UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM
__________________
| | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended
| | 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
__________________
QUALYS, INC.
(Exact name of registrant as specified in its charter)
__________________
| | | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
(Address of principal executive offices, including zip code)
(
(Registrant’s telephone number, including area code)
__________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
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.
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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.
| | ☒ | 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 in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant's common stock outstanding as of July 27, 2023 was
TABLE OF CONTENTS
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| Risk Factor Summary | ||
| PART I – FINANCIAL INFORMATION |
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| Item 1. |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II – OTHER INFORMATION |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this Quarterly Report on Form 10-Q. If any of the following risks actually occurs (or if any of those listed elsewhere in this Quarterly Report on Form 10-Q occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.
| • |
Our quarterly and annual operating results may vary from period to period, which could result in our failure to meet expectations with respect to operating results and cause the trading price of our stock to decline. |
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| • |
If we do not successfully anticipate market needs and opportunities or are unable to enhance our solutions and develop new solutions that meet those needs and opportunities on a timely or cost-effective basis, we may not be able to compete effectively and our business and financial condition may be harmed. |
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| • |
If we fail to continue to effectively scale and adapt our platform to meet the performance and other requirements of our customers, our operating results and our business would be harmed. |
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| • |
If we are unable to renew existing subscriptions for our IT, security and compliance solutions, sell additional subscriptions for our solutions and attract new customers, our operating results would be harmed. |
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| • |
Our current research and development efforts may not produce successful products or enhancements to our platform that result in significant revenue, cost savings or other benefits in the near future. |
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| • |
Our platform, website and internal systems may be subject to intentional disruption or other security incidents that could result in liability and adversely impact our reputation and future sales. |
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| • |
Our sales cycle can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, revenues may vary from period to period, which may cause our operating results to fluctuate and could harm our business. |
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| • |
Adverse economic conditions or reduced IT spending may adversely impact our business. |
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| • |
Our IT, security and compliance solutions are delivered from 12 shared cloud platforms, and any disruption of service at these facilities would interrupt or delay our ability to deliver our solutions to our customers which could reduce our revenues and harm our operating results. |
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| • |
We face competition in our markets, and we may lack sufficient financial or other resources to maintain or improve our competitive position. |
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| • |
If our solutions fail to detect vulnerabilities or incorrectly detect vulnerabilities, our brand and reputation could be harmed, which could have an adverse effect on our business and results of operations. |
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| • |
If we are unable to continue the expansion of our sales force, sales of our solutions and the growth of our business would be harmed. |
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| • |
We rely on third-party channel partners to generate a substantial amount of our revenues, and if we fail to expand and manage our distribution channels, our revenues could decline and our growth prospects could suffer. |
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| • |
A significant portion of our customers, channel partners and employees are located outside of the United States, which subjects us to a number of risks associated with conducting international operations, and if we are unable to successfully manage these risks, our business and operating results could be harmed. |
|
| • | If the market for cloud solutions for IT, security and compliance does not evolve as we anticipate, our revenues may not grow and our operating results would be harmed. | |
| • |
Our business and operations have continued to grow since inception, and if we do not appropriately manage any future growth, or are unable to improve our systems and processes, our operating results may be negatively affected. |
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| • |
A portion of our revenues are generated by sales to government entities, which are subject to a number of challenges and risks. |
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| • |
Undetected software errors or flaws in our solutions could harm our reputation, decrease market acceptance of our solutions or result in liability. |
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| • |
Our solutions could be used to collect and store personal information of our customers’ employees or customers, and therefore privacy and other data handling concerns could result in additional cost and liability to us or inhibit sales of our solutions. |
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| • |
Our solutions contain third-party open source software components, and our failure to comply with the terms of the underlying open source software licenses could restrict our ability to sell our solutions. |
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| • |
