UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

___________________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from               to

Commission File Number 001-36773

___________________________________

WORKIVA INC.

(Exact name of registrant as specified in its charter)

___________________________________

Delaware (State or other jurisdiction of incorporation or organization)	47-2509828 (I.R.S. Employer Identification Number)
2900 University Blvd Ames, IA 50010 (888) 275-3125
(Address of principal executive offices and zip code)
(888) 275-3125
(Registrant's telephone number, including area code)
___________________________________

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 ý No o

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 ý No o

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 ý	Accelerated filer o
Non-accelerated filer o	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 ☐ No ý

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of each exchange on which registered
Class A common stock, par value $0.001	WK	New York Stock Exchange

As of August 2, 2019, there were approximately 36,762,217 shares of the registrant's Class A common stock and 9,265,596 shares of the registrant's Class B common stock outstanding.

WORKIVA INC.

TABLE OF CONTENTS

		Page
	Part I. Financial Information
Item 1.	Unaudited Consolidated Financial Statements:	1
	Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	3
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018	4
	Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Three and Six Months Ended June 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2019 and 2018	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	36
Item 4.	Controls and Procedures	36
	Part II. Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6.	Exhibits	38
	Signatures	S-1

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical facts, including statements regarding our future results of operations and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018, in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q and in any subsequent filing we make with the SEC, as well as in any documents incorporated by reference that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements.

Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after completion of this Quarterly Report on Form 10-Q to conform these statements to actual results or revised expectations.

ii

Part I. Financial Information

Item 1.  Financial Statements

WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
	As of June 30, 2019		As of December 31, 2018
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	94,713	$	77,584
Marketable securities	42,855		20,764
Accounts receivable, net of allowance for doubtful accounts of $1,000 and $956 at June 30, 2019 and December 31, 2018, respectively	47,206		65,107
Deferred commissions	11,380		8,178
Other receivables	1,236		1,181
Prepaid expenses	7,963		4,417
Total current assets	205,353		177,231
Property and equipment, net	41,046		41,468
Operating lease right-of-use assets	16,510		—
Deferred commissions, non-current	13,259		10,569
Intangible assets, net	1,832		1,266
Other assets	1,982		577
Total assets	$	279,982	$	231,111

1

WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share and per share amounts)
	As of June 30, 2019		As of December 31, 2018
	(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	4,768	$	5,461
Accrued expenses and other current liabilities	42,147		36,353
Deferred revenue	156,234		148,545
Current portion of financing obligations	1,285		1,222
Total current liabilities	204,434		191,581
Deferred revenue, non-current	28,049		25,171
Other long-term liabilities	1,284		6,891
Operating lease liabilities, non-current	20,038		—
Financing obligations, non-current	16,550		17,208
Total liabilities	270,355		240,851
Stockholders’ equity (deficit)
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 36,633,696 and 34,498,391 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	37		34
Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 9,265,596 and 9,545,596 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	9		10
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding	—		—
Additional paid-in-capital	332,161		297,145
Accumulated deficit	(322,812)		(307,027)
Accumulated other comprehensive income	232		98
Total stockholders’ equity (deficit)	9,627		(9,740)
Total liabilities and stockholders’ equity (deficit)	$	279,982	$	231,111

See accompanying notes.

2

WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited)
	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Revenue
Subscription and support	$	60,472	$	48,837	$	116,595	$	95,307
Professional services	13,012		10,293		26,852		23,729
Total revenue	73,484		59,130		143,447		119,036
Cost of revenue
Subscription and support	10,202		8,637		20,011		17,439
Professional services	10,475		7,659		20,202		15,368
Total cost of revenue	20,677		16,296		40,213		32,807
Gross profit	52,807		42,834		103,234		86,229
Operating expenses
Research and development	21,795		20,718		43,806		40,845
Sales and marketing	28,213		22,252		53,578		43,258
General and administrative	11,226		21,654		21,609		33,422
Total operating expenses	61,234		64,624		118,993		117,525
Loss from operations	(8,427)		(21,790)		(15,759)		(31,296)
Interest expense	(433)		(449)		(873)		(899)
Other income, net	530		492		850		835
Loss before (benefit) provision for income taxes	(8,330)		(21,747)		(15,782)		(31,360)
(Benefit) provision for income taxes	(8)		21		3		26
Net loss	$	(8,322)	$	(21,768)	(15,785)		(31,386)
Net loss per common share:
Basic and diluted	$	(0.18)	$	(0.50)	$	(0.35)	$	(0.73)
Weighted-average common shares outstanding - basic and diluted	46,166,660		43,234,655		45,700,559		43,048,110

See accompanying notes.

