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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, 2023
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: 001-39051
_________________________________________________________
Datadog, Inc.
(Exact Name of Registrant as Specified in its Charter)
_________________________________________________________
Delaware27-2825503
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
620 8th Avenue, 45th Floor
New York,NY10018
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (866) 329-4466
_________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.00001 per shareDDOGThe Nasdaq Stock Market LLC
(Nasdaq Global Select 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 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 filerSmall 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 November 1, 2023, there were 302,163,623 shares of the registrant’s Class A common stock and 26,390,053 shares of the registrant’s Class B common stock, each with a par value of $0.00001 per share, outstanding.







TABLE OF CONTENTS
Page
 
 

1





SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our expectations regarding our revenue, expenses and other operating results;
our ability to acquire new customers and successfully retain existing customers;
our ability to increase usage of our platform and upsell and cross sell additional products;
our ability to achieve or sustain our profitability;
future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
the costs and success of our sales and marketing efforts, and our ability to promote our brand;
our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;
our ability to effectively manage our growth, including any international expansion;
our ability to protect our intellectual property rights and any costs associated therewith;
our ability to compete effectively with existing competitors and new market entrants;
the growth rates of the markets in which we compete; and
the potential impact of general market, political, economic, and business conditions in our industry, or reductions in information technology spending, on our business, results of operations and financial condition.

You should not rely on forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described under the header “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained herein. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made, and we undertake no obligation to update them to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
Unless the context otherwise indicates, references in this report to the terms “Datadog”, “the Company,” “we,” “our” and “us” refer to Datadog, Inc. and its subsidiaries.
We may announce material business and financial information to our investors using our investor relations website (investors.datadoghq.com). We therefore encourage investors and others interested in Datadog to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls.
2





PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DATADOG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
September 30,
2023
December 31,
2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$261,309 $338,985 
Marketable securities2,080,380 1,545,341 
Accounts receivable, net of allowance for credit losses of $11,091 and $5,626 as of
September 30, 2023 and December 31, 2022, respectively
400,649 399,551 
Deferred contract costs, current39,805 33,054 
Prepaid expenses and other current assets37,341 27,303 
Total current assets2,819,484 2,344,234 
Property and equipment, net157,689 125,346 
Operating lease assets121,913 87,629 
Goodwill348,697 348,277 
Intangible assets, net10,145 16,365 
Deferred contract costs, non-current62,976 55,338 
Restricted cash 3,303 
Other assets22,398 24,360 
TOTAL ASSETS$3,543,302 $3,004,852 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable$85,362 $23,474 
Accrued expenses and other current liabilities101,837 171,158 
Operating lease liabilities, current18,777 22,092 
Deferred revenue, current636,500 543,024 
Total current liabilities842,476 759,748 
Operating lease liabilities, non-current127,800 76,582 
Convertible senior notes, net741,386 738,847 
Deferred revenue, non-current17,505 12,944 
Other liabilities7,659 6,226 
Total liabilities1,736,826 1,594,347 
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY:
Class A common stock, $0.00001 par value per share; 2,000,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 301,974,045 and 293,573,825 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
3 3 
Class B common stock, $0.00001 par value per share; 310,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 26,271,614 and 25,616,018 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
  
Additional paid-in capital2,028,053 1,625,190 
Accumulated other comprehensive loss(13,889)(12,422)
Accumulated deficit(207,691)(202,266)
Total stockholders’ equity1,806,476 1,410,505 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$3,543,302 $3,004,852 
See accompanying notes to condensed consolidated financial statements.
3





DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Revenue$547,536 $436,533 $1,538,710 $1,205,701 
Cost of revenue103,319 93,599 305,079 249,986 
Gross profit444,217 342,934 1,233,631 955,715 
Operating expenses:
Research and development240,225 205,388 709,197 533,695 
Sales and marketing156,870 129,493 449,296 345,929 
General and administrative51,352 39,395 136,344 100,158 
Total operating expenses448,447 374,276 1,294,837 979,782 
Operating loss(4,230)(31,342)(61,206)(24,067)
Other income (loss):
Interest expense(1,303)(3,728)(5,010)(13,516)
Interest income and other income, net29,833 12,011 69,184 25,367 
Other income, net28,530 8,283 64,174 11,851 
Income (loss) before provision for income taxes24,300 (23,059)2,968 (12,216)
Provision for income taxes(1,670)(2,926)(8,393)(8,910)
Net income (loss)$22,630 $(25,985)$(5,425)$(21,126)
Net income (loss) attributable to common stockholders$22,630 $(25,985)$(5,425)$(21,126)
Basic net income (loss) per share$0.07 $(0.08)$(0.02)$(0.07)
Diluted net income (loss) per share$0.06 $(0.08)$(0.02)$(0.07)
Weighted average shares used in calculating basic net income (loss) per share:325,557 315,990 322,395 314,753 
Weighted average shares used in calculating diluted net income (loss) per share:351,309 315,990 322,395 314,753 
See accompanying notes to condensed consolidated financial statements.
4





DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Net income (loss)$22,630 $(25,985)$(5,425)$(21,126)
Other comprehensive loss:
Foreign currency translation adjustments(2,822)(5,678)(2,761)(8,782)
Unrealized gain (loss) on available-for-sale marketable securities1,251 (1,137)1,294 (12,712)
Other comprehensive loss(1,571)(6,815)(1,467)(21,494)
Comprehensive income (loss)$21,059 $(32,800)$(6,892)$(42,620)
See accompanying notes to condensed consolidated financial statements.
5





DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
(unaudited)

Class A and Class B
Common Stock
Additional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders'
Equity (Deficit)
SharesAmount
BALANCE—June 30, 2023324,576,728 $3 $1,891,995 $(12,318)$(230,321)$1,649,359 
Issuance of common stock upon exercise of stock options2,360,179 — 9,873 — — 9,873 
Vesting of restricted and performance stock units1,311,795 — — — — — 
Issuance (retirement) of restricted shares of common stock from acquisition
(3,043)— — — — — 
Stock-based compensation— — 126,185 — — 126,185 
Change in accumulated other comprehensive loss— — — (1,571)— (1,571)
Net income— — — — 22,630 22,630 
BALANCE—September 30, 2023328,245,659 $3 $2,028,053 $(13,889)$(207,691)$1,806,476 

Class A and Class B
Common Stock
Additional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders'
Equity (Deficit)
SharesAmount
BALANCE—June 30, 2022316,415,782 $3 $1,380,873 $(18,509)$(147,247)$1,215,120 
Issuance of common stock upon exercise of stock options415,291 — 1,837 — — 1,837 
Vesting of restricted stock units693,673 — — — — — 
Stock-based compensation— — 105,282 — — 105,282 
Change in accumulated other comprehensive loss— — — (6,815)— (6,815)
Net loss— — — — (25,985)(25,985)
BALANCE—September 30, 2022317,524,746 $3 $1,487,992 $(25,324)$(173,232)$1,289,439 

6





DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
(in thousands, except share data)
(unaudited)

 Class A and Class B
Common Stock
Additional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders' Equity (Deficit)
SharesAmount
BALANCE—December 31, 2022319,189,843 $3 $1,625,190 $(12,422)$(202,266)$1,410,505 
Issuance of common stock upon exercise of stock options5,103,045 — 17,390 — — 17,390 
Vesting of restricted and performance stock units3,540,441 — — — — — 
Issuance (retirement) of restricted shares of common stock from acquisitions
127,119 — — — — — 
Issuance of common stock under the Employee Stock Purchase Plan285,211 — 19,986 — — 19,986 
Stock-based compensation— — 365,487 — — 365,487 
Change in accumulated other comprehensive loss
— — — (1,467)— (1,467)
Net loss— — — — (5,425)(5,425)
BALANCE—September 30, 2023328,245,659 $3 $2,028,053 $(13,889)$(207,691)$1,806,476 

Class A and Class B
Common Stock
Additional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders'
Equity (Deficit)
SharesAmount
BALANCE—December 31, 2021313,365,437 $3 $1,197,136 $(3,830)$(152,106)$1,041,203 
Issuance of common stock upon exercise of stock options2,089,044 — 8,253 — — 8,253 
Vesting of early exercised stock options— — 33 — — 33 
Vesting of restricted stock units1,732,731 — — — — — 
Issuance of restricted shares of common stock from acquisitions191,019 — 7,608 — — 7,608 
Issuance of common stock under the Employee Stock Purchase Plan146,515 — 13,557 — — 13,557 
Stock-based compensation— — 261,405 — — 261,405 
Changes in accumulated other comprehensive loss— — — (21,494)— (21,494)
Net loss— — — — (21,126)(21,126)
BALANCE—September 30, 2022317,524,746 $3 $1,487,992 $(25,324)$(173,232)$1,289,439 

See accompanying notes to condensed consolidated financial statements
7





DATADOG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss$(5,425)$(21,126)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization32,434 24,825 
(Accretion) amortization of (discounts) premiums on marketable securities(26,256)7,217 
Amortization of issuance costs2,539 2,525 
Amortization of deferred contract costs28,223 19,941 
Stock-based compensation, net of amounts capitalized354,179 250,645 
Non-cash lease expense19,332 15,236 
Allowance for credit losses on accounts receivable9,097 3,929 
Loss on disposal of property and equipment419 1,152 
Changes in operating assets and liabilities:
Accounts receivable, net(10,194)(83,738)
Deferred contract costs(42,612)(34,671)
Prepaid expenses and other current assets(10,314)(11,280)
Other assets1,243 (1,920)
Accounts payable57,268 2,483 
Accrued expenses and other liabilities(68,242)27,350 
Deferred revenue98,037 101,398 
Net cash provided by operating activities439,728 303,966 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities(2,011,857)(1,067,732)
Maturities of marketable securities1,467,975 857,193 
Proceeds from sale of marketable securities36,393 2,090 
Purchases of property and equipment(17,191)(25,207)
Capitalized software development costs(26,279)(21,592)
Cash paid for acquisition of businesses; net of cash acquired(6,369)(40,302)
Net cash used in investing activities(557,328)(295,550)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options17,404 8,267 
Proceeds from issuance of common stock under the employee stock purchase plan19,986 13,557 
Repayments of convertible senior notes (3)
Net cash provided by financing activities37,390 21,821 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(769)(6,866)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH(80,979)23,371 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period342,288 274,463 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period$261,309 $297,834 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes$14,163 $1,082 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued property and equipment purchases$5,147 $1,662 
Stock-based compensation included in capitalized software development costs$11,308 $10,760 
Vesting of early exercised options$ $33 
Issuance of restricted shares of common stock for the acquisition of businesses$ $7,608 
Acquisition holdback$750 $5,473 
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOWN IN THE STATEMENTS OF CASH FLOWS ABOVE:
Cash and cash equivalents$261,309 $294,815 
Restricted cash 3,019 
Total cash, cash equivalents and restricted cash$261,309 $297,834 
See accompanying notes to condensed consolidated financial statements.
8





