UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 the transition period from                      to                     

Commission File Number: 001-37496

RAPID7, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	35-2423994
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

120 Causeway Street
Boston,	MA	02114
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (617) 247-1717

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	RPD	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically 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 and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Small 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  ☒

As of April 30, 2020, there were 50,501,098 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Loss	3
	Consolidated Statements of Changes in Stockholders' Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION	38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

RAPID7, INC.

Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

	March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	204,434	$	123,413
Short-term investments	36,384		116,158
Accounts receivable, net of allowance for doubtful accounts of $2,251 and $1,829 at March 31, 2020 and December 31, 2019, respectively	64,388		87,927
Deferred contract acquisition and fulfillment costs, current portion	17,486		17,047
Prepaid expenses and other current assets	19,624		20,051
Total current assets	342,316		364,596
Long-term investments	12,804		22,887
Property and equipment, net	50,075		50,670
Operating lease right-of-use assets	62,942		60,984
Deferred contract acquisition and fulfillment costs, non-current portion	34,289		34,213
Goodwill	97,866		97,866
Intangible assets, net	27,867		28,561
Other assets	5,518		5,136
Total assets	$	633,677	$	664,913
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	10,062	$	6,836
Accrued expenses	26,486		41,021
Operating lease liabilities, current portion	8,866		7,179
Deferred revenue, current portion	219,432		231,518
Other current liabilities	35		119
Total current liabilities	264,881		286,673
Convertible senior notes, net	187,944		185,200
Operating lease liabilities, non-current portion	71,586		72,294
Deferred revenue, non-current portion	31,641		36,226
Other long-term liabilities	1,325		1,352
Total liabilities	557,377		581,745
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized at March 31, 2020 and December 31, 2019; 0 shares issued at March 31, 2020 and December 31, 2019	—		—
Common stock, $0.01 par value per share; 100,000,000 shares authorized at March 31, 2020 and December 31, 2019; 50,906,182 and 50,397,922 shares issued at March 31, 2020 and December 31, 2019, respectively; 50,419,374 and 49,911,114 shares outstanding at March 31, 2020 and December 31, 2019, respectively	504		499
Treasury stock, at cost, 486,808 shares at March 31, 2020 and December 31, 2019	(4,764)		(4,764)
Additional paid-in-capital	621,992		605,650
Accumulated other comprehensive (loss) income	(78)		213
Accumulated deficit	(541,354)		(518,430)
Total stockholders’ equity	76,300		83,168
Total liabilities and stockholders’ equity	$	633,677	$	664,913

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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RAPID7, INC.

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

	Three Months Ended March 31,
	2020		2019
Revenue:
Products	$	87,549	$	65,845
Professional services	6,791		7,340
Total revenue	94,340		73,185
Cost of revenue:
Products	21,256		14,369
Professional services	6,458		5,604
Total cost of revenue	27,714		19,973
Total gross profit	66,626		53,212
Operating expenses:
Research and development	24,202		17,865
Sales and marketing	48,145		35,138
General and administrative	14,099		9,953
Total operating expenses	86,446		62,956
Loss from operations	(19,820)		(9,744)
Other income (expense), net:
Interest income	1,048		1,731
Interest expense	(3,462)		(3,229)
Other income (expense), net	(447)		(206)
Loss before income taxes	(22,681)		(11,448)
Provision for income taxes	243		225
Net loss	$	(22,924)	$	(11,673)
Net loss per share, basic and diluted	$	(0.46)	$	(0.24)
Weighted-average common shares outstanding, basic and diluted	50,127,310		47,827,939

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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RAPID7, INC.

Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)

	Three Months Ended March 31,
	2020		2019
Net loss	$	(22,924)	$	(11,673)
Other comprehensive income (loss):
Change in fair value of investments	(235)		193
Adjustments for net gains realized and included in net loss	(56)		—
Total change in unrealized (losses) gains on investments	(291)		193
Comprehensive loss	$	(23,215)	$	(11,480)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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RAPID7, INC.

Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(in thousands)

	Common stock			Treasury stock			Additional paid-in-capital		Accumulated other comprehensive gain (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2019	49,911	$	499	487	$	(4,764)	$	605,650	$	213	$	(518,430)	$	83,168
Stock-based compensation expense	—	—		—	—		12,965		—		—		12,965
Issuance of common stock under employee stock purchase plan	102	1		—	—		3,345		—		—		3,346
Vesting of restricted stock units	308	3		—	—		(3)		—		—		—
Shares withheld for employee taxes	(27)	—		—	—		(1,533)		—		—		(1,533)
Issuance of common stock upon exercise of stock options	125	1		—	—		1,568		—		—		1,569
Change in unrealized losses on investments	—	—		—	—		—		(291)		—		(291)
Net loss	—	—		—	—		—		—		(22,924)		(22,924)
Balance, March 31, 2020	50,419	$	504	487	$	(4,764)	$	621,992	$	(78)	$	(541,354)	$	76,300

	Common stock			Treasury stock			Additional paid-in-capital		Accumulated other comprehensive gain (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2018	47,600	$	476	487	$	(4,764)	$	556,223	$	(31)	$	(464,585)	$	87,319
Stock-based compensation expense	—	—		—	—		8,634		—		—		8,634
Issuance of common stock under employee stock purchase plan	111	1					2,633						2,634
Vesting of restricted stock units	244	3		—	—		(3)		—		—		—
Shares withheld for employee taxes	(22)	—		—	—		(980)		—		—		(980)
Issuance of common stock upon exercise of stock options	225	2		—	—		2,722		—		—		2,724
Change in unrealized gains on investments	—	—		—	—		—		193		—		193
Net loss	—	—		—	—		—		—		(11,673)		(11,673)
Balance, March 31, 2019	48,158	$	482	487	$	(4,764)	$	569,229	$	162	$	(476,258)	$	88,851

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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RAPID7, INC.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Three Months Ended March 31,
	2020		2019
Cash flows from operating activities:
Net loss	$	(22,924)	$	(11,673)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	4,843		3,427
Amortization of debt discount and issuance costs	2,743		2,510
Stock-based compensation expense	13,347		8,634
Provision for doubtful accounts	527		437
Foreign currency re-measurement loss	447		249
Other non-cash (income) expense	(138)		(722)
Changes in operating assets and liabilities:
Accounts receivable	22,608		14,729
Deferred contract acquisition and fulfillment costs	(516)		(1,094)
Prepaid expenses and other assets	135		(5,940)
Accounts payable	4,010		66
Accrued expenses	(14,563)		(13,690)
Deferred revenue	(16,671)		(12,104)
Other liabilities	(1,063)		1,605
Net cash used in operating activities	(7,215)		(13,566)
Cash flows from investing activities:
Purchases of property and equipment	(2,756)		(8,463)
Capitalization of internal-use software costs	(1,474)		(1,601)
Purchases of investments	(24,272)		(63,029)
Sales/maturities of investments	113,924		72,738
Net cash provided by (used in) investing activities	85,422		(355)
Cash flows from financing activities:
Taxes paid related to net share settlement of equity awards	(1,533)		(979)
Proceeds from employee stock purchase plan	3,346		2,634
Proceeds from stock option exercises	1,561		2,718
Net cash provided by financing activities	3,374		4,373
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(560)		(148)
Net increase (decrease) in cash, cash equivalents and restricted cash	81,021		(9,696)
Cash, cash equivalents and restricted cash, beginning of period	123,413		99,565
Cash, cash equivalents and restricted cash, end of period	$	204,434	$	89,869
Supplemental cash flow information:
Cash paid for interest on convertible senior notes	$	1,438	$	1,342
Cash paid for income taxes, net of refunds	$	33	$	88
Non-cash investing activities:
Leasehold improvements acquired through tenant improvement allowance	$	—	$	7,313

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

RAPID7, INC.

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies

Description of Business

Rapid7, Inc. and subsidiaries (we, us or our) is advancing security with visibility, analytics, and automation delivered through our Insight Platform. Our solutions simplify the complex, allowing security teams to work more effectively with IT and development to reduce vulnerabilities, monitor for malicious behavior, investigate and shut down attacks, and automate routine tasks.

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America (GAAP), as well as pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), regarding interim financial reporting. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.

The consolidated financial statements include our results of operations and those of our wholly-owned subsidiaries and reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the determination of the estimated economic life of perpetual licenses for revenue recognition, the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition and fulfillment costs, the useful lives of long-lived assets, the valuation of allowance for doubtful accounts, the valuation of stock-based compensation, the valuation of intangible assets acquired in a business combination, the incremental borrowing rate for operating leases and the valuation for deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable. Actual results could differ from those estimates.

The COVID-19 pandemic is expected to result in a global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services, including from our customers. We currently expect our operational and financial performance to be negatively impacted by the slowdown in activity associated with the COVID-19 pandemic for the year ending December 31, 2020 and beyond. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, assumptions and judgments or revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained and will be recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to our financial statements.