We use third-party software and data that may be difficult to replace or cause errors or failures of our solutions that could lead to lost customers or harm to our reputation and our operating results. |
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| • |
Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and operating results. |
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| • |
Assertions by third parties of infringement or other violations by us of their intellectual property rights could result in significant costs and harm our business and operating results. |
PART I. FINANCIAL INFORMATION
| Financial Statements |
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share data)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term marketable securities | ||||||||
| Accounts receivable, net of allowance of $ and $ as of June 30, 2023 and December 31, 2022, respectively | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Long-term marketable securities | ||||||||
| Property and equipment, net | ||||||||
| Operating leases - right of use asset | ||||||||
| Deferred tax assets, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Restricted cash | ||||||||
| Other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenues, current | ||||||||
| Operating lease liabilities, current | ||||||||
| Total current liabilities | ||||||||
| Deferred revenues, noncurrent | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| Other noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock: $ par value; shares authorized, shares issued and outstanding as of June 30, 2023 and December 31, 2022 | ||||||||
| Common stock: $ par value; shares authorized, and shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other income (expense), net: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Income before income taxes | ||||||||||||||||
| Income tax provision | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average shares used in computing net income per share: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
| Net change in unrealized gains (losses) on available-for-sale debt securities, net of tax | ( | ) | ( | ) | ||||||||||||
| Net change in unrealized gains (losses) on cash flow hedges, net of tax | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (loss), net of tax | ( | ) | ( | ) | ||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flow from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Provision for credit losses | ||||||||
| Loss on disposal of property and equipment | ||||||||
| Loss on non-marketable securities | ||||||||
| Stock-based compensation, net of amounts capitalized | ||||||||
| Amortization (accretion) of premiums (discount) on marketable securities, net | ( | ) | ||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities and other noncurrent liabilities | ||||||||
| Deferred revenues | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flow from investing activities: | ||||||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Sales and maturities of marketable securities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flow from financing activities: | ||||||||
| Repurchase of common stock | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | ||||||||
| Payments for taxes related to net share settlement of equity awards | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock through employee stock purchase plan | ||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | Other | Total | |||||||||||||||||||||
| Paid-In | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Deficit | Equity | |||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Other comprehensive income, net of tax | — | |||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | ||||||||||||||||||||||||
| Taxes related to net share settlement of equity awards | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Issuance of common stock through employee stock purchase plan | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | ||||||||||||||||||||||||
| Taxes related to net share settlement of equity awards | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | Other | Total | |||||||||||||||||||||
| Paid-In | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Deficit | Equity | |||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | ||||||||||||||||||||||||
| Taxes related to net share settlement of equity awards | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Issuance of common stock through employee stock purchase plan | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Other comprehensive income, net of tax | — | |||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | ||||||||||||||||||||||||
| Taxes related to net share settlement of equity awards | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Balances at June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| NOTE 1. | Description of Business and Summary of Significant Accounting Policies |
Description of Business
Qualys, Inc. (the “Company”, "we", "us", "our") was incorporated in the state of Delaware on December 30, 1999. The Company is headquartered in Foster City, California and has wholly-owned subsidiaries throughout the world. The Company is a leading provider of cloud-based information technology ("IT"), security and compliance solutions that enable organizations to identify security risks to their IT infrastructures, help protect their IT systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations. The Company’s cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external IT infrastructures and web environments, the rapid adoption of cloud computing and the proliferation of geographically dispersed IT assets. Organizations can use the Company’s integrated suite of solutions delivered on its Qualys Cloud Platform to cost-effectively obtain a unified view of their security and compliance posture across globally-distributed IT infrastructures.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited financial statements as of that date but does not include all disclosures, including notes required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the financial position, results of operations and cash flows for the interim periods. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results of operations expected for the entire year ending December 31, 2023 or for any other future annual or interim periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 23, 2023. Certain prior year amounts have been reclassified to conform to current year presentation.