DATADOG, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
Description of Business
Datadog, Inc. (“Datadog” or the “Company”) was incorporated in the State of Delaware on June 4, 2010. The Company is the observability and security platform for cloud applications. The Company’s SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management, real-user monitoring, and many other capabilities to provide unified, real-time observability and security of its customers’ entire technology stack. The Company is headquartered in New York City and has various other global office locations.
2. Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Condensed Consolidated Financial Information
The unaudited condensed consolidated financial statements include the accounts of Datadog, Inc. and its wholly-owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2023 or for any other interim period or for any other future year. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on February 24, 2023 (the “Annual Report”).
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Datadog, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates include the fair value of marketable securities, the allowance for credit losses, the fair value of acquired assets and assumed liabilities from business combinations, useful lives of property, equipment, software and finite lived intangibles, stock-based compensation, valuation of long-lived assets and their recoverability, including goodwill, the incremental borrowing rate for operating leases, estimated expected period of benefit for deferred contract costs, fair value of the liability component of the convertible debt, realization of deferred tax assets and uncertain tax positions, revenue recognition and the allocation of overhead costs between cost of revenue and operating expenses. The Company bases its estimates on historical experience and also on assumptions that management considers reasonable. The Company assesses these estimates on a regular basis; however, actual results could materially differ from these estimates.

9





3. Marketable Securities
The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents on the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023
Amortized
Cost
Unrealized
Gain
Unrealized
Losses
Fair
Value
Corporate debt securities$656,522 $34 $(3,810)$652,746 
Commercial paper667,820 6 (291)667,535 
Certificates of deposit237,073 58 (75)237,056 
U.S. government treasury securities365,505  (3,712)361,793 
U.S. government agency securities162,226  (976)161,250 
Marketable securities$2,089,146 $98 $(8,864)$2,080,380 

December 31, 2022
Amortized
Cost
Unrealized
Gain
Unrealized
Losses
Fair
Value
Corporate debt securities$813,598 $64 $(7,554)$806,108 
Commercial paper357,030 64 (821)356,273 
Certificates of deposit174,080 37 (587)173,530 
U.S. government treasury securities120,977  (1,099)119,878 
U.S. government agency securities89,718 12 (178)89,552 
Marketable securities$1,555,403 $177 $(10,239)$1,545,341 
As of September 30, 2023, the fair values of available-for-sale marketable securities, by remaining contractual maturity, were as follows (in thousands):
Due within one year$1,606,119 
Due in one year through five years474,261 
Total$2,080,380 
The Company does not believe that any unrealized losses are attributable to credit-related factors based on its evaluation of available evidence. To determine whether a decline in value is related to credit loss, the Company evaluates, among other factors: the extent to which the fair value is less than the amortized cost basis, changes to the rating of the security by a rating agency and any adverse conditions specifically related to an issuer of a security or its industry. Unrealized gains and losses on marketable securities are presented net of tax.
10





4. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):
Fair Value Measurement as of September 30, 2023
Level 1Level 2Level 3Total
Financial Assets:
Cash equivalents:
Money market funds$223,250 $ $ $223,250 
Corporate debt securities 10,605  10,605 
Marketable Securities:
Corporate debt securities 652,746  652,746 
Commercial paper 667,535  667,535 
Certificates of deposit 237,056  237,056 
U.S. government treasury securities 361,793  361,793 
U.S. government agency securities 161,250  161,250 
Total financial assets$223,250 $2,090,985 $ $2,314,235 
Fair Value Measurement as of December 31, 2022
Level 1Level 2Level 3Total
Financial Assets:
Cash equivalents:
Money market funds$302,902 $ $ $302,902 
Corporate debt securities 2,493  2,493 
Marketable Securities:
Corporate debt securities 806,108  806,108 
Commercial paper 356,273  356,273 
Certificates of deposit 173,530  173,530 
U.S. government treasury securities 119,878  119,878 
U.S. government agency securities 89,552  89,552 
Total financial assets$302,902 $1,547,834 $ $1,850,736 
The Company classifies its highly liquid money market funds and securities purchased within three months of maturity within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its commercial paper, corporate debt securities, certificates of deposit, U.S. government agency securities, and U.S. government treasury securities within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.
In addition to its cash equivalents and marketable securities, the Company measures the fair value of its outstanding convertible senior notes on a quarterly basis for disclosure purposes. The Company considers the fair value of the convertible senior notes to be a Level 2 measurement due to limited trading activity of the convertible senior notes. Refer to Note 7, Convertible Senior Notes, to the condensed consolidated financial statements for further details.
11





5. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
September 30,
2023
December 31,
2022
Computers and equipment$34,632 $33,376 
Furniture and fixtures15,460 13,315 
Leasehold improvements44,127 27,683 
Capitalized software development costs178,637 134,890 
Total property and equipment$272,856 $209,264 
Less: accumulated depreciation and amortization(115,167)(83,918)
Total property and equipment, net$157,689 $125,346 
The Company capitalizes costs related to the development of computer software for internal use and is included in capitalized software development costs within property and equipment, net.
Depreciation and amortization expense was approximately $9.4 million and $25.8 million for the three and nine months ended September 30, 2023, respectively. Depreciation and amortization expense was approximately $7.2 million and $19.4 million for the three and nine months ended September 30, 2022, respectively.
6. Acquisitions, Intangible Assets and Goodwill
2023 Acquisitions
In April 2023, the Company entered into a purchase agreement for the acquisition of a business and the transaction was accounted for as a business combination in accordance with ASC 805, Business Combinations. The Company does not consider this acquisition to be material.
2022 Acquisitions
During the year ended December 31, 2022, the Company entered into four purchase agreements for acquisitions of businesses, each of which were accounted for as business combinations in accordance with ASC 805, Business Combinations. The Company does not consider these acquisitions to be material, individually or in aggregate. The total purchase price was allocated to intangible assets in the amount of $8.2 million and goodwill in the amount of $56.6 million based on the respective estimated fair values. The resulting goodwill from each of the agreements is not deductible for income tax purposes. Pro forma results of operations from these acquisitions have not been presented because they were not material to the consolidated results of operations.
Intangible Assets
Intangible assets, net consisted of the following (in thousands):
September 30, 2023
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortization
Period
Developed technology$23,482 $(14,595)$8,887 3 Years
Customer relationships3,300 (2,042)1,258 4 Years
Total$26,782 $(16,637)$10,145 
12





