UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

___________________________________

(Mark One)

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

For the quarterly period ended March 31, 2020

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)
___________________________________

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 $.001	WK	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 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

As of April 28, 2020, there were approximately 38,583,904 shares of the registrant's Class A common stock and 8,555,596 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 March 31, 2020 and December 31, 2019	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019	3
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019	4
	Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	30
Item 4.	Controls and Procedures	30
	Part II. Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6.	Exhibits	39
	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, 2019, 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 March 31, 2020		As of December 31, 2019
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	393,434	$	381,742
Marketable securities	102,589		106,214
Accounts receivable, net of allowance for doubtful accounts of $890 and $866 at March 31, 2020 and December 31, 2019, respectively	45,522		60,228
Deferred commissions	12,554		14,108
Other receivables	2,683		2,432
Prepaid expenses and other	8,452		6,508
Total current assets	565,234		571,232
Property and equipment, net	39,231		39,745
Operating lease right-of-use assets	18,358		15,352
Deferred commissions, non-current	15,751		14,977
Intangible assets, net	1,639		1,651
Other assets	3,503		3,439
Total assets	$	643,716	$	646,396

1

WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share and per share amounts)
	As of March 31, 2020		As of December 31, 2019
	(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	5,501	$	7,057
Accrued expenses and other current liabilities	42,762		49,930
Deferred revenue	172,369		173,617
Current portion of financing obligations	1,361		1,328
Total current liabilities	221,993		231,932
Convertible senior notes, net	282,798		280,601
Deferred revenue, non-current	31,626		32,569
Other long-term liabilities	1,569		1,498
Operating lease liabilities, non-current	20,422		18,564
Financing obligations, non-current	15,536		15,889
Total liabilities	573,944		581,053
Stockholders’ equity
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 38,489,807 and 38,043,444 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	38		38
Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 8,555,596 and 8,595,596 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	9		9
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding	—		—
Additional paid-in-capital	435,181		420,170
Accumulated deficit	(365,734)		(355,161)
Accumulated other comprehensive income	278		287
Total stockholders’ equity	69,772		65,343
Total liabilities and stockholders’ equity	$	643,716	$	646,396

See accompanying notes.

2

WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited)
	Three months ended March 31,
	2020		2019
Revenue
Subscription and support	$	68,361	$	56,123
Professional services	17,440		13,840
Total revenue	85,801		69,963
Cost of revenue
Subscription and support	12,153		9,809
Professional services	10,243		9,727
Total cost of revenue	22,396		19,536
Gross profit	63,405		50,427
Operating expenses
Research and development	22,994		22,011
Sales and marketing	36,117		25,365
General and administrative	13,448		10,383
Total operating expenses	72,559		57,759
Loss from operations	(9,154)		(7,332)
Interest income	1,706		492
Interest expense	(3,554)		(440)
Other income (expense), net	718		(172)
Loss before provision for income taxes	(10,284)		(7,452)
Provision for income taxes	289		11
Net loss	$	(10,573)	$	(7,463)
Net loss per common share:
Basic and diluted	$	(0.22)	$	(0.17)
Weighted-average common shares outstanding - basic and diluted	47,545,703		45,229,279

See accompanying notes.

3

WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) (unaudited)
	Three months ended March 31,
	2020		2019
Net loss	$	(10,573)	$	(7,463)
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustment, net of income tax expense of $0 and $3 for the three months ended March 31, 2020 and 2019, respectively	(51)		9
Unrealized gain on available-for-sale securities, net of income tax benefit (expense) of $0 and $(15) for the three months ended March 31, 2020 and 2019, respectively	42		43
Other comprehensive (loss) income, net of tax	(9)		52
Comprehensive loss	$	(10,582)	$	(7,411)

See accompanying notes.

4

WORKIVA INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands) (unaudited)
Three months ended March 31, 2020
	Common Stock (Class A and B)
	Shares	Amount		Additional Paid-in-Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity
Balances at December 31, 2019	46,639	$	47	$	420,170	$	287	$	(355,161)	$	65,343
Stock-based compensation expense	—	—		9,936		—		—		9,936
Issuance of common stock upon exercise of stock options	225			2,794		—		—		2,794
Issuance of common stock under employee stock purchase plan	94	—		3,660		—		—		3,660
Issuance of restricted stock units	117	—		—		—		—		—
Tax withholding related to net share settlements of stock-based compensation awards	(30)	—		(1,379)		—		—		(1,379)
Net loss	—	—		—		—		(10,573)		(10,573)
Other comprehensive loss	—	—		—		(9)		—		(9)
Balances at March 31, 2020	47,045	$	47	$	435,181	$	278	$	(365,734)	$	69,772
Three months ended March 31, 2019
	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

See accompanying notes.

