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 September 30, 2021

OR

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

For the transition period from                      to                     

Commission File Number: 001-37496

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 October 31, 2021, there were 56,466,645 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 (Deficit)	4
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45
PART II.	OTHER INFORMATION	47
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73

i

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

RAPID7, INC.

Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data) 

	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	227,104	$	173,617
Short-term investments	77,145		138,839
Accounts receivable, net of allowance for doubtful accounts of $2,187 and $3,251 at September 30, 2021 and December 31, 2020, respectively	96,775		111,599
Deferred contract acquisition and fulfillment costs, current portion	25,863		21,536
Prepaid expenses and other current assets	27,079		27,844
Total current assets	453,966		473,435
Long-term investments	5,364		10,124
Property and equipment, net	49,034		53,114
Operating lease right-of-use assets	62,105		67,178
Deferred contract acquisition and fulfillment costs, non-current portion	48,548		43,103
Goodwill	515,297		213,601
Intangible assets, net	115,746		44,296
Other assets	10,820		8,271
Total assets	$	1,260,880	$	913,122
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	7,514	$	3,860
Accrued expenses	57,975		61,677
Operating lease liabilities, current portion	9,395		9,612
Deferred revenue, current portion	316,045		278,585
Convertible senior notes, current portion, net	44,804		—
Other current liabilities	809		—
Total current liabilities	436,542		353,734
Convertible senior notes, non-current portion, net	811,068		378,586
Operating lease liabilities, non-current portion	69,418		75,737
Deferred revenue, non-current portion	27,905		31,365
Other long-term liabilities	20,950		2,164
Total liabilities	1,365,883		841,586
Stockholders’ equity (deficit):
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized at September 30, 2021 and December 31, 2020; 0 shares issued at September 30, 2021 and December 31, 2020	—		—
Common stock, $0.01 par value per share; 100,000,000 shares authorized at September 30, 2021 and December 31, 2020; 56,928,272 and 52,712,084 shares issued at September 30, 2021 and December 31, 2020, respectively; 56,441,464 and 52,225,276 shares outstanding at September 30, 2021 and December 31, 2020, respectively	564		522
Treasury stock, at cost, 486,808 shares at September 30, 2021 and December 31, 2020	(4,764)		(4,764)
Additional paid-in-capital	591,529		692,603
Accumulated other comprehensive (loss) income	(929)		454
Accumulated deficit	(691,403)		(617,279)
Total stockholders’ equity (deficit)	(105,003)		71,536
Total liabilities and stockholders’ equity (deficit)	$	1,260,880	$	913,122

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

1

RAPID7, INC.

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue:
Products	$	131,149	$	98,559	$	359,581	$	278,538
Professional services	8,745		6,516		24,185		19,789
Total revenue	139,894		105,075		383,766		298,327
Cost of revenue:
Products	36,497		25,196		99,315		69,569
Professional services	6,973		5,832		19,753		18,254
Total cost of revenue	43,470		31,028		119,068		87,823
Total gross profit	96,424		74,047		264,698		210,504
Operating expenses:
Research and development	43,880		28,509		112,265		78,831
Sales and marketing	63,041		48,448		174,264		141,552
General and administrative	23,818		15,006		57,527		43,589
Total operating expenses	130,739		91,963		344,056		263,972
Loss from operations	(34,315)		(17,916)		(79,358)		(53,468)
Other income (expense), net:
Interest income	84		87		302		1,343
Interest expense	(2,962)		(7,328)		(11,415)		(16,707)
Other income (expense), net	(299)		143		(1,217)		(94)
Loss before income taxes	(37,492)		(25,014)		(91,688)		(68,926)
Provision for income taxes	208		527		10,021		1,005
Net loss	$	(37,700)	$	(25,541)	$	(101,709)	$	(69,931)
Net loss per share, basic and diluted	$	(0.67)	$	(0.50)	$	(1.86)	$	(1.38)
Weighted-average common shares outstanding, basic and diluted	55,976,671		51,293,210		54,743,538		50,707,553

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

2

RAPID7, INC.

Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net loss	$	(37,700)	$	(25,541)	$	(101,709)	$	(69,931)
Other comprehensive income (loss):
Change in fair value of investments	(10)		(20)		(22)		(127)
Adjustments for net losses (gains) realized and included in net loss	—		—		—		(21)
Total change in unrealized (losses) gains on investments	(10)		(20)		(22)		(148)
Change in fair value of cash flow hedges	(774)		(88)		(975)		—
Adjustments for net gains realized and included in net loss	(8)		—		(386)		—
Total change in unrealized losses on cash flow hedges	(782)		(88)		(1,361)		(88)
Total other comprehensive (loss) income	(792)		(108)		(1,383)		(236)
Comprehensive loss	$	(38,492)	$	(25,649)	$	(103,092)	$	(70,167)

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

3

RAPID7, INC.

Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited)

(in thousands)

	Common stock			Treasury stock			Additional paid-in-capital		Accumulated other comprehensive gain (loss)		Accumulated deficit		Total stockholders’ (deficit)
	Shares	Amount		Shares	Amount
Balance, June 30, 2021	55,748	$	557	487	$	(4,764)	$	562,652	$	(137)	$	(653,703)	$	(95,395)
Stock-based compensation expense	—	—		—	—		27,929		—		—		27,929
Issuance of common stock under employee stock purchase plan	74	1		—	—		4,808		—		—		4,809
Vesting of restricted stock units	377	4		—	—		(4)		—		—		—
Shares withheld for employee taxes	(42)	(1)		—	—		(4,700)		—		—		(4,701)
Issuance of common stock upon exercise of stock options	77	1		—	—		846		—		—		847
Issuance of common stock related to acquisition	207	2		—	—		(2)		—		—		—
Other comprehensive loss	—	—		—	—		—		(792)		—		(792)
Net loss	—	—		—	—		—		—		(37,700)		(37,700)
Balance, September 30, 2021	56,441	$	564	487	$	(4,764)	$	591,529	$	(929)	$	(691,403)	$	(105,003)

	Common stock			Treasury stock			Additional paid-in-capital		Accumulated other comprehensive gain (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance, June 30, 2020	50,952	$	509	487	$	(4,764)	$	657,678	$	85	$	(562,820)	$	90,688
Stock-based compensation expense	—	—		—	—		16,620		—		—		16,620
Issuance of common stock under employee stock purchase plan	132	1		—	—		3,735		—		—		3,736
Vesting of restricted stock units	369	4		—	—		(4)		—		—		—
Shares withheld for employee taxes	(43)	—		—	—		(2,534)		—		—		(2,534)
Issuance of common stock upon exercise of stock options	367	4		—	—		2,491		—		—		2,495
Other comprehensive loss	—	—		—	—		—		(108)		—		(108)
Equity component of convertible senior notes, net	—	—		—	—		(3)		—		—		(3)
Net loss	—	—		—	—		—		—		(25,541)		(25,541)
Balance, September 30, 2020	51,777	$	518	487	$	(4,764)	$	677,983	$	(23)	$	(588,361)	$	85,353

4

	Common stock			Treasury stock			Additional paid-in-capital		Accumulated other comprehensive gain (loss)		Accumulated deficit		Total stockholders’ equity (deficit)
	Shares	Amount		Shares	Amount
Balance, December 31, 2020	52,225	$	522	487	$	(4,764)	$	692,603	$	454	$	(617,279)	$	71,536
Stock-based compensation expense	—	—		—	—		72,700		—		—		72,700
Issuance of common stock under employee stock purchase plan	222	2		—	—		9,274		—		—		9,276
Vesting of restricted stock units	1,251	13		—	—		(13)		—		—		—
Shares withheld for employee taxes	(122)	(2)		—	—		(11,370)		—		—		(11,372)
Issuance of common stock upon exercise of stock options	356	4		—	—		3,364		—		—		3,368
Purchase of capped calls related to convertible senior notes	—	—		—	—		(76,020)		—		—		(76,020)
Issuance of common stock in connection with repurchase and conversion of convertible senior notes	2,200	22		—	—		(2,720)		—		—		(2,698)
Issuance of common stock in connection with inducement of convertible senior notes	35	—		—	—		2,740		—		—		2,740
Issuance of common stock related to acquisition	274	3		—	—		(3)		—		—		—
Cumulative-effect adjustment for the adoption of ASU 2020-06	—	—		—	—		(99,026)				27,585		(71,441)
Other comprehensive loss	—	—		—	—		—		(1,383)		—		(1,383)
Net loss	—	—		—	—		—		—		(101,709)		(101,709)
Balance, September 30, 2021	56,441	$	564	487	$	(4,764)	$	591,529	$	(929)	$	(691,403)	$	(105,003)