3

WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) (unaudited)
	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Net loss	$	(8,322)	$	(21,768)	$	(15,785)	$	(31,386)
Other comprehensive income, net of tax
Foreign currency translation adjustment, net of income tax benefit (expense) of $(2) and $0 for the three months ended June 30, 2019 and 2018, respectively, and net of income tax benefit (expense) of $(5) and $0 for the six months ended June 30, 2019 and 2018, respectively	6		42		15		31
Unrealized gain (loss) on available-for-sale securities, net of income tax benefit (expense) of $(26) and $0 for the three months ended June 30, 2019 and 2018, respectively, and net of income tax benefit (expense) of $(41) and $0 for the six months ended June 30, 2019 and 2018, respectively	76		17		119		(28)
Other comprehensive income, net of tax	82		59		134		3
Comprehensive loss	$	(8,240)	$	(21,709)	$	(15,651)	$	(31,383)

See accompanying notes.

4

WORKIVA INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands) (unaudited)
	Common Stock (Class A and B)
	Shares	Amount		Additional Paid-in-Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity (Deficit)
Balances at December 31, 2018	44,044	$	44	$	297,145	$	98	$	(307,027)	$	(9,740)
Stock-based compensation expense	—	—		8,193		—		—		8,193
Issuance of common stock upon exercise of stock options	961	1		11,054		—		—		11,055
Issuance of common stock under employee stock purchase plan	101	—		2,149		—		—		2,149
Issuance of restricted stock units	25	—		—		—		—		—
Tax withholding related to net share settlements of stock-based compensation awards	(10)	—		(390)		—		—		(390)
Net loss	—	—		—		—		(7,463)		(7,463)
Other comprehensive income	—	—		—		52		—		52
Balances at March 31, 2019	45,121	$	45	$	318,151	$	150	$	(314,490)	$	3,856
Stock-based compensation expense	—	—		8,513		—		—		8,513
Issuance of common stock upon exercise of stock options	455	1		5,497		—		—		5,498
Issuance of restricted stock units	323	—		—		—		—		—
Net loss	—	—		—		—		(8,322)		(8,322)
Other comprehensive income	—	—		—		82		—		82
Balances at June 30, 2019	45,899	$	46	$	332,161	$	232	$	(322,812)	$	9,627

5

WORKIVA INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (continued)
(in thousands) (unaudited)
	Common Stock (Class A and B)
	Shares	Amount		Additional Paid-in-Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Deficit
Balances at December 31, 2017	42,369	$	42	$	248,289	$	72	$	(265,337)	$	(16,934)
Cumulative-effect adjustment in connection with the adoption of ASU 2014-09	—	—		—		—		8,381		8,381
Stock-based compensation expense	—	—		5,905		—		—		5,905
Issuance of common stock upon exercise of stock options	296	1		3,075		—		—		3,076
Issuance of common stock under employee stock purchase plan	80	—		1,370		—		—		1,370
Issuance of restricted stock units	9	—		—		—		—		—
Tax withholding related to net share settlements of stock-based compensation awards	(61)	—		(1,342)		—		—		(1,342)
Net loss	—	—		—		—		(9,618)		(9,618)
Other comprehensive loss	—	—		—		(56)		—		(56)
Balances at March 31, 2018	42,693	$	43	$	257,297	$	16	$	(266,574)	$	(9,218)
Stock-based compensation expense	—	—		10,465		—		—		10,465
Issuance of common stock upon exercise of stock options	328	—		3,317		—		—		3,317
Issuance of restricted stock units	64	—		—		—		—		—
Tax withholding related to net share settlements of stock-based compensation awards	(23)	—		(519)		—		—		(519)
Net loss	—	—		—		—		(21,768)		(21,768)
Other comprehensive loss	—	—		—		59		—		59
Balances at June 30, 2018	43,062	$	43	$	270,560	$	75	$	(288,342)	$	(17,664)

See accompanying notes.