Risks and Uncertainties
The uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, rising interest rates, financial institution failures and associated uncertainty, labor shortages, significant volatility of global markets, reduced spending and extended sales cycles, and geopolitical conflicts could have a material adverse effect on the Company's long-term business and could lead to further economic disruption and expose the Company to greater risk as its current and potential customers may reduce or eliminate their overall spending on IT security.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the condensed consolidated financial statements and the reported results of operations during the reporting period. The Company’s management regularly assesses these estimates, which primarily affect revenue recognition, allowance for credit loss, the valuation of goodwill and intangible assets, leases, stock-based compensation and income tax provision. Actual results could differ from those estimates and such differences may be material to the accompanying unaudited condensed consolidated financial statements.
Recently Adopted Accounting Pronouncements
None.
Recently Issued Accounting Pronouncements Not Yet Adopted
The Company does not believe any new accounting pronouncements issued by the FASB that have not become effective will have a material impact on its condensed consolidated financial statements.
There have been no material changes to the Company’s significant accounting policies set forth in "Note 1" of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
| NOTE 2. | Fair Value of Financial Instruments |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For certain of the Company’s financial instruments, including certain cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate their fair values due to the relatively short maturity of these balances.
The Company measures and reports certain cash equivalents, marketable securities, derivative foreign currency forward contracts at fair value in accordance with the provisions of the authoritative accounting guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1-Valuations based on quoted prices in active markets for identical assets or liabilities.
Level 2-Valuations based on other than quoted prices in active markets for identical assets and liabilities, including quoted prices for identical assets or liabilities in less active or inactive markets, quoted prices for similar assets or liabilities in active markets, or inputs other than quoted prices that are observable for substantially the full term of the assets or liabilities.
Level 3-Valuations based on inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The Company's financial instruments consist of assets and liabilities measured using Level 1 and 2 inputs. Level 1 assets include a highly liquid money market fund, which is valued using unadjusted quoted prices that are available in an active market for an identical asset. Level 2 assets include fixed-income U.S. Treasury and government agency securities, commercial paper, corporate bonds, asset-backed securities, foreign government securities and derivative financial instruments consisting of foreign currency forward contracts. The securities, bonds and commercial paper are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive markets, quoted prices of similar instruments in active markets, or industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets. The foreign currency forward contracts are valued using observable inputs, such as quotations on forward foreign exchange points and foreign interest rates.
The following table sets forth by level within the fair value hierarchy the fair value of the Company's financial assets and liabilities measured at fair value on a recurring basis:
| June 30, 2023 | ||||||||||||
| Level 1 | Level 2 | Fair Value | ||||||||||
| (in thousands) | ||||||||||||
| Money market funds | $ | $ | $ | |||||||||
| Commercial paper | ||||||||||||
| U.S. Treasury and government agencies | ||||||||||||
| Corporate bonds | ||||||||||||
| Asset-backed securities | ||||||||||||
| Foreign currency forward contracts | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| Foreign currency forward contracts | $ | $ | $ | |||||||||
| Total liabilities | $ | $ | $ | |||||||||
| December 31, 2022 | ||||||||||||
| Level 1 | Level 2 | Fair Value | ||||||||||
| (in thousands) | ||||||||||||
| Money market funds | $ | $ | $ | |||||||||
| U.S. Treasury and government agencies | ||||||||||||
| Foreign government | ||||||||||||
| Corporate bonds | ||||||||||||
| Asset-backed securities | ||||||||||||
| Foreign currency forward contracts | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| Foreign currency forward contracts | $ | $ | $ | |||||||||
| Total liabilities | $ | $ | $ | |||||||||
There were no transfers between Level 1, Level 2 and Level 3 categories during the three months and six months ended June 30, 2023 and 2022.