	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	—	—		—	—		45,449		—		—		45,449
Issuance of common stock under employee stock purchase plan	234	2		—	—		7,080		—		—		7,082
Vesting of restricted stock units	1,092	11		—	—		(11)		—		—		—
Shares withheld for employee taxes	(112)	—		—	—		(5,984)		—		—		(5,984)
Issuance of common stock upon exercise of stock options	652	6		—	—		6,222		—		—		6,228
Other comprehensive loss	—	—		—	—		—		(236)		—		(236)
Equity component of convertible senior notes, net	—	—		—	—		46,832		—		—		46,832
Purchase of capped calls related to convertible senior notes	—	—		—	—		(27,255)		—		—		(27,255)
Net loss	—	—		—	—		—		—		(69,931)		(69,931)
Balance, September 30, 2020	51,777	$	518	487	$	(4,764)	$	677,983	$	(23)	$	(588,361)	$	85,353

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

5

RAPID7, INC.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(101,709)	$	(69,931)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	23,513		16,347
Amortization of debt discount and issuance costs	2,886		12,213
Stock-based compensation expense	73,872		46,921
Deferred income taxes	3,924		—
Induced conversion expense	2,740		—
Other	1,655		1,981
Changes in operating assets and liabilities:
Accounts receivable	23,522		13,228
Deferred contract acquisition and fulfillment costs	(9,772)		(5,278)
Prepaid expenses and other assets	3,091		1,352
Accounts payable	2,079		1,922
Accrued expenses	(4,554)		(3,079)
Deferred revenue	24,389		(10,456)
Other liabilities	3,593		(915)
Net cash provided by operating activities	49,229		4,305
Cash flows from investing activities:
Business acquisition, net of cash acquired	(358,420)		(125,826)
Purchases of property and equipment	(4,835)		(7,125)
Capitalization of internal-use software costs	(7,162)		(4,407)
Purchases of investments	(59,308)		(108,710)
Sales/maturities of investments	124,838		155,599
Other investments	(3,000)		—
Net cash used in investing activities	(307,887)		(90,469)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs paid of $14,976 and $7,201 for the nine months ended September 30, 2021 and 2020, respectively	585,024		222,799
Purchase of capped calls related to convertible senior notes	(76,020)		(27,255)
Payments of debt issuance costs	—		(411)
Payments for repurchase and conversion of convertible senior notes	(184,649)		—
Payments related to business acquisitions	(12,118)		(150)
Taxes paid related to net share settlement of equity awards	(11,372)		(5,984)
Proceeds from employee stock purchase plan	9,276		7,082
Proceeds from stock option exercises	3,279		6,219
Net cash provided by financing activities	313,420		202,300
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(849)		160
Net increase in cash, cash equivalents and restricted cash	53,913		116,296
Cash, cash equivalents and restricted cash, beginning of period	173,617		123,413
Cash, cash equivalents and restricted cash, end of period	$	227,530	$	239,709
Supplemental cash flow information:
Cash paid for interest on convertible senior notes	$	4,758	$	2,875
Cash paid for income taxes, net of refunds	$	824	$	333
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	227,104	$	239,409
Restricted cash included in prepaid expenses and other assets	426		$	300
Total cash, cash equivalents and restricted cash	$	227,530	$	239,709

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

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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”) are 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, 2020 filed with the SEC on February 26, 2021.

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 and nine months ended September 30, 2021 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. The management estimates include, but are not limited to 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 and recoverability of long-lived assets, the valuation of allowance for doubtful accounts, the valuation of stock-based compensation, the fair value of assets acquired and liabilities assumed in business combinations, 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 has resulted in a sustained global slowdown of economic activity that has decreased demand for a broad variety of goods and services, including from our customers. While we have not experienced significant disruptions from the COVID-19 pandemic during the three and nine months ended September 30, 2021, we are unable to accurately predict the extent to which the COVID-19 pandemic may impact our business, results of operations and financial condition going forward. 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.