6

WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Cash flows from operating activities
Net loss	$	(8,322)	$	(21,768)	$	(15,785)	$	(31,386)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	971		876		1,874		1,748
Stock-based compensation expense	8,513		10,465		16,706		16,370
Provision for doubtful accounts	233		139		46		183
(Accretion) amortization of premiums and discounts on marketable securities, net	(23)		(15)		(104)		3
Deferred income tax	(28)		—		(46)		—
Changes in assets and liabilities:
Accounts receivable	3,133		(236)		17,951		6,306
Deferred commissions	(3,833)		(2,020)		(5,862)		(3,669)
Operating lease right-of-use asset	556		—		1,224		—
Other receivables	161		148		(53)		175
Prepaid expenses and other	(310)		(2,020)		(3,546)		(1,789)
Other assets	58		(110)		(1,406)		(168)
Accounts payable	1,206		(1,294)		(356)		1,383
Deferred revenue	8,295		8,747		10,282		6,402
Operating lease liability	(813)		—		(1,468)		—
Accrued expenses and other liabilities	8,966		4,542		4,425		3,679
Net cash provided by (used in) operating activities	18,763		(2,546)		23,882		(763)
Cash flows from investing activities
Purchase of property and equipment	(454)		(210)		(2,197)		(219)
Purchase of marketable securities	(18,562)		(11,283)		(40,717)		(11,283)
Maturities of marketable securities	11,500		3,900		18,890		4,400
Purchase of intangible assets	(577)		(64)		(661)		(128)
Net cash used in investing activities	(8,093)		(7,657)		(24,685)		(7,230)

7

WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands) (unaudited)
	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Cash flows from financing activities
Proceeds from option exercises	5,498		3,318		16,553		6,393
Taxes paid related to net share settlements of stock-based compensation awards	—		(519)		(390)		(1,861)
Proceeds from shares issued in connection with employee stock purchase plan	—		—		2,149		1,370
Principal payments on capital lease and financing obligations	(301)		(294)		(595)		(592)
Proceeds from government grants	—		22		—		22
Net cash provided by financing activities	5,197		2,527		17,717		5,332
Effect of foreign exchange rates on cash	110		(85)		215		(177)
Net increase (decrease) in cash and cash equivalents	15,977		(7,761)		17,129		(2,838)
Cash and cash equivalents at beginning of period	78,736		65,256		77,584		60,333
Cash and cash equivalents at end of period	$	94,713	$	57,495	$	94,713	$	57,495
Supplemental cash flow disclosure
Cash paid for interest	$	422	$	435	$	886	$	868
Cash paid for income taxes, net of refunds	$	28	$	54	$	261	$	56
Supplemental disclosure of noncash investing and financing activities
Allowance for tenant improvements	$	—	$	105	$	—	$	127
Purchases of property and equipment, accrued but not paid	$	444	$	254	$	444	$	254

See accompanying notes.

8

WORKIVA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies

Organization

Workiva Inc., a Delaware corporation, and its wholly-owned subsidiaries (the “Company” or “we” or “us”) is a leading provider of cloud-based solutions for connected reporting and compliance. Our platform, Wdesk, is used by thousands of public and private companies, government agencies and higher-education institutions. Wdesk offers controlled collaboration, data linking, data integrations, granular permissions, process management and a full audit trail. We sell to customers in the areas of: finance and accounting; risk and controls; regulatory reporting; financial close, management and performance reporting; and statutory and corporate tax reporting. Our operational headquarters are located in Ames, Iowa, with additional offices located in the United States, Europe, the Asia-Pacific region and Canada.

We updated our accounting policies on the use of estimates, impairment of long-lived assets and leases as a result of our adopting Financial Accounting Standards Board (FASB) guidance issued in accounting standards codification (ASC) 842, Leases, under the Accounting Standards Update (ASU) 2016-02 (collectively the new lease standard). Otherwise, there have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 20, 2019, that have had a material impact on our condensed consolidated financial statements and related notes.

Basis of Presentation and Principles of Consolidation

The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet data as of December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results expected for the full year ending December 31, 2019.