December 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortization
Period
Developed technology$24,460 $(9,970)$14,490 3 years
Customer relationships3,300 (1,425)1,875 4 years
Total$27,760 $(11,395)$16,365 
Intangible amortization expense was approximately $2.2 million and $2.1 million for the three months ended September 30, 2023 and 2022, respectively, and $6.6 million and $5.4 million for the nine months ended September 30, 2023 and 2022, respectively.
As of September 30, 2023, future amortization expense by year is expected to be as follows (in thousands):
 Amount
Remainder of 2023$2,172 
20245,866 
20252,044 
202663 
Total$10,145 
Goodwill
The changes in the carrying amount of goodwill were as follows (in thousands):
Amount
Balance as of December 31, 2022$348,277 
2023 Acquisition2,029 
Foreign currency translation adjustments(1,609)
Balance as of September 30, 2023$348,697 
7. Convertible Senior Notes
On June 2, 2020, the Company issued $747.5 million aggregate principal amount of 0.125% convertible senior notes due 2025 (the “2025 Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Securities Act”). The total net proceeds from the sale of the 2025 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $730.2 million. The 2025 Notes bear interest at a rate of 0.125% per year, payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The 2025 Notes will mature on June 15, 2025, unless earlier converted, redeemed or repurchased.
Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding March 15, 2025 only under the following circumstances:
(1)during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s 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;
(2)during the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day;
(3)if the Company calls such 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
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(4)upon the occurrence of specified corporate events, as set forth in the indenture governing the 2025 Notes (“the Indenture”).
On or after March 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in integral multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. The conversion rate for the 2025 Notes is initially 10.8338 shares of Class A common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $92.30 per share of Class A common stock), subject to adjustment as set forth in the Indenture. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of Class A common stock, the amount of cash and shares of Class A common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 30 trading day observation period as described in the Indenture. In addition, if specific corporate events occur prior to the applicable maturity date, or if the Company elects to redeem the 2025 Notes, the Company will increase the conversion rate for a holder who elects to convert their notes in connection with such a corporate event or redemption in certain circumstances.
During the three months ended September 30, 2023, the conditional conversion feature of the 2025 Notes was not triggered as the last reported sale price of the Company's Class A common stock was not greater than or equal to 130% of the conversion price 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 quarter ended September 30, 2023. Therefore the 2025 Notes are not convertible, in whole or in part, at the option of the holders between October 1, 2023 through December 31, 2023. Whether the 2025 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future.
When a conversion notice is received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination thereof. Since the issuance of the 2025 Notes, the Company received and settled an immaterial amount of conversion notices from the holders in cash. As of September 30, 2023, the 2025 Notes were classified as long-term debt on the Company's condensed consolidated balance sheet.
The Company may redeem for cash all or any portion of the 2025 Notes prior to the 31st scheduled trading day immediately preceding the maturity date, at its option, if the last reported sale price of its Class A common stock was at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
In accounting for the issuance of the 2025 Notes, the 2025 Notes were separated into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the respective 2025 Notes. This difference represents the debt discount that is amortized to interest expense over the contractual terms of the 2025 Notes using the effective interest rate method. The carrying amount of the equity component representing the conversion option was $177.2 million. The equity component was recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the debt issuance costs of $17.3 million related to the 2025 Notes, the Company allocated the total amount incurred to the liability and equity components of the 2025 Notes in the same proportion as the allocation of the proceeds. Issuance costs attributable to the liability component were $13.2 million and will be amortized, along with the debt discount to interest expense over the contractual term of the 2025 Notes at an effective interest rate of 5.97%. Issuance costs attributable to the equity component were $4.1 million and are netted against the equity component in additional paid-in capital.
On January 1, 2021 the Company adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU No. 2020-06”). As a result of the adoption, the debt conversion option of $177.2 million and debt issuance costs of $4.1 million previously attributable to the equity component are no longer presented in equity. Similarly, the debt discount, that is equal to the carrying value of the embedded conversion feature upon issuance, is no longer amortized into income as interest expense over the life of the instrument. This resulted in a $16.8 million decrease to the opening balance of accumulated deficit, a $173.1 million decrease to the opening balance of additional paid-in capital and a $156.3 million increase to the opening balance of convertible senior notes, net on the condensed consolidated balance sheet.
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The net carrying amount of the liability component of the 2025 Notes was as follows (in thousands):
September 30,
2023
December 31,
2022
Convertible senior notes, net:
Principal$747,496 $747,496 
Unamortized debt issuance costs(6,110)(8,649)
Net carrying amount$741,386 $738,847 
As of September 30, 2023, the total estimated fair value of the 2025 Notes was approximately $881.0 million. The fair value was determined based on the closing trading price or quoted market price per $100 of the 2025 Notes as of the last day of trading for the period. The fair value of the 2025 Notes is primarily affected by the trading price of the Company’s Class A common stock and market interest rates.
The following table sets forth the interest expense related to the 2025 Notes for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Contractual interest expense$233 $234 $701 $701 
Amortization of issuance costs848 843 2,539 2,525 
Total$1,081 $1,077 $3,240 $3,226 
Capped Calls