5

WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
	Three months ended March 31,
	2020		2019
Cash flows from operating activities
Net loss	$	(10,573)	$	(7,463)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	1,142		903
Stock-based compensation expense	9,936		8,193
Provision for (recovery of) doubtful accounts	40		(187)
Amortization (accretion) of premiums and discounts on marketable securities, net	101		(81)
Amortization of debt discount and issuance costs	2,197		—
Deferred income tax	—		(18)
Changes in assets and liabilities:
Accounts receivable	14,265		14,818
Deferred commissions	603		(2,029)
Operating lease right-of-use asset	1,098		668
Other receivables	(253)		(214)
Prepaid expenses and other	(1,955)		(3,236)
Other assets	(74)		(1,464)
Accounts payable	(1,382)		(1,562)
Deferred revenue	(1,228)		1,987
Operating lease liability	(1,145)		(655)
Accrued expenses and other liabilities	(8,023)		(4,541)
Net cash provided by operating activities	4,749		5,119
Cash flows from investing activities
Purchase of property and equipment	(688)		(1,743)
Purchase of marketable securities	(20,832)		(22,155)
Sale of marketable securities	11,423		—
Maturities of marketable securities	12,975		7,390
Purchase of intangible assets	(77)		(84)
Net cash provided by (used in) investing activities	2,801		(16,592)

6

WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands) (unaudited)
	Three months ended March 31,
	2020		2019
Cash flows from financing activities
Proceeds from option exercises	2,794		11,055
Taxes paid related to net share settlements of stock-based compensation awards	(1,379)		(390)
Proceeds from shares issued in connection with employee stock purchase plan	3,660		2,149
Principal payments on financing obligations	(320)		(294)
Net cash provided by financing activities	4,755		12,520
Effect of foreign exchange rates on cash	(613)		105
Net increase in cash and cash equivalents	11,692		1,152
Cash and cash equivalents at beginning of period	381,742		77,584
Cash and cash equivalents at end of period	$	393,434	$	78,736
Supplemental cash flow disclosure
Cash paid for interest	$	2,320	$	464
Cash paid for income taxes, net of refunds	$	159	$	233
Supplemental disclosure of noncash investing and financing activities
Allowance for tenant improvements	$	124	$	—

See accompanying notes.

7

WORKIVA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies

Organization

Workiva Inc., a Delaware corporation (together with its wholly-owned subsidiaries, the “Company” or “we” or “us”), provides the world’s leading connected reporting and compliance platform, which is used by thousands of public and private companies, government agencies and higher-education institutions. The Workiva platform offers controlled collaboration, data linking, data integrations, granular permissions, process management and a full audit trail. Our operational headquarters are located in Ames, Iowa, with additional offices located in the United States, Europe, the Asia-Pacific region and Canada.

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, 2019 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 months ended March 31, 2020 are not necessarily indicative of the results expected for the full year ending December 31, 2020.

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 historically been higher in the third quarter due to our annual user conference in September, although our transition to a virtual event in 2020 may partially mitigate this trend. 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, 2019 filed with the SEC on February 20, 2020.

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.

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

8

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, the fair value of the liability and equity components of the convertible senior notes, 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.

Recently Adopted Accounting Pronouncements

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 are 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 became 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. Effective January 1, 2020, we adopted this standard. The adoption of this new standard did not have a material impact 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 March 31, 2020		As of December 31, 2019
Accrued vacation	$	9,430	$	8,353
Accrued commissions	2,791		5,561
Accrued bonuses	4,122		7,121
Estimated health insurance claims	1,089		1,040
ESPP employee contributions	2,114		3,734
Customer deposits	11,818		12,151
Operating lease liabilities	4,341		3,064
Accrued other liabilities	7,057		8,906
	$	42,762	$	49,930

3. Cash Equivalents and Marketable Securities

At March 31, 2020, marketable securities consisted of the following (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
Money market funds	$	367,978	$	—	$	—	$	367,978
Commercial paper	2,961		—		—		2,961
U.S. treasury debt securities	20,888		283		—		21,171
U.S. corporate debt securities	78,532		49		(124)		78,457
	$	470,359	$	332	$	(124)	$	470,567
Included in cash and cash equivalents	$	367,978	$	—	$	—	$	367,978
Included in marketable securities	$	102,381	$	332	$	(124)	$	102,589