Seasonality has affected our revenue, expenses and cash flows from operations. Revenue from professional services has been higher in the first quarter as many of our customers file their Form 10-K in the first calendar quarter. Sales and marketing expense has been higher in the third quarter due to our annual user conference in September. In addition, the timing of the payments of cash bonuses to employees during the first and fourth calendar quarters may result in some seasonality in operating cash flow. The condensed consolidated financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 20, 2019.

The unaudited condensed consolidated financial statements include the accounts of Workiva Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Additionally, certain prior period amounts have been reclassified for consistency with the current year presentation. The reclassification of the prior period amounts were not material to the previously reported consolidated financial statements.

9

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and various other assumptions believed to be reasonable. These estimates include, but are not limited to, the allowance for doubtful accounts, the determination of the relative selling prices of our services, the measurement of material rights, health insurance claims incurred but not yet reported, valuation of available-for-sale marketable securities, useful lives of deferred contract costs, intangible assets and property and equipment, income taxes, discount rates used in the valuation of right-of-use assets and lease liabilities, and certain assumptions used in the valuation of equity awards. While these estimates are based on our best knowledge of current events and actions that may affect us in the future, actual results may differ materially from these estimates.

Impairment of Long-Lived Assets

Long-lived assets, such as property, equipment, right-of-use assets and software and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If circumstances require that a long-lived asset or asset group be tested for possible impairment, we first compare the undiscounted cash flows expected to be generated by that long-lived asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, other current liabilities, and operating lease liabilities on our condensed consolidated balance sheets. We currently have no finance leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Our variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components. We have elected to account for these lease and non-lease components as a single lease component. We are also electing not to apply the recognition requirements to short-term leases of 12 months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.

10

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance codified in ASC 842, Leases, which supersedes the guidance in former ASC 840, Leases, to increase transparency and comparability among organizations by requiring recognition of right-of-use assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements (with the exception of short-term leases).

In July 2018, the FASB issued an update (ASU 2018-11) to the existing transition guidance that allows entities to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Effective January 1, 2019, we adopted ASC 842 using this new transition guidance. The comparative information has not been restated and continues to be reported under the accounting standard in effect for those periods.

We have elected to use the package of practical expedients, which allows us to not (1) reassess whether any expired or existing contracts are considered or contain leases; (2) reassess the lease classification for any expired or existing leases; and (3) reassess the initial direct costs for any existing leases. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment.

Adoption of the new standard had a material impact on our condensed consolidated balance sheets. The most significant impacts related to the recognition of right-of-use assets and lease liabilities for operating leases. The adoption of ASC 842 had no impact on our condensed consolidated statements of operations or total cash flows from operations.

The cumulative effect of the changes made to our consolidated January 1, 2019 balance sheet for the adoption of ASC 842 were as follows (in thousands):

	As of December 31, 2018		Adjustments due to ASC 842 adoption		As of January 1, 2019
Assets
Operating right-of-use asset	$	—	$	15,694	$	15,694
Liabilities
Accrued expenses and other current liabilities	36,353		2,319		38,672
Other long-term liabilities	6,891		(6,007)		884
Operating lease liabilities, non-current	—		19,382		19,382

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. The update will become effective for interim and annual periods beginning after December 15, 2019 and may be adopted either retrospectively or prospectively. Early adoption is permitted. We adopted this standard prospectively effective April 1, 2019. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

11

New Accounting Pronouncements 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, which amends the current accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables, loans, and other financial instruments, we will be required to use a forward-looking expected loss model that reflects probable losses rather than the incurred loss model for recognizing credit losses. The standard will become effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We plan to adopt this standard on the effective date and are currently evaluating the impact of this new standard on our consolidated financial statements.

2. Supplemental Consolidated Balance Sheet Information

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

	As of June 30, 2019		As of December 31, 2018
Accrued vacation	$	7,947	$	6,906
Accrued commissions	5,372		7,265
Accrued bonuses	7,337		5,643
Estimated health insurance claims	1,170		1,100
ESPP employee contributions	2,797		2,156
Customer deposits	9,594		7,395
Operating lease liabilities	2,785		—
Accrued other liabilities	5,145		5,888
	$	42,147	$	36,353