In connection with the pricing of the 2025 Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (“Capped Calls”). The Capped Calls each have an initial strike price of approximately $92.30 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2025 Notes. The Capped Calls have initial cap prices of $151.04 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s Class A common stock upon any conversion of the 2025 Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 8.1 million shares of the Company’s Class A common stock. For accounting purposes, the Capped Calls are separate transactions, and not part of the 2025 Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $89.6 million incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital and will not be remeasured.
8. Commitments and Contingencies
Non-cancelable Material Commitments—During the nine months ended September 30, 2023, other than certain non-cancelable operating leases described in Note 9, Leases, there have been no other material changes outside the ordinary course of business to the Company’s contractual obligations and commitments from those disclosed in the Annual Report.
401(k) Plan—The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. The Company is responsible for administrative costs of the 401(k) plan and makes matching contributions to the 401(k) plan. For the three and nine months ended September 30, 2023, the Company incurred expense of $1.6 million and $4.7 million, respectively, for matching contributions. For the three and nine months ended September 30, 2022, the Company incurred expense of $1.6 million and $4.3 million, respectively, for matching contributions.
Legal Matters—The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings will have a material adverse effect on its financial position or results of operations.
Indemnification—The Company enters into indemnification provisions under some agreements with other parties in the ordinary course of business, including business partners, investors, contractors, customers and the Company’s officers, directors and certain employees. The Company has agreed to indemnify and defend the indemnified party claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claim because of the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum
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potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. To date, losses recorded in the Company’s condensed consolidated statements of operations in connection with the indemnification provisions have not been material.
9. Leases
The Company has entered into various non-cancelable operating leases for its facilities expiring between 2023 and 2033. Certain lease agreements contain an option for the Company to renew a lease for a term of up to three years or an option to terminate a lease early within one year. The Company considers these options, which may be elected at the Company’s sole discretion, in determining the lease term on a lease-by-lease basis.
Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.
The components of lease cost recognized within the Company’s condensed consolidated statements of operations were as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Operating lease cost(1)
$9,330 $6,438 $24,779 $17,703 
Short-term lease cost2,651 2,789 7,370 6,113 
1)Includes non-cash lease expense of $7.0 million and $5.5 million for the three months ended September 30, 2023 and 2022, respectively, and $19.3 million and $15.2 million for the nine months ended September 30, 2023 and 2022, respectively.
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows (in thousands):
Nine Months Ended
September 30,
20232022
Cash paid for amounts included in measurement of lease liabilities$10,916 $18,198 
Operating lease assets obtained in exchange for new lease liabilities53,660 44,013 
Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands):
 Amount
Remainder of 2023$537 
202413,369 
202530,769 
202627,691 
202727,182 
2028 and beyond96,947 
Total lease payments$196,495 
Less: imputed interest(49,918)
Present value of lease liabilities$146,577 
As of September 30, 2023, the Company had various operating leases that had not yet commenced, which are excluded from the table above. The operating leases will commence between fiscal year 2024 and 2025 with total undiscounted future payments of $140.3 million and a weighted-average lease term of 9 years.
Weighted average remaining lease term and discount rate for the Company’s operating leases are as follows:
September 30,
2023
Weighted-average remaining lease term (years)6.9
Weighted-average discount rate5.97 %
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10. Revenue
Geographical Information
Revenue by location is determined by the billing address of the customer. The following table sets forth revenue by geographic area (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
North America(1)
$381,194 $312,676 $1,078,374 $863,697 
International166,342 123,857 460,336 342,004 
Total$547,536 $436,533 $1,538,710 $1,205,701 
1)Includes revenue from the United States of $361.3 million and $296.0 million for the three months ended September 30, 2023 and 2022, respectively. Includes revenue from the United States of $1,022.3 million and $815.1 million for the nine months ended September 30, 2023 and 2022, respectively.
Deferred Revenue and Remaining Performance Obligations
Certain of the Company’s customers pay in advance of satisfaction of performance obligations and other customers with monthly contract terms are billed in arrears on a monthly basis. The Company records contract liabilities to deferred revenue when customers are billed or when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts.
Revenue recognized during the three months ended September 30, 2023 and 2022, which was included in the deferred revenue balances at the beginning of each such period, was $276.8 million and $200.4 million, respectively. Revenue recognized during the nine months ended September 30, 2023 and 2022 that was included in the deferred revenue balances at the beginning of each such period was $486.5 million and $344.4 million, respectively.
Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include unearned revenue, multi-year contracts with future installment payments and certain unfulfilled orders against accepted customer contracts at the end of any given period. As of September 30, 2023 and December 31, 2022, the aggregate transaction price allocated to remaining performance obligations was $1,446.2 million and $1,057.2 million, respectively. There is uncertainty in the timing of revenues associated with the Company’s drawdown contracts, as future revenue can often vary significantly from past revenue. However, the Company expects to recognize substantially all of the remaining performance obligations over the next 24 months.
Accounts Receivable
Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. During the nine months ended September 30, 2023 and 2022, the Company charged $3.7 million and $1.5 million, respectively, of accounts receivable deemed uncollectible against the allowance for credit losses.
Unbilled accounts receivable represents revenue recognized on contracts for which billings have not yet been presented to customers because the amounts were earned but not contractually billable as of the balance sheet date. The unbilled accounts receivable balance is due within one year. As of September 30, 2023 and December 31, 2022, unbilled accounts receivable of approximately $59.3 million and $60.0 million, respectively, was included in accounts receivable on the Company’s condensed consolidated balance sheets.
