27.00 per share. The Company received proceeds of approximately $558.0 million from the IPO, after deducting the underwriting discount. In addition, on November 3, 2020, the underwriters exercised in full their option to purchase 3,300,000 additional shares of common stock at a price of $27.00 per share, resulting in proceeds of approximately $83.6 million, after deducting the underwriting discount.

The Company utilized the IPO proceeds to repay the outstanding principal balances of $590.2 million under the 2019 Credit Agreement, to pay $5.3 million of IPO offering costs, and to pay $1.2 million in debt issuance costs under the 2020 Credit Agreement. Upon entering the 2020 Credit Agreement in October 2020, the 2019 Credit Agreement was terminated.

As of September 30, 2021, funds controlled by Vista Equity Partners (“Vista”) owned approximately 69.9% of the Company’s outstanding common stock, excluding treasury shares. As a result, the Company is a “controlled company” under New York Stock Exchange (“NYSE”) corporate governance rules. Sales to and purchases from as well as balances due to or from Vista and its portfolio companies as of and for the three and nine months ended September 30, 2021 and 2020, respectively, were immaterial.

Emerging Growth Company Status

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the Company’s condensed consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards based on public company effective dates.

On June 30, 2021, the last day of the Company’s second fiscal quarter in 2021, the market value of the Company’s common equity held by non-affiliates exceeded $700 million. Accordingly, the Company will no longer qualify as an EGC; rather, it will be deemed a large accelerated filer as of December 31, 2021. Accordingly, the Company will no longer have the ability to take advantage of the extended transition period to comply with new or revised accounting standards.
11


2.Significant Accounting Policies

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2021 or for any other interim period or for any other future year. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on March 11, 2021 (the “Annual Report”).

There continue to be many uncertainties regarding the ongoing coronavirus 2019 (“COVID-19”) pandemic, and the Company continues to monitor the impact of the pandemic on all aspects of its business, including how it has impacted and may continue to impact the Company’s operations and the operations of its MSP partners and their SMB customers in the future, including as a result of travel restrictions, business shutdowns, supply chain constraints, labor shortages and/or inflationary pressure. The governments of many of the countries in which the Company operates have eased the earlier measures to control the spread of COVID-19. However, it continues to be difficult at this time to estimate the impact that COVID-19 will continue to have on worldwide economic activity, the Company’s business, and the additional measures that may be taken by governments, businesses and other organizations in response to COVID-19 that could affect our business. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.

Basis of Presentation and Principles of Consolidation

Datto Holding owns 100% of Merritt Holdco, Inc. (“Merritt Holdco”), which owns 100% of Datto, Inc., the Company’s primary operating company. Datto Holding has no operations or significant assets or liabilities other than its investment in Merritt Holdco. Accordingly, Datto Holding is dependent upon distributions from Merritt Holdco to fund any activity, including the payment of dividends. All obligations under Datto’s 2020 Credit Agreement, as defined in Note 9. Debt, are guaranteed by Merritt Holdco and certain direct and indirect subsidiaries of Datto, Inc. The condensed consolidated financial statements include the accounts of Datto Holding and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, contract balances, contract acquisition costs, allowances for doubtful accounts, reserves for inventory obsolescence, useful lives and recoverability of long-lived assets, the incremental borrowing rate for operating leases, determining the fair value of assets acquired and liabilities assumed in business combinations, income taxes, stock-based compensation and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the uncertainty surrounding rapidly changing market and economic conditions from the COVID-19 pandemic. Actual results could materially differ from these estimates. With the exception of the adoption of the lease standard discussed below, there have been no material changes to the Company’s significant accounting policies.
Foreign Currency Translation

The Company’s reporting currency is the U.S. Dollar. The functional currency of the Company's foreign subsidiaries is generally the local currency. Assets and liabilities are translated into U.S. Dollars at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenue, expenses, gains and losses are
12

translated using average exchange rates for the reporting period. Resulting foreign currency translation adjustments are recorded directly within accumulated other comprehensive income (loss), a separate component of stockholders’ equity.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in other (income) expense, net in the accompanying condensed consolidated statements of operations. Transaction gains and losses were a charge of $0.3 million for the nine months ended September 30, 2021 and income of $1.0 million for the nine months ended September 30, 2020.