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, 2020. Other than the impact of our early adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06) on January 1, 2021, as further detailed in Note 10, Debt, there have been no additional changes to the significant accounting policies during the three and nine-month periods ended September 30, 2021.

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Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. We early adopted this standard on January 1, 2021 under the modified retrospective basis. Refer to Note 10, Debt, for further details of the impact the adoption of this standard had on our consolidated balance sheet.

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. We adopted this standard on January 1, 2021 and there was no impact to our consolidated financial statements as a result of the adoption.

Accounting Pronouncements Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) to alternative reference rates. We may elect to apply the amendments prospectively through December 31, 2022. The impact to our consolidated financial statements from the adoption of this standard is expected to be immaterial.

Note 2. Revenue from Contracts with Customers

We generate revenue primarily from: (1) subscriptions from the sale of cloud-based subscriptions, managed services, term software licenses, content subscriptions and maintenance and support associated with our software licenses, (2) perpetual software licenses, and (3) professional services from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services.

The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2021 and 2020:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)
Subscriptions	$	129,157	$	95,848	$	353,338	$	269,987
Perpetual software licenses	1,840		2,520		5,990		7,926
Professional services	8,745		6,516		24,185		19,789
Other	152		191		253		625
Total revenue	$	139,894	$	105,075	$	383,766	$	298,327

Subscriptions

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

•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

8

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.

•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 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.

•Content subscriptions and our maintenance and support services are sold with our perpetual and term software licenses. Revenue related to our content subscriptions associated with our software licenses is recognized ratably over the contractual period. Maintenance and support services are distinct from the perpetual and term software license and revenue attributable to maintenance and support services is recognized ratably over the contractual period.

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 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.

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.

Contracts with Multiple Performance Obligations

The majority of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (SSP) basis. We determine SSP of our products and services based on our overall pricing objectives using all information reasonably available to us, taking into consideration market conditions and other factors, including the geographic locations of our customers, negotiated discounts from price lists and selling method (i.e., partner or direct). When available, we use directly observable stand-alone transactions to determine SSP. When not regularly sold on a stand-alone basis, we estimate SSP for our products and services utilizing historical sales data, including discounts from list price. The historical data is aggregated and analyzed by geographic location and selling method to establish a median or average price. Once SSP is established it is applied consistently to all transactions including that product or service utilizing a portfolio approach.

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 September 30, 2021 and 2020, we recognized revenue of $117.5 million and $90.4 million, respectively, and for the nine months ended September 30, 2021 and 2020, we recognized revenue of $237.5 million and $197.4 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented. Deferred revenue that will be 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

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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 September 30, 2021 and December 31, 2020, unbilled receivables of $1.6 million and $2.0 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet. As of September 30, 2021 and December 31, 2020, 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 September 30, 2021. The estimated revenues do not include unexercised contract renewals.

	Next Twelve Months		Thereafter
	(in thousands)
Subscriptions	$	338,145	$	103,261
Perpetual software licenses	4,901		1,055
Professional services	16,088		1,412
Total	$	359,134	$	105,728

Note 3. Business Combinations

IntSights

On July 16, 2021, we acquired IntSights Cyber Intelligence Ltd. (IntSights), a provider of contextualized external threat intelligence and proactive threat remediation, for a purchase price with an aggregate fair value of $322.2 million. The purchase consideration consisted of $319.2 million in cash paid at closing, $5.6 million in deferred cash payments and a $2.6 million receivable for estimated purchase price adjustments. The deferred cash payments will be held by us to satisfy indemnification obligations and certain post-closing purchase price adjustments payable within eighteen months of the acquisition date. Additionally, we issued an aggregate of 206,608 shares of our common stock to the founders of IntSights with a fair value of $21.0 million. The 206,608 shares of common stock will be accounted for as stock-based compensation expense over a 30-month period as continued service was required. In the three months ended September 30, 2021, we recognized stock-based compensation expense related to such shares in the amount of $1.8 million.