Deferred Contract Costs
Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit, which is determined to be four years. Amounts expected to be recognized within one year of the balance sheet date are recorded as deferred contract costs, current; the remaining portion is recorded as deferred contract costs, non-current, in the condensed consolidated balance sheets.
Deferred contract costs on the Company’s condensed consolidated balance sheets were $102.8 million and $88.4 million as of September 30, 2023 and December 31, 2022, respectively. Amortization expense was $10.2 million and $7.3 million for
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the three months ended September 30, 2023 and 2022, respectively, and was $28.2 million and $19.9 million for the nine months ended September 30, 2023 and 2022, respectively.
11.Stockholders’ Equity
Class A and Class B Common Stock
The Company has two classes of common stock, Class A and Class B. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder and are automatically converted to Class A common stock upon sale or transfer, subject to certain limited exceptions.
During the three and nine months ended September 30, 2023, there were 506,563 shares and 989,955 shares of Class B common stock were converted into Class A common stock, respectively.    
As of September 30, 2023, the Company had authorized 2,000,000,000 shares of Class A common stock and 310,000,000 shares of Class B common stock, each at a par value per share of $0.00001, of which 301,974,045 shares of Class A common stock and 26,271,614 shares of Class B common stock were issued and outstanding.
Equity Incentive Plans
The Company has two equity incentive plans, the 2012 Equity Incentive Plan (the “2012 Plan”) and the 2019 Equity Incentive Plan (the “2019 Plan”). In connection with the Company’s initial public offering of Class A common stock (the “IPO”), the Company ceased granting awards under the 2012 Plan, and all shares that remained available for issuance under the 2012 Plan at that time were transferred to the 2019 Plan. Additionally, as of September 30, 2023, there were 13,408,145 shares of Class A common stock issuable upon conversion of Class B common stock underlying options outstanding under the 2012 Plan. Under the 2019 Plan, the Board and any other committee or subcommittee of the Board may grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and performance stock units (“PSUs”) and other awards, each equity award valued or based on the Company’s Class A common stock, to employees, directors, consultants and advisors of the Company. As of September 30, 2023, there were 75,548,626 shares available for grant under the 2019 Plan.  
Stock Options
The following table summarizes the Company’s stock option activity and weighted-average exercise prices:
Number Of
Options
Outstanding
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Life (in Years)
Aggregate
Intrinsic Value
(in thousands)
Balance outstanding—December 31, 202218,551,857 $3.24 4.4$1,303,464 
Options granted  
Options exercised(5,103,045)3.41 
Options forfeited or expired(17,741)5.49 
Balance outstanding—September 30, 202313,431,071 $3.17 3.6$1,180,828 
Ending Exercisable—September 30, 2023
13,424,772 $3.16 3.6$1,180,435 
As of September 30, 2023, there were 22,926 shares of Class A common stock and 13,408,145 shares of Class B common stock issuable upon the exercise of options outstanding. As of December 31, 2022, there were 28,557 shares of Class A common stock and 18,523,300 shares of Class B common stock issuable upon the exercise of options outstanding.
Total compensation cost related to unvested awards not yet recognized was approximately $0.1 million and $10.1 million as of September 30, 2023 and December 31, 2022, respectively. The weighted-average period over which this compensation cost related to unvested employee awards will be recognized is 0.8 years and 0.6 years as of September 30, 2023 and December 31, 2022, respectively.
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There were no options granted during the nine months ended September 30, 2023 and 2022. The Company received approximately $17.4 million and $8.3 million in cash proceeds from options exercised during the nine months ended September 30, 2023 and 2022, respectively. The intrinsic value of options exercised during the nine months ended September 30, 2023 and 2022 was approximately $423.0 million and $258.4 million, respectively. The aggregate fair value of options vested during the nine months ended September 30, 2023 and 2022 was $12.5 million and $18.7 million, respectively.
Restricted Stock Units, Restricted Stock and Performance Stock Units
The following table summarizes the activity for the Company’s unvested RSUs and PSUs:
SharesWeighted-
Average Grant Date
Fair Value
Balance—December 31, 202212,378,683 $106.19 
Awarded4,776,360 76.15 
Vested(3,540,441)103.71 
Forfeited/canceled(1,056,740)103.16 
Balance—September 30, 202312,557,862 $95.72 
The Company granted no restricted shares of Class A common stock in connection with acquisitions during the nine months ended September 30, 2023.
Total compensation cost related to unvested RSUs and restricted shares of common stock not yet recognized was approximately $1,039.3 million and $1,151.1 million as of September 30, 2023 and December 31, 2022, respectively. The weighted-average period over which this compensation cost related to unvested RSUs and restricted shares of common stock will be recognized is 2.7 years and 2.9 years as of September 30, 2023 and December 31, 2022.
Total compensation cost related to unvested PSUs not yet recognized was approximately $33.5 million and $19.0 million as of September 30, 2023 and December 31, 2022, respectively. The weighted-average period over which this compensation cost related to unvested PSUs will be recognized is 1.6 years and 1.4 years as of September 30, 2023 and December 31, 2022, respectively.
Employee Stock Purchase Plan
In September 2019, the Board adopted and approved the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective on the date of the final prospectus for the IPO.
The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of the Company’s Class A common stock on specified dates during such offerings. Under the ESPP, the Company may specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each offering. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s Class A common stock on the first trading day of the offering period, or (2) the fair market value of the Company’s Class A common stock on the purchase date, as defined in the ESPP.
The Company recognized $3.5 million and $12.0 million of stock-based compensation expense related to the ESPP during the three and nine months ended September 30, 2023, respectively. As of September 30, 2023, $16.0 million has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions. During the nine months ended September 30, 2023, the Company issued 285,211 shares of Class A common stock under the ESPP. As of September 30, 2023, 17,713,278 shares of Class A common stock remain available for grant under the ESPP.
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Stock-Based Compensation