Cash equivalent and investments
The Company's cash equivalents and marketable securities consist of the following:
| June 30, 2023 | ||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Cash equivalents: (1) | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Commercial paper | ( | ) | ||||||||||||||
| Total | ( | ) | ||||||||||||||
| Short-term marketable securities: | ||||||||||||||||
| Commercial paper | ( | ) | ||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Asset-backed securities | ( | ) | ||||||||||||||
| U.S. Treasury and government agencies | ( | ) | ||||||||||||||
| Total | ( | ) | ||||||||||||||
| Long-term marketable securities: | ||||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Asset-backed securities | ( | ) | ||||||||||||||
| U.S. Treasury and government agencies | ( | ) | ||||||||||||||
| Total | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2022 | ||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Cash equivalents: (2) | ||||||||||||||||
| Money market funds | $ | $ | — | $ | — | $ | ||||||||||
| U.S. Treasury and government agencies | ||||||||||||||||
| Total | ||||||||||||||||
| Short-term marketable securities: | ||||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Asset-backed securities | ( | ) | ||||||||||||||
| U.S. Treasury and government agencies | ( | ) | ||||||||||||||
| Foreign government | ( | ) | ||||||||||||||
| Total | ( | ) | ||||||||||||||
| Long-term marketable securities: | ||||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Asset-backed securities | ( | ) | ||||||||||||||
| U.S. Treasury and government agencies | ( | ) | ||||||||||||||
| Total | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
The following table summarizes the gross unrealized losses and fair value of the Company's marketable securities that were in an unrealized loss position aggregated by length of time:
| June 30, 2023 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
| Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Commercial paper | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||
| Asset-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Corporate bonds | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| U.S. Treasury and government agencies | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
| Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Foreign government agencies | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||
| Asset-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Corporate bonds | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| U.S. Treasury and government agencies | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
The Company had the ability and intent to hold all marketable securities that were in an unrealized loss position until recovery of the amortized cost basis. The Company considered the extent to which fair value was less than amortized cost basis and conditions related to security’s industry and geography and changes to the ratings, if any, and concluded the decline in fair value compared to carrying value was not related to credit loss.
The following summarizes the fair value of cash equivalents and marketable securities by contractual maturity:
| June 30, 2023 | ||||||||
| Amortized Cost | Fair Value | |||||||
| (in thousands) | ||||||||
| Due within One Year | $ | $ | ||||||
| Due after One Year through Two Years | ||||||||
| Mature over Two Years | ||||||||
| Asset-backed securities | ||||||||
| Total | $ | $ | ||||||
Non-Marketable Securities
Derivative Financial Instruments
Designated cash flow hedges
The Company enters into foreign currency forward contracts to reduce the risk of variability in future cash flow due to foreign currency exchange rate fluctuation from certain forecasted subscription revenue orders billed in British Pound ("GBP") and Euro ("EUR") and operating expenses incurred in Indian Rupee ("INR"), which are designated as cash flow hedges. Hedge effectiveness is assessed at inception and at each reporting period utilizing regression analysis. Unrealized foreign exchange gains or losses related to those designated cash flow hedge contracts are recorded in accumulated other comprehensive income ("AOCI") and will be reclassified into revenues or operating expenses, respectively, in the same periods when the hedged transactions are recognized in earnings.
As of June 30, 2023, the Company had designated cash flow hedge forward contracts with notional amounts of million, million and million. As of December 31, 2022, the Company had designated cash flow hedge forward contracts with notional amounts of million, million and million.
As of June 30, 2023, a de minimis net amount of unrealized gains before tax on the foreign currency forward contracts for GBP and Euro reported in AOCI is expected to be reclassified into revenue within the next 12 months. As of June 30, 2023, a de minimis net amount of unrealized gains before tax on the foreign currency forward contracts for INR reported in AOCI is expected to be reclassified into operating expenses within the next 12 months.
Non-designated forward contracts
The Company also uses foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities, which are not designated as cash flow hedges. Unrealized foreign exchange gain or losses related to the non-designated forward contracts are recorded in other income (expenses), net and offset the foreign exchange gain or loss on the underlying net monetary assets or liabilities.