Cash and Cash Equivalents and Restricted Cash

Cash is stated at fair value. As of September 30, 2021 and December 31, 2020, the U.S. Dollar value of cash and restricted cash denominated in foreign currencies was $30.3 million and $28.1 million, respectively, comprised of various currencies in which the Company operates, including Euros, Australian Dollars and British Pounds.
Cash equivalents consist of short-term, highly liquid investments with an original maturity of three months or earlier. The Company did not hold any cash equivalents as of September 30, 2021 or December 31, 2020.
Restricted cash primarily includes amounts held by banks as security related to lease arrangements for office space.

Accounts Receivable, Net

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable are presented net of an estimated allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts based upon an analysis of past credit history and the current financial condition of the Company's partners, as well as the consideration of expected trends based upon characteristics of the accounts receivable and general economic conditions. The Company also considers other specific operational factors which may impact the Company's ability to collect past due amounts, including the impact of COVID-19. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The following table summarizes the activity of the allowance for doubtful accounts (in thousands):
 Amount
Balance as of December 31, 2020$5,485 
Provision for bad debt2,630 
Net reductions and other(2,495)
Balance as of September 30, 2021$5,620 
Unbilled accounts receivable are included in the accounts receivable balances and represent revenue earned, but the amount is not contractually billable as of the balance sheet date. The unbilled accounts receivable balance is principally invoiced within the following month. As of September 30, 2021 and December 31, 2020, unbilled accounts receivable was $1.7 million and $3.0 million, respectively.

Leases

The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether the Company has the right to control the identified asset. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments in order to obtain the right to use the asset over the lease term. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. The Company elected to combine lease and non-lease components for its office and equipment leases. ROU assets are based on the measurement of the lease liability and also include any lease prepayments and any initial direct costs incurred, offset by tenant incentives received by the Company. For leases with an initial term of 12 months or less, the Company does not recognize a ROU asset and corresponding lease liability. Rent expense for the Company’s operating leases is recognized on a straight-line basis over the lease term.

Generally, the Company’s leases do not provide an implicit interest rate, and therefore the Company uses its incremental borrowing rate based on the estimated rate of interest for a collateralized borrowing over a similar term of the lease payments at the commencement date. The Company includes options to extend or terminate the lease in the determination of the ROU asset and corresponding lease liability when it is reasonably certain the Company will exercise the option.
13


Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), (“ASC 842”). ASC 842 amends a number of aspects of lease accounting under ASC Topic 840 — Leases (“ASC 840”), including requiring lessees to recognize almost all leases with a term greater than one year as an ROU asset and corresponding lease liability, measured at the present value of the lease payments. ASC 842 provides a number of optional practical expedients in transition. On January 1, 2021, the Company adopted ASC 842 using the modified retrospective approach, and elected the practical expedients to i) not reassess its prior conclusions about lease identification under the new standard, ii) not reassess lease classification, and iii) not reassess initial direct costs. The Company did not elect the practical expedient allowing the use-of-hindsight, which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date.

Upon adoption of ASC 842 the Company recognized operating lease assets of $35.8 million and operating lease liabilities of $46.3 million at January 1, 2021. Prior period amounts were not restated and are reported in accordance with ASC 840.

For a description of the Company’s leases, see Note 6. Leases.

Accounting Pronouncements Issued but Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”). This standard changes the impairment model for most financial assets, including trade receivables and financial instruments and will require the Company to use a forward-looking expected loss method, which may result in earlier recognition of allowances for losses and require expected credit losses to be reflected as allowances rather than reductions in the amortized cost basis of financial assets. For public entities, the standard is currently effective. As the Company will cease to be an EGC as of December 31, 2021, the Company will adopt the standard on December 31, 2021, with the initial application of ASC 326 beginning on January 1, 2021. The Company is evaluating the impact this guidance will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASC 740”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related i) to the approach for intraperiod tax allocation, ii) the methodology for calculating income taxes in an interim period and iii) the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. The standard is currently effective for publicly traded companies. As the Company will cease to be an EGC as of December 31, 2021, the Company will adopt the standard on December 31, 2021, with the initial application of the standard beginning on January 1, 2021. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements.