9

At December 31, 2019, marketable securities consisted of the following (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
Money market funds	$	360,471	$	—	$	—	$	360,471
U.S. treasury debt securities	10,342		8		(1)		10,349
U.S. corporate debt securities	95,706		164		(5)		95,865
	$	466,519	$	172	$	(6)	$	466,685
Included in cash and cash equivalents	$	360,471	$	—	$	—	$	360,471
Included in marketable securities	$	106,048	$	172	$	(6)	$	106,214

The following table presents gross unrealized losses and fair values for those marketable securities that were in an unrealized loss position as of March 31, 2020, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

	As of March 31, 2020
	Less than 12 months				12 months or greater
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. corporate debt securities	$	48,338	$	(124)	$	—	$	—
Total	$	48,338	$	(124)	$	—	$	—

We do not believe the unrealized losses represent credit losses based on our evaluation of available evidence as of March 31, 2020, which includes an assessment of whether it is more likely than not we will be required to sell the investment before recovery of the investment's amortized cost basis.

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 March 31, 2020, 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 March 31, 2020						Fair Value Measurements as of December 31, 2019
Description	Total		Level 1		Level 2		Total		Level 1		Level 2
Money market funds	$	367,978	$	367,978	$	—	$	360,471	$	360,471	$	—
Commercial paper	2,961		—		2,961		—		—		—
U.S. treasury debt securities	21,171		—		21,171		10,349		—		10,349
U.S. corporate debt securities	78,457		—		78,457		95,865		—		95,865
	$	470,567	$	367,978	$	102,589	$	466,685	$	360,471	$	106,214
Included in cash and cash equivalents	$	367,978					$	360,471
Included in marketable securities	$	102,589					$	106,214

Convertible Senior Notes

As of March 31, 2020, the fair value of our convertible senior notes was $269.4 million. The fair value was determined based on the quoted price of the convertible senior notes in an over-the-counter market on the last trading day of the reporting period and has been classified as Level 2 in the fair value hierarchy. See Note 5 to the condensed consolidated financial statements for more information.

5. Convertible Senior Notes

In August 2019, we issued $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2026 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, including the exercise in full by the initial purchasers of their option to purchase an additional $45.0 million principal amount (the “Notes”). The Notes were issued pursuant to an indenture and are senior, unsecured obligations of the Company. The Notes bear interest at a fixed rate of 1.125% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2020. Proceeds from the issuance of the Notes totaled $335.9 million, net of initial purchaser discounts and issuance costs.

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The initial conversion rate is 12.4756 shares of our common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $80.16 per share, subject to adjustment upon the occurrence of specified events. The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding May 15, 2026 only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ending on September 30, 2019 (and only during such calendar quarter), if the last reported sale price of our Class A common stock, par value $0.001 per share (which we refer to in this offering memorandum as our “Class A common stock”), for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•during the five consecutive business day period immediately following any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined below) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Class A common stock and the conversion rate on each such trading day;

•if we call any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

•upon the occurrence of certain specified corporate events as set forth in the indenture.

On or after May 15, 2026 until the close of business on the business day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances.

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election, in the manner and subject to the terms and conditions provided in the indenture. It is our current intent to settle conversions through a combination settlement of cash and shares of our Class A common stock with a specified dollar amount per $1,000 principal amount of Notes of $1,000.

If we undergo a fundamental change (as defined in the indenture), holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will increase, in certain circumstances, the conversion rate for a holder who elects to convert its Notes in connection with such corporate event or notice of redemption, as the case may be. During the three months ended March 31, 2020, the conditions allowing holders of the Notes to convert were not met. The Notes were therefore not convertible during the three months ended March 31, 2020 and are classified as long-term debt on our condensed consolidated balance sheets.

We may not redeem the Notes prior to August 21, 2023. We may redeem for cash all or any portion of the Notes, at our option, on or after August 21, 2023 if the last reported sale price of our Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

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In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability components from the par value of the Notes. The difference represents the debt discount that is amortized to interest expense at an effective interest rate of 4.3% over the term of the Notes. The carrying amount of the equity component was $60.1 million and is recorded in additional paid-in-capital. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the issuance costs related to the Notes, we allocated the total amount incurred to the liability and equity components of the Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were $7.5 million. The issuance costs allocated to the liability component are amortized to interest expense under the effective interest rate method over the contractual term of the Notes. Issuance costs attributable to the equity component of the Notes were $1.6 million and are netted against the equity components representing the conversion option in additional paid-in capital.