As of June 30, 2023, the Company had non-designated forward contracts with notional amounts of million, million, million, and Canadian Dollar ("C$" or "CAD")
The following summarizes the fair value of derivative financial instruments as of June 30, 2023 and December 31, 2022:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (in thousands) | ||||||||
| Assets | ||||||||
| Foreign currency forward contracts designated as cash flow hedge | $ | $ | ||||||
| Foreign currency forward contracts not designated as hedging instruments | ||||||||
| Total | $ | $ | ||||||
| Liabilities | ||||||||
| Foreign currency forward contracts designated as cash flow hedge | $ | $ | ||||||
| Foreign currency forward contracts not designated as hedging instruments | ||||||||
| Total | $ | $ | ||||||
The Company presents its derivative assets and derivative liabilities at gross fair values in the condensed consolidated balance sheets. However, under the master netting agreements with the respective counterparties of the foreign exchange contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same currency with a single net amount payable by one party to the other. The potential offset to both assets and liabilities under the right of set-off associated with the Company's foreign currency exchange contracts are immaterial as of June 30, 2023 and December 31, 2022. The derivatives held by the Company are not subject to any credit contingent features negotiated with its counterparties. The Company is not required to pledge nor is entitled to receive cash collateral related to the above contracts. The counterparties to these derivatives are large, global financial institutions that the Company believes are creditworthy, and therefore, it does not consider the risk of counterparty nonperformance to be material.
The following summarizes the gains (losses) recognized from forward contracts and other foreign currency transactions in other income (expense), net in the condensed consolidated statements of operations:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Net gains (losses) from non-designated forward contracts | $ | ( | ) | $ | $ | $ | ||||||||||
| Other foreign currency transactions losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total foreign exchange losses, net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NOTE 3. | Accumulated Other Comprehensive Income (Loss) |
The components and changes in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2023 and 2022 were as follows:
| Available-for-sale debt securities | Cash flow hedges | Total | |||||||
| (in thousands) | |||||||||
| Balances at December 31, 2022 | $ | ( | ) | $ | $ | ( | ) | ||
| Change in unrealized gains (losses) during the period | ( | ) | |||||||
| Amount reclassified into income during the period | ( | ) | ( | ) | |||||
| Tax effect | |||||||||
| Net change during the period | ( | ) | |||||||
| Balances at March 31, 2023 | ( | ) | ( | ) | |||||
| Change in unrealized gains (losses) during the period | |||||||||
| Amount reclassified into income during the period | ( | ) | ( | ) | |||||
| Tax effect | |||||||||
| Net change during the period | ( | ) | ( | ) | |||||
| Balances at June 30, 2023 | $ | ( | ) | $ | ( | ) | $ | ( | ) |
| Balances at December 31, 2021 | $ | ( | ) | $ | $ | ||||
| Change in unrealized gains (losses) during the period | ( | ) | ( | ) | |||||
| Amount reclassified into income during the period | ( | ) | ( | ) | |||||
| Tax effect | ( | ) | ( | ) | ( | ) | |||
| Net change during the period | ( | ) | ( | ) | |||||
| Balances at March 31, 2022 | ( | ) | ( | ) | |||||
| Change in unrealized gains (losses) during the period | ( | ) | |||||||
| Amount reclassified into income during the period | ( | ) | ( | ) | |||||
| Tax effect | ( | ) | ( | ) | |||||
| Net change during the period | ( | ) | |||||||
| Balances at June 30, 2022 | $ | ( | ) | $ | $ | ( | ) | ||
The effects on income before income taxes of amounts reclassified from AOCI to the condensed consolidated statements of operations were as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Reclassification of AOCI - Cash flow hedges | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ||||||||||
| Research and development | ( | ) | ( | ) | ( | ) | ||||||||||
| Sales and marketing | ( | ) | ( | ) | ( | ) | ||||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
There was
| NOTE 4. | Property and Equipment, Net |
Property and equipment, net, consists of the following:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (in thousands) | ||||||||
| Computer equipment | $ | $ | ||||||
| Computer software | ||||||||
| Leasehold improvements | ||||||||
| Scanner appliances | ||||||||
| Furniture, fixtures and equipment | ||||||||
| Total property and equipment | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
As of June 30, 2023 and December 31, 2022, physical scanner appliances and other computer equipment that are or will be subject to leases by customers had a net carrying value of $