14

3.Revenue Recognition
Disaggregation of Revenue

The following table disaggregates revenue by service and timing of recognition (in thousands):

 Three Months Ended September 30, 2021
 DeviceProfessional
Services
SubscriptionTotal
Timing of revenue recognition:
Recognized at a point in time$10,242 $ $ $10,242 
Recognized over time 886 146,764 147,650 
Total$10,242 $886 $146,764 $157,892 
 
 Three Months Ended September 30, 2020
 DeviceProfessional
Services
SubscriptionTotal
Timing of revenue recognition:
Recognized at a point in time$6,964 $ $ $6,964 
Recognized over time 950 122,753 123,703 
Total$6,964 $950 $122,753 $130,667 

 Nine Months Ended September 30, 2021
 DeviceProfessional
Services
SubscriptionTotal
Timing of revenue recognition:
Recognized at a point in time$27,652 $ $ $27,652 
Recognized over time 2,654 424,097 426,751 
Total$27,652 $2,654 $424,097 $454,403 
 
 Nine Months Ended September 30, 2020
 DeviceProfessional
Services
SubscriptionTotal
Timing of revenue recognition:
Recognized at a point in time$21,098 $ $ $21,098 
Recognized over time 2,347 356,348 358,695 
Total$21,098 $2,347 $356,348 $379,793 

The following table summarizes sales to customers by geography (in thousands):
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
United States$110,273 $94,632 $317,892 $277,654 
International47,619 36,035 136,511 102,139 
Total$157,892 $130,667 $454,403 $379,793 

Revenue by geography is determined by the billing address for the customer.

15

Contract Balances

Contract assets represent amounts for which the Company has recognized revenue, generally for device sales or contracts which contain free subscription periods pursuant to its revenue recognition policy, for contracts that have not yet been fully invoiced to customers where there is a remaining performance obligation. Contract assets relate to contractual arrangements which contain both a subscription and a device, a free subscription period or a professional service performance obligation. Amounts are recorded as a current asset or a non-current asset based on the amounts anticipated to be billed within one year of the balance sheet date. Current contract assets of $10.4 million and $7.7 million were included in prepaid expenses and other current assets as of September 30, 2021 and December 31, 2020, respectively. Non-current contract assets of $10.3 million and $7.9 million were included in other assets as of September 30, 2021 and December 31, 2020, respectively.

Contract liabilities consist of customer payments in advance of revenue being recognized. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current and the remaining portion is recorded as deferred revenue, noncurrent on the condensed consolidated balance sheets. Deferred revenue as of September 30, 2021 and December 31, 2020, was $24.7 million (of which $3.1 million was classified as non-current) and $27.1 million (of which $3.3 million was classified as non-current), respectively.

The following table summarizes the activity of the Company's current and noncurrent deferred revenue balances for the nine months ended September 30, 2020 (in thousands):
 Amount
Balance at December 31, 2020$27,085 
Deferred revenue recognized(19,631)
Amounts deferred17,341 
Foreign currency translation and other(53)
Balance at September 30, 2021$24,742 

Contract Acquisition Costs

The Company capitalizes commission expenses paid to internal sales personnel for obtaining customer contracts, using a portfolio approach. Contract acquisition costs are included in other assets on the condensed consolidated balance sheets. Contract acquisition costs as of September 30, 2021 and December 31, 2020 were $59.1 million and $48.2 million, respectively.

Remaining Performance Obligations

Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at September 30, 2021 were approximately $354.4 million, of which greater than 50% is anticipated to be recognized in the next twelve months, with substantially all revenue related to performance obligations to be recognized within thirty-six months. The amount excludes month-to-month contracts.

4.Inventory
Inventory, net of the reserves for obsolescence, consisted of the following (in thousands):
September 30,
2021
December 31,
2020
Components$22,578 $8,914 
Work in progress3,449 580 
Finished goods5,712 4,317 
Total inventory$31,739 $13,811 

16

5.Property and Equipment, Net
Property and equipment, net, consisted of the following (in thousands):
Estimated
Useful Life
(in Years)
September 30,
2021
December 31,
2020
Servers3-5$117,637 $96,048 
Leasehold improvements(a)31,365 32,455 
Computer equipment3-514,284 14,977 
Internally developed software313,254 7,811 
Furniture and fixtures55,807 6,305 
Purchased software31,149 999 
Vehicles5134 103 
Total property and equipment183,630 158,698 
Less: accumulated depreciation and amortization(83,210)(66,822)
Total property and equipment, net$100,420 $91,876 
(a) The shorter of the remaining lease term or useful life.
The Company capitalized $5.4 million and $1.6 million of internally developed software costs during the nine months ended September 30, 2021 and 2020, respectively.

Depreciation expense included in cost of revenue and operating expenses was $5.9 million and $2.1 million, respectively, for the three months ended September 30, 2021, and $4.4 million and $2.4 million, respectively, for the three months ended September 30, 2020.
Depreciation expense included in cost of revenue and operating expenses was $17.1 million and $6.3 million, respectively, for the nine months ended September 30, 2021, and $12.2 million and $7.4 million, respectively, for the nine months ended September 30, 2020.