Reclassification

Historically, we have presented revenue on our consolidated statement of operations as products, maintenance and support and professional services revenue. For the three months ended March 31, 2020, we have combined products and maintenance and support revenue as products revenue on our consolidated statement of operations as our customers continue to migrate from our on-premise products to our SaaS Insight Platform. Given this continued migration, we believe it is more relevant to categorize maintenance and support revenue together as products revenue. Prior periods have been adjusted to conform with this presentation.

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Significant Accounting Policies

Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no changes to the significant accounting policies during the three-month period ended March 31, 2020.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this standard on January 1, 2020 using the prospective adoption approach. The impact to our consolidated financial statements as a result of the adoption was not material.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, modifies and adds disclosure requirements for fair value measurements. We adopted this standard on January 1, 2020 and there was no impact to our consolidated financial statements as a result of the adoption.

Accounting Pronouncements Not Yet Effective

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. The new standard will be effective for us in the first quarter of 2021, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently assessing the impact of adopting this standard but does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

Note 2. Revenue from Contracts with Customers

We generate products revenue from the sale of (1) cloud-based subscriptions for our InsightIDR, InsightVM, InsightAppSec and InsightConnect products, (2) managed services offerings which utilize our products and (3) term or perpetual software licenses for our Nexpose, Metasploit and AppSpider products, and associated content subscriptions for our Nexpose and Metasploit products. We also generate appliance revenue that is included in our products revenue and is associated with hardware sold with our Nexpose product to certain customers. We generate maintenance and support revenue associated with customers’ purchases of our software licenses for Nexpose, Metasploit and AppSpider. We generate professional service revenue from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services. Our deployment services educate and assist our customers on the best use and best practices to deploy our solutions.

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020		2019
	(in thousands)
Subscription revenue	$	68,625	$	46,969
Term and perpetual software licenses	10,271		8,676
Maintenance and support	8,422		9,557
Professional services	6,791		7,340
Other	231		643
Total revenue	$	94,340	$	73,185

Subscription Revenue

Subscription revenue consists of revenue from our cloud-based subscription, managed services offerings and content subscriptions associated with our software licenses.

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•We generate cloud-based subscription revenue primarily from sales of subscriptions to access our cloud platform, together with related support services to our customers. These arrangements do not provide the customer with the right to take possession of our software operating on our cloud platform at any time. Instead, customers are granted continuous access to our cloud platform over the contractual period. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our cloud-based subscription contracts generally have annual or multi-year contractual terms which are billed in advance of the annual subscription period and are non-cancellable.

•Managed services offerings consist of fees generated when we operate our software and provide our capabilities on behalf of our customers. Revenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our managed services offerings generally have annual or multi-year contractual terms which are billed in advance of the annual subscription period and are non-cancellable.

•Revenue related to our content subscriptions associated with our software licenses is recognized ratably over the contractual period.

Term and Perpetual Software Licenses

For our perpetual software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, the content subscription renewal options result in a material right with respect to the perpetual software license. As a result, the revenue attributable to the perpetual software license is recognized ratably over the customer’s estimated economic life of five years, which represents a longer period of time in comparison to the initial contractual period of maintenance and support. The estimated economic life of five years represents the period which the customer is expected to benefit from the material right. We estimated this period of benefit by taking into consideration several factors, including the terms and conditions of our customer contracts and renewals and the expected useful life of our technology.

For our term software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, we recognize the license revenue over the contractual term of the arrangement as a material right does not exist.

For our term and perpetual software licenses, which are not dependent on the continued delivery of content subscriptions, the license is considered distinct from the maintenance and support, and we therefore recognize revenue attributable to the license at the time of delivery.

Maintenance and support services are sold with our perpetual and term software licenses. As maintenance and support services are distinct from the perpetual and term software license, revenue attributable to maintenance and support services is recognized ratably over the contractual period.

Professional Services

All of our professional services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For the majority of these contracts, revenue is recognized over time based upon the proportion of work performed to date.

Other

Other revenue primarily includes revenue from delivery of appliances and other miscellaneous revenue.

Contracts with Multiple Performance Obligations

In cases where our contracts with customers contain multiple performance obligations, we account for individual performance obligations separately if they are considered distinct. The transaction price is allocated to the separate performance obligations on a relative SSP basis. We determine SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the geographic locations of our customers and selling method (i.e., partner or direct).

Contract Balances

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period consistent with the above methodology. For the three months ended March 31, 2020 and 2019, we recognized revenue of $83.4 million and $64.6 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented. Deferred revenue that will be

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realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

We receive payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Unbilled receivables include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced. If the right to consideration is based on satisfaction of another performance obligation in the contract other than the passage of time, we record a contract asset. As of March 31, 2020 and December 31, 2019, unbilled receivables of $1.0 million and $0.8 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet. As of March 31, 2020 and December 31, 2019, we had no contract assets recorded on our consolidated balance sheet.