The Company recognizes and measures compensation expense for all stock-based payment awards granted to employees, directors and nonemployees, including stock options, restricted stock units (“RSUs”), performance-based awards (“PSUs”), and the employee stock purchase plan (the “ESPP”) based on the fair value of the awards on the date of grant. The determination of the grant date fair value using an option-pricing model is affected by the estimated fair value of the Company’s common stock as well as assumptions regarding a number of other complex and subjective variables. These variables include expected stock price volatility over the expected term of the award, actual and projected employee stock option exercise behaviors, the risk-free interest rate for the expected term of the award and expected dividends. The fair value of RSUs and PSUs is determined by the closing price on the date of grant of the Company’s Class A common stock, as reported on the Nasdaq Global Select Market. The Company estimates the fair value of the rights to acquire stock under the ESPP using the Black-Scholes option-pricing model. Stock-based compensation for stock options and RSUs is recognized on a straight-line basis over the requisite service period and account for forfeitures as they occur. Stock-based compensation for PSUs is amortized under the accelerated attribution method and may be adjusted over the vesting period based on interim estimates of performance against pre-set objectives. PSUs will vest upon achievement of specified performance targets and subject to continuous service through the applicable vesting dates. The compensation cost is recognized over the requisite service period when it is probable that the performance condition will be satisfied and the Company accounts for forfeitures as they occur. Stock-based compensation for PSUs is amortized under the accelerated attribution method and may be adjusted over the vesting period based on interim estimates of performance against pre-set objectives. PSUs will vest upon achievement of specified performance targets and subject to continuous service through the applicable vesting dates. The compensation cost is recognized over the requisite service period when it is considered probable that the performance condition will be satisfied and account for forfeitures as they occur.
The Company also has certain options that have performance-based vesting conditions; stock-based compensation expense for such awards is recognized on a straight-line basis from the time the vesting condition is likely to be met through the time the vesting condition has been achieved.
Stock-based compensation expense was included in the condensed consolidated statement of operations as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Cost of revenue$4,570 $3,165 $12,452 $7,173 
Research and development79,174 65,321 229,607 163,326 
Sales and marketing26,159 21,145 75,057 53,330 
General and administrative13,211 11,731 37,063 26,816 
Stock-based compensation, net of amounts capitalized123,114 101,362 354,179 250,645 
Capitalized stock-based compensation expense3,071 3,920 11,308 10,760 
Total stock-based compensation expense$126,185 $105,282 $365,487 $261,405 
12.Interest Income and Other Income, Net
Interest income and other income, net consist of the following (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2023202220232022
Interest income$28,801 $9,087 $70,676 $21,338 
Other income (loss), net1,032 2,924 (1,492)4,029 
Interest income and other income, net$29,833 $12,011 $69,184 $25,367 
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13.Income Taxes
The Company recorded a provision for income taxes of $1.7 million and $2.9 million for the three months ended September 30, 2023 and 2022, respectively. The Company has incurred U.S. operating losses and has minimal profits in its foreign jurisdictions during the quarter.
The Company has applied ASC 740, Income Taxes, and has determined that it has uncertain positions that would result in a tax reserve deemed immaterial for each of the nine months ended September 30, 2023 and 2022. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company is subject to U.S. federal tax authority, U.S. state tax authority and foreign tax authority examinations.
The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the United States. Due to uncertainties surrounding the realization of the deferred tax assets, the Company recorded a full valuation allowance against substantially all of its net deferred tax assets. When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made.
On August 16, 2022, the Inflation Reduction Act (“the Act”) was signed into law. The Act includes a 15.0% corporate alternative minimum tax on the adjusted financial statement income of applicable corporations and a 1.0% excise tax on all corporate stock buybacks of public companies for tax years beginning after December 31, 2022. For the nine months ended September 30, 2023, the Act did not materially impact the Company’s provision for income tax. The Company will continue to monitor any changes in tax law.
14.Net Income (Loss) Per Share
Basic and diluted net income (loss) per common share is presented in conformity with the two-class method required for participating securities. Basic and diluted net income (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the period. The undistributed earnings are allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as the conversion of Class B common stock is assumed in the computation of the diluted net income (loss) per share of Class A common stock, the undistributed earnings are equal to net income (loss) for that computation.
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The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share data):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Basic net income (loss) per share:Class AClass BClass AClass BClass AClass BClass AClass B
Numerator:
Net income (loss)$20,809 $1,821 $(23,878)$(2,107)$(4,990)$(435)$(18,884)$(2,242)
Denominator:
Weighted-average shares used in calculating net (loss) income per share, basic299,366 26,191 290,369 25,621 296,555 25,840 281,355 33,398 
Basic net income (loss) per share$0.07 $0.07 $(0.08)$(0.08)$(0.02)$(0.02)$(0.07)$(0.07)
Diluted net income (loss) per share:
Numerator:
Allocation of distributed net (loss) income for basic computation$20,809 $1,821 $(23,878)$(2,107)$(4,990)$(435)$(18,884)$(2,242)
Reallocation of undistributed net (loss) income as a result of conversion of Class B to Class A shares1,821  (2,107) (435) (2,242) 
Allocation of undistributed (loss) income$22,630 $1,821 $(25,985)$(2,107)$(5,425)$(435)$(21,126)$(2,242)
Denominator:
Number of shares used in basic calculation299,366 26,191 290,369 25,621 296,555 25,840 281,355 33,398 
Weighted-average effect of diluted securities:
Conversion of Class B to Class A common shares outstanding26,191  25,621  25,840  33,398  
Employee stock options14,108        
Employee stock purchase plan
26        
Restricted stock units and performance stock units
3,013        
Unvested restricted stock in connection with acquisition507        
Shares issuable upon conversion of the convertible senior notes 8,098        
Number of shares used in diluted calculation351,309 26,191 315,990 25,621 322,395 25,840 314,753 33,398 
Diluted net income (loss) per share$0.06 $0.07 $(0.08)$(0.08)$(0.02)$(0.02)$(0.07)