6.Leases

The Company enters into operating leases from time to time, primarily for office space and co-located data centers. The Company’s leases have remaining lease terms which vary, up to approximately 8 years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include options at the election of the Company to renew or extend the leases. The periods associated with these options to renew or extend have not been included in the determination of the ROU assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the renewal options.

For the three months ended September 30, 2021 and 2020, the Company recorded $2.4 million and $2.3 million, respectively, of operating lease costs in the condensed consolidated statements of operations. For the nine months ended September 30, 2021 and 2020, the Company recorded $7.1 million and $7.2 million, respectively, of operating lease costs in the condensed consolidated statements of operations. Variable lease costs, which are comprised primarily of the Company's proportionate share of operating expenses, property taxes, and insurance, were $0.6 million and $1.8 million, for the three and nine months ended September 30, 2021, respectively. Variable lease costs are not included in the measurement of the Company's ROU assets and lease liabilities.

Cash paid for amounts related to operating lease liabilities for the nine months ended September 30, 2021 was $7.9 million.

17

The following represents the Company's future minimum payments under non-cancelable operating leases as of September 30, 2021 (in thousands):
 
Remaining 2021$2,608  
20229,756  
20239,852  
20248,944  
20255,375  
Thereafter6,725  
Total future undiscounted lease payments$43,260  
Less imputed interest3,470 
Total reported lease liability$39,790 

The weighted average remaining lease term and discount rate as of September 30, 2021 were 4.9 years and 3.3%, respectively. As of September 30, 2021, the Company recorded operating lease assets of $30.3 million, and lease liabilities of $9.0 million and $30.8 million in accrued expenses and other current liabilities and operating lease liabilities, noncurrent, respectively, within the condensed consolidated balance sheets.

7.Acquisitions
In March 2021, the Company acquired BitDam Ltd., an Israel-based cyber threat detection company (“BitDam”). The business combination was accounted for under the acquisition method of accounting. The consideration paid was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. As of September 30, 2021, the Company has performed a preliminary valuation of the assets acquired and liabilities assumed, including the fair value of acquired intangible assets. The preliminary valuation is subject to adjustment as the Company finalizes the allocation during the measurement period. The preliminary allocation of the purchase consideration is as follows (in thousands):
Acquisition of BitDam
Assets acquired
Other current and noncurrent assets$63  
Property and equipment49  
Finite lived intangible assets27,400  
Goodwill23,155  
Total assets acquired$50,667 
Other current and noncurrent liabilities879 
Deferred tax liabilities4,302 
Total liabilities assumed$5,181 
Purchase consideration, net of cash acquired$45,486  

The finite lived intangible assets consist of acquired developed technology with an estimated life of 5 years. The Company has recorded $1.4 million and $2.8 million of amortization expense within cost of revenue for the three and nine months ended September 30, 2021, respectively, related to this asset.
General and administrative expense within the condensed consolidated statements of operations includes $1.0 million of costs incurred in relation to the BitDam acquisition in the nine months ended September 30, 2021.
In July 2020, the Company acquired all of the outstanding equity of two affiliated Australian entities, Gluh Pty Ltd and Keystone Software Holdings Pty Ltd (together, “Gluh”). Gluh offers a real-time quoting platform that enables MSPs to simplify the procurement of IT products and services for their clients. The purchase consideration was approximately $4.4 million, reflecting the purchase price of $4.0 million and certain closing adjustments.

8.Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection
18

with loss contingencies are expensed as incurred. The Company believes there is no litigation or other liabilities for loss contingencies pending, individually or in the aggregate, that could have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

9.Debt
On October 23, 2020, Datto, Inc., as borrower (the “Borrower”), and certain of its direct and indirect wholly-owned subsidiaries of Datto (the “Guarantors,” and, together with the Borrower, the “Loan Parties”), entered into a new credit agreement with the lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent (the "2020 Credit Agreement"). The 2020 Credit Agreement is guaranteed by the “Guarantors” and is supported by a security interest in substantially all of the Loan Parties’ personal property and assets, subject to customary exceptions, as defined in the 2020 Credit Agreement.