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2020. The estimated revenues do not include unexercised contract renewals.

	Next Twelve Months		Thereafter
	(in thousands)
Subscription revenue	$	176,115	$	31,250
Term and perpetual software licenses	24,579		13,508
Maintenance and support	19,658		3,010
Professional services	11,609		—

The amounts presented in the table above primarily consist of fixed fees, which are typically recognized ratably as the performance obligation is satisfied.

Note 3. Fair Value Measurements

We measure certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and we consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.

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The following table presents our financial assets measured and recorded at fair value on a recurring basis using the above input categories:

	As of March 31, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Description:
Assets:
Money market funds	$	185,309	$	—	$	—	$	185,309
Corporate bonds	—		23,579		—		23,579
Commercial paper	—		20,009		—		20,009
Agency bonds	—		3,101		—		3,101
Asset-backed securities	—		2,499		—		2,499
Total assets	$	185,309	$	49,188	$	—	$	234,497

	As of December 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Description:
Assets:
Money market funds	$	106,781	$	—	$	—	$	106,781
Corporate bonds	—		60,878		—		60,878
U.S. government agencies	36,979		—		—		36,979
Commercial paper	—		19,966		—		19,966
Agency bonds	—		12,242		—		12,242
Asset-backed securities	—		8,980		—		8,980
Total assets	$	143,760	$	102,066	$	—	$	245,826

As of March 31, 2020, the fair value of our 1.25% convertible senior notes due 2023, as further described in Note 7, Convertible Senior Notes and Capped Calls, was $278.7 million based upon quoted market prices. We consider the fair value of the Notes to be a Level 2 measurement due to limited trading activity of the Notes. We had no other liabilities measured and recorded at fair value on a recurring basis as of March 31, 2020 or December 31, 2019.

Our investments, which are all classified as available-for-sale, consisted of the following:

	As of March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Description:
Corporate bonds	23,658		22		(101)		23,579
Commercial paper	20,009		—		—		20,009
Agency bonds	3,100		1		—		3,101
Asset-backed securities	2,499		—		—		2,499
Total assets	$	49,266	$	23	$	(101)	$	49,188

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	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Description:
U.S. government agencies	$	36,880	$	99	$	—	$	36,979
Corporate bonds	60,803		77		(2)		60,878
Commercial paper	19,965		1		—		19,966
Agency bonds	12,198		44		—		12,242
Asset-backed securities	8,986		1		(7)		8,980
Total assets	$	138,832	$	222	$	(9)	$	139,045

As of March 31, 2020, our available-for-sale investments had maturities ranging from two to nineteen months. As of December 31, 2019, our available-for-sale investments had maturities ranging from three months to two years.

For all of our investments for which the amortized cost basis was greater than the fair value at March 31, 2020 and December 31, 2019, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity. In making the determination as to whether the unrealized loss is other-than-temporary, we considered the length of time and extent the investment has been in an unrealized loss position, the financial condition and near-term prospects of the issuers, the issuers’ credit rating and the time to maturity.

Note 4. Property and Equipment

Property and equipment are recorded at cost and consist of the following:

	As of March 31, 2020		As of December 31, 2019
	(in thousands)
Computer equipment and software	$	14,037	$	13,106
Furniture and fixtures	7,921		7,522
Leasehold improvements	44,320		44,050
Total	66,278		64,678
Less accumulated depreciation	(16,203)		(14,008)
Property and equipment, net	$	50,075	$	50,670

Depreciation expense was $2.7 million and $1.9 million for the three months ended March 31, 2020 and 2019, respectively.

Note 5. Goodwill and Intangible Assets

Goodwill was $97.9 million as of March 31, 2020 and December 31, 2019.

The following table presents details of our intangible assets, which include acquired identifiable intangible assets and capitalized internal-use software costs:

		As of March 31, 2020						As of December 31, 2019
	Weighted- Average Life (years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
		(in thousands)
Intangible assets subject to amortization:
Developed technology	5.4	$	35,855	$	(17,738)	$	18,117	$	35,855	$	(16,080)	$	19,775
Customer relationships	6.7	1,000		(673)		327		1,000		(641)		359
Trade names	6.1	519		(519)		—		519		(519)		—
Non-compete agreements	2.0	40		(40)		—		40		(40)		—
Total acquired intangible assets		37,414		(18,970)		18,444		37,414		(17,280)		20,134
Internal-use software	3.0	11,347		(1,924)		9,423		9,873		(1,446)