The net carrying amount of the liability and equity components of the Notes was as follows (in thousands):

	March 31, 2020		December 31, 2019
Liability component:
Principal	$	345,000	$	345,000
Unamortized discount	(55,294)		(57,247)
Unamortized issuance costs	(6,908)		(7,152)
Net carrying amount	$	282,798	$	280,601
Equity component, net of purchase discounts and issuance costs	$	58,560	$	58,560

Interest expense related to the Notes is as follows (in thousands):

	Three Months Ended March 31, 2020
Contractual interest expense	$	970
Amortization of debt discount	1,953
Amortization of issuance costs	244
Total interest expense	$	3,167

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6. Commitments and Contingencies

Litigation

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We evaluate the development of legal matters on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of any currently pending legal proceedings to which we are a party will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

7. Stock-Based Compensation

We grant stock-based incentive awards to attract, motivate and retain qualified employees, non-employee directors and consultants, and to align their financial interests with those of our stockholders. We utilize stock-based compensation in the form of restricted stock units, options to purchase Class A common stock and Employee Stock Purchase Plan (“ESPP”) purchase rights.

As of March 31, 2020, awards outstanding under the 2009 Plan consisted of stock options, and awards outstanding under the 2014 Plan consisted of stock options and restricted stock units.

As of March 31, 2020, 1,534,427 shares of Class A common stock were available for grant under the 2014 Plan.

Our ESPP became effective on June 13, 2017. Under the ESPP, eligible employees are granted options to purchase shares of Class A common stock at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. Options to purchase shares are granted twice yearly on or about January 15 and July 15 and are exercisable on or about the succeeding July 14 and January 14, respectively, of each year. As of March 31, 2020, 4,538,213 shares of Class A common stock were available for issuance under the ESPP. No participant may purchase more than $12,500 worth of common stock in a six-month offering period.

Stock-Based Compensation Expense

Stock-based compensation expense was recorded in the following cost and expense categories consistent with the respective employee or service provider’s related cash compensation (in thousands):

	Three months ended March 31,
	2020		2019
Cost of revenue
Subscription and support	$	431	$	357
Professional services	425		409
Operating expenses
Research and development	1,583		1,900
Sales and marketing	2,736		1,964
General and administrative	4,761		3,563
Total	$	9,936	$	8,193

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Stock Options

The following table summarizes the option activity under the Plans for the three months ended March 31, 2020:

	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
					(in thousands)
Outstanding at December 31, 2019	4,353,167	$	14.32	5.6	$	120,714
Granted	—	—
Forfeited	(21,735)	20.50
Exercised	(225,310)	12.40
Outstanding at March 31, 2020	4,106,122	$	14.39	5.4	$	73,653
Exercisable at March 31, 2020	3,703,584	$	14.01	5.2	$	67,834

Options to purchase Class A common stock generally vest over a three- or four-year period and are generally granted for a term of ten years. The total intrinsic value of options exercised during the three months ended March 31, 2020 and 2019 was $6.6 million and $34.3 million, respectively.

No options were granted during the three months ended March 31, 2020 and 2019. The total fair value of options vested during the three months ended March 31, 2020 and 2019 was approximately $1.4 million and $2.7 million, respectively. Total unrecognized compensation expense of $2.5 million related to options will be recognized over a weighted-average period of 1.2 years.

Restricted Stock Units

Restricted stock units granted to employees generally vest over a three- or four-year period in equal, annual installments or with three-year cliff vesting. Restricted stock units granted to non-employee members of our Board of Directors generally have one-year cliff vesting from the date of grant. The recipient of a restricted stock unit award under the Plan will have no rights as a stockholder until share certificates are issued by us, but, at the discretion of our Compensation Committee, has the right to receive a dividend equivalent payment in the form of additional restricted stock units. Additionally, until the shares are issued, they have no voting rights and may not be bought or sold. The fair value for restricted stock units is calculated based on the stock price on the date of grant. The total fair value of restricted stock units vested during the three months ended March 31, 2020 and 2019 was approximately $7.8 million and $4.3 million, respectively.

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