The following table summarizes the preliminary allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):

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Consideration:
Cash	$	319,194
Deferred cash consideration	5,575
Estimated purchase price adjustment receivable	(2,595)
Fair value of total consideration transferred	$	322,174
Recognized amount of identifiable assets acquired and liabilities assumed:
Cash, cash equivalents and restricted cash	13,194
Accounts receivable	6,352
Prepaid and other current assets	1,271
Operating lease right-of-use assets	1,261
Property and equipment, net	565
Other assets	268
Accounts payable and other current liabilities	(9,069)
Operating lease liabilities	(1,261)
Deferred revenue	(9,469)
Deferred tax liabilities	(7,017)
Intangible assets	65,200
Total identifiable net assets assumed	61,295
Goodwill	260,879
Total purchase price allocation	$	322,174

These preliminary amounts are subject to subsequent adjustment as we obtain additional information.

The fair value of identifiable intangible assets was based on valuations using the income approach. The estimated fair value and useful life of identifiable intangible assets are as follows:

	Amount		Weighted Average Life
	(in thousands)		(in years)
Developed technology	$	54,700	6
Customer relationships	9,300		4
Trade name	1,200		2
Total identifiable intangible assets	$	65,200

The excess of the purchase price over the tangible assets acquired, identifiable intangible assets acquired and assumed liabilities was recorded as goodwill. We believe the goodwill is attributable to expanded product offerings resulting from the integration of the technology acquired with our existing product offerings and increased opportunities to successfully market and sell these new products and features to our customer base. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible assets were not deductible for tax purposes.

Following the acquisition, we granted to certain retained employees of IntSights restricted stock units (RSUs) for an aggregate of 194,466 shares of our common stock, which will vest over a maximum three-year period subject to such employees' continued service with us. The RSUs are expensed as stock-based compensation expense over the required service periods, assuming the service conditions are achieved.

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In the three and nine months ended September 30, 2021, we recorded acquisition-related transaction costs of $4.9 million and $5.9 million, respectively, related to the acquisition of IntSights to general and administrative expense.

Our revenue and net loss attributable to the IntSights business for the three months ended September 30, 2021 was $3.8 million and $11.0 million, respectively.

Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of our operations and IntSights, on a pro forma basis, as though we had acquired IntSights on January 1, 2020. The unaudited pro forma financial information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, including an adjustment to revenue for the deferred revenue fair value adjustment, amortization expense from acquired intangibles assets, reversal of acquisition-related expenses and the stock-compensation expense recorded to retain certain employees.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)
Revenue	$	143,785	$	109,515	$	400,619	$	309,406
Net loss	(32,116)		(36,030)		(119,183)		(110,849)

Velocidex

On April 12, 2021, we acquired Velocidex Enterprises Pty Ltd (Velocidex), a leading open-source technology and community used for endpoint monitoring, digital forensics, and incident response. The purchase price consisted of $2.7 million paid in cash and $0.3 million in deferred cash payments. The purchase price was allocated to developed technology intangible asset which has an estimated useful life of 6 years.

Alcide.IO Ltd.

On January 28, 2021, we acquired Alcide.IO Ltd. (Alcide), a leading provider of Kubernetes security, for a purchase consideration of $50.5 million, which was funded in cash.

The following table summarizes the preliminary allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Purchase price	$	50,538
Recognized amount of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	818
Other current assets	163
Deferred tax asset, long-term	1,621
Other assets	208
Accounts payable and other current liabilities	(3,489)
Intangible assets	10,400
Total identifiable net assets assumed	9,721
Goodwill	40,817
Total purchase price allocation	$	50,538

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We identified developed technology as the sole acquired intangible asset. The estimated fair value of the developed technology intangible asset was $10.4 million which was based on a valuation using the income approach. The estimated useful life of the developed technology is 6 years.

The excess of the purchase price over the tangible assets acquired, identifiable intangible assets acquired and assumed liabilities was recorded as goodwill. We believe that the amount of goodwill reflects the expected synergistic benefits of being able to leverage the integration of the technology acquired with our existing product offerings and being able to successfully market and sell these new features to our customer base. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible assets were not deductible for tax purposes.

Following the acquisition, certain retained employees of Alcide received an aggregate of 96,127 RSUs, which will vest over a maximum of three-year period, subject to such employees' continued service with us. The RSUs are expensed as stock-based compensation expense over the required service periods, assuming the service conditions are achieved.