3. Cash Equivalents and Marketable Securities

At June 30, 2019, marketable securities consisted of the following (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
Money market funds	$	71,937	$	—	$	—	$	71,937
U.S. treasury debt securities	3,931		5		—		3,936
U.S. corporate debt securities	38,833		97		(11)		38,919
	$	114,701	$	102	$	(11)	$	114,792
Included in cash and cash equivalents	$	71,937	$	—	$	—	$	71,937
Included in marketable securities	$	42,764	$	102	$	(11)	$	42,855

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At December 31, 2018, marketable securities consisted of the following (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
Money market funds	$	52,068	$	—	$	—	$	52,068
Commercial paper	7,448		—		—		7,448
U.S. treasury debt securities	2,494		—		(1)		2,493
U.S. corporate debt securities	10,890		—		(67)		10,823
	$	72,900	$	—	$	(68)	$	72,832
Included in cash and cash equivalents	$	52,068	$	—	$	—	$	52,068
Included in marketable securities	$	20,832	$	—	$	(68)	$	20,764

The following table presents gross unrealized losses and fair values for those marketable securities that were in an unrealized loss position as of June 30, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

	As of June 30, 2019
	Less than 12 months				12 months or greater
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. treasury debt securities	$	—	$	—	$	—	$	—
U.S. corporate debt securities	996		(1)		3,494		(10)
Total	$	996	$	(1)	$	3,494	$	(10)

We do not believe any of the unrealized losses represented an other-than-temporary impairment based on our evaluation of available evidence, which includes our intent as of June 30, 2019 to hold these investments until the cost basis is recovered.

4. Fair Value Measurements

We determine the fair values of our financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. 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. The fair value assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 - Inputs are unobservable inputs based on our assumptions.

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Financial Assets

Cash equivalents primarily consist of AAA-rated money market funds with overnight liquidity and no stated maturities. We classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.

When available, our marketable securities are valued using quoted prices for identical instruments in active markets. If we are unable to value our marketable securities using quoted prices for identical instruments in active markets, we value our investments using broker reports that utilize quoted market prices for comparable instruments. We validate, on a sample basis, the derived prices provided by the brokers by comparing their assessment of the fair values of our investments against the fair values of the portfolio balances of another third-party professional pricing service. As of June 30, 2019, all of our marketable securities were valued using quoted prices for comparable instruments in active markets and are classified as Level 2.

Based on our valuation of our money market funds and marketable securities, we concluded that they are classified in either Level 1 or Level 2, and we have no financial assets measured using Level 3 inputs. The following table presents information about our assets that are measured at fair value on a recurring basis using the above input categories (in thousands):

	Fair Value Measurements as of June 30, 2019						Fair Value Measurements as of December 31, 2018
Description	Total		Level 1		Level 2		Total		Level 1		Level 2
Money market funds	$	71,937	$	71,937	$	—	$	52,068	$	52,068	$	—
Commercial paper	—		—		—		7,448		—		7,448
U.S. treasury debt securities	3,936		—		3,936		2,493		—		2,493
U.S. corporate debt securities	38,919		—		38,919		10,823		—		10,823
	$	114,792	$	71,937	$	42,855	$	72,832	$	52,068	$	20,764
Included in cash and cash equivalents	$	71,937					$	52,068
Included in marketable securities	$	42,855					$	20,764

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5. Leases

Operating Leases

We lease certain office and residential space under non-cancelable operating leases with various lease terms through June 2043. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Certain office leases include one or more options to renew, with renewal terms that can extend the lease term from 3 to 5 years. The exercise of lease renewal options is at our sole discretion and is generally excluded from the lease term at lease inception. Our leases generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs in addition to a base or fixed rent.

The components of lease expense were as follows (in thousands):

	Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease cost	$	839	$	1,764
Short-term lease cost	299		538
Variable lease cost	229		432
	$	1,367	$	2,734

Supplemental cash flow information related to leases was as follows (in thousands):

	Three months ended June 30, 2019		Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,119	$	2,080
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—	$	2,033

Other supplemental information related to leases was as follows:

	As of June 30, 2019
Weighted Average Remaining Lease Term (in years)
Operating leases	8.0
Weighted Average Discount Rate
Operating leases	5.7	%

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As of June 30, 2019, future estimated minimum lease payments under non-cancelable operating leases were as follows (in thousands):

	Operating Leases
Remainder of 2019	$	1,899
2020	4,200
2021	4,241
2022