The 2020 Credit Agreement provides for an initial $200.0 million in commitments for revolving credit loans, which may be increased or decreased under specific circumstances, with a $40.0 million letter of credit sublimit and a $100.0 million alternative currency sublimit. In addition, the 2020 Credit Agreement provides for the ability of the Borrower to request term loan facilities. Borrowings pursuant to the 2020 Credit Agreement may be used for working capital and other general corporate purposes, including for acquisitions permitted under the 2020 Credit Agreement, and are scheduled to mature on October 23, 2025. The 2020 Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants. At September 30, 2021, the Company was in compliance with all applicable covenants.

The interest rates applicable to the revolving borrowings under the 2020 Credit Agreement, are, at the Borrower’s option, either (i) a base rate, equal to the greater of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5% or (c) the Adjusted LIBO Rate for a one month Interest Period (each term as defined in the 2020 Credit Agreement) plus 1%, or (ii) the Adjusted LIBO Rate equal to the LIBO Rate for the applicable Interest Period, plus in the case of each of clauses (i) and (ii), the Applicable Rate (as defined in the 2020 Credit Agreement). The Applicable Rate (i) for base rate loans ranges from 0.25% to 1.0% per annum and (ii) for LIBO Rate loans ranges from 1.25% to 2.0% per annum, in each case, based on the Company's Senior Secured Net Leverage Ratio (as defined in the 2020 Credit Agreement). The 2020 Credit Agreement provides for a commitment fee ranging from 0.20% to 0.35% per annum of the average daily undrawn portion of the revolving commitments based on the Company's Senior Secured Net Leverage Ratio (as defined in the 2020 Credit Agreement).

As of September 30, 2021 and December 31, 2020, the 2020 Credit Agreement was undrawn, with the exception of $1.9 million of outstanding letters of credit.

The Company recorded amortization of the debt issuance costs and original issue discount of $0.1 million and $0.4 million as interest expense during the three months ended September 30, 2021 and 2020, respectively.

The Company recorded amortization of the debt issuance costs and original issue discount of $0.3 million and $1.3 million as interest expense during the nine months ended September 30, 2021 and 2020, respectively.

Until October 2020, the Company was party to the 2019 Credit Agreement, which provided for a $550.0 million term loan facility and a $50.0 million revolving credit facility. In connection with the IPO and entering into the 2020 Credit Agreement, the 2019 Credit Agreement was terminated.

10.Stock-Based Compensation

The Company has equity awards outstanding under various plans, as described further below.

Datto 2020 Omnibus Incentive Plan

In conjunction with the IPO, in October 2020, the Board adopted the Datto Holding Corp. Omnibus Incentive Plan (the “2020 Plan”) in order to align the interests of the participants with the interests of the Company's stockholders. The 2020 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), bonus stock, dividend equivalents, other stock-based awards, substitute awards, annual incentive awards and performance awards to employees, consultants, and members of the Board. Authorized shares under the 2020 Plan automatically increase each January 1st by 5% of the outstanding number of shares of the Company's common stock on the immediately preceding December 31st, or such lesser number of shares as determined by the Board. See below for a reconciliation of
19

shares of the Company’s common stock reserved for issuance under the 2020 Plan. Under the 2020 Plan, 4,068,399 RSUs and 80,000 stock options were outstanding as of September 30, 2021.

2017 Stock Option Plan

In December 2017, the Company adopted the 2017 Stock Option Plan (the “2017 Plan”), as amended, which provides for grants of stock options to employees, directors, officers, and consultants. As of September 30, 2021, 7,314,484 stock options were outstanding under the 2017 Plan. No additional awards may be issued under the 2017 Plan.

Other Equity Plans

The Company also has outstanding options which were issued under the Autotask Superior Holdings 2013 Stock Option Plan (the “Autotask Plan”). As of September 30, 2021, 265,095 fully-vested stock options were outstanding under the Autotask Plan. No additional awards may be issued under the Autotask Plan. In addition, the Company has two other plans, which were adopted in relation to grants to independent members of the Board, prior to the adoption of the 2020 Plan. As of September 30, 2021, 11,719 RSUs were outstanding and no additional awards may be issued under these plans.
 
Stock Options

The following table summarizes stock option activity related to all plans during the nine months ended September 30, 2021 (in thousands, except share and per share amounts):
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Options outstanding at December 31, 20209,555,082 $10.49 7.5$157,800 
Options granted80,000 $25.50 
Options exercised(1,704,829)$9.86 
Options forfeited & expired(270,674)$10.97 
Options outstanding at September 30, 20217,659,579 $10.76 7.3$100,738 
Options vested and exercisable at September 30, 20214,509,837 $10.14 7.0$62,067 

The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2021 and 2020 was $