UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2024

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: 001-40526

CONFLUENT, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	47-1824387
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
899 W. Evelyn Avenue Mountain View, California	94041
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (800) 439-3207

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.00001 per share	CFLT	The 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, 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	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2024, there were 244,657,840 shares of the registrant’s Class A common stock and 73,177,131 shares of the registrant's Class B common stock, each with a par value of $0.00001 per share, outstanding.

TABLE OF CONTENTS

PART I. Financial Information
	ITEM 1. Financial Statements (unaudited)		3
		Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023	3
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023	5
		Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023	6
		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023	7
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023	8
		Notes to Condensed Consolidated Financial Statements	10
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		44
	ITEM 4. Controls and Procedures		45
PART II. Other Information
	ITEM 1. Legal Proceedings		46
	ITEM 1A. Risk Factors		47
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		96
	ITEM 3. Defaults Upon Senior Securities		96
	ITEM 4. Mine Safety Disclosures		96
	ITEM 5. Other Information		97
	ITEM 6. Exhibits		98
Signatures			99

SPECIAL NOTE ABOUT 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 fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and 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,” “toward,” “will,” “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, revenue mix, expenses, and other results of operations;

•our ability to acquire new customers and successfully retain existing customers;

•our ability to increase consumption of our offering and expand features and functionalities;

•our ability to achieve or sustain our margins and profitability;

•the impact of, and our ability to operate our business and effectively manage our growth under, evolving and uncertain macroeconomic conditions, including as a result of inflationary pressures, geopolitical events, and recessionary environments;

•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, including in connection with our shift to a consumption-oriented sales model for Confluent Cloud, and our ability to promote our brand;

•our growth strategies for, and market acceptance of, our platform, as well as our ability to execute such strategies;

•the estimated addressable market opportunity and our ability to penetrate such market;

•our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;

•our ability to effectively manage our growth, including international expansion;

•our ability to protect our intellectual property rights and any costs associated therewith;

•the effects of public health crises, such as the COVID-19 pandemic;

•our ability to compete effectively with existing competitors and new market entrants; and

•the growth rates of the markets in which we compete.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

1

You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Where You Can Find More Information

Investors and others should note that we may announce material business and financial information to our investors using our Investor Relations website (investors.confluent.io), our filings with the Securities and Exchange Commission (“SEC”), webcasts, press releases, public conference calls, and blogs published on our website. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.

We also use our X (Twitter), LinkedIn, and Facebook accounts as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts, in addition to following our SEC filings, webcasts, press releases, public conference calls, and blogs published on our website. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. These channels may be updated from time to time on our investor relations website.

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Confluent, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

	March 31, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	336,373	$	349,761
Marketable securities		1,570,586		1,551,009
Accounts receivable, net		199,842		229,962
Deferred contract acquisition costs		43,214		43,937
Prepaid expenses and other current assets		76,102		76,986
Total current assets		2,226,117		2,251,655
Property and equipment, net		61,627		54,012
Operating lease right-of-use assets		9,176		10,061
Goodwill and intangible assets, net		54,988		55,490
Deferred contract acquisition costs, non-current		73,508		75,815
Other assets, non-current		14,213		13,776
Total assets	$	2,439,629	$	2,460,809
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,882	$	6,714
Accrued expenses and other liabilities		96,739		141,847
Operating lease liabilities		10,061		7,890
Deferred revenue		330,516		330,570
Total current liabilities		439,198		487,021
Operating lease liabilities, non-current		13,284		17,391
Deferred revenue, non-current		17,145		22,436
Convertible senior notes, net		1,089,266		1,088,313
Other liabilities, non-current		35,519		35,233
Total liabilities		1,594,412		1,650,394
Commitments and contingencies (Note 9)

3

	March 31, 2024			December 31, 2023
Stockholders’ equity:
Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023		-			-
Class A common stock, par value of $0.00001 per share; 1,000,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 244,079,585 and 224,737,415 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		2			2
Class B common stock, par value of $0.00001 per share; 500,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 73,182,995 and 86,774,127 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		1			1
Additional paid-in capital		2,584,665			2,453,293
Accumulated other comprehensive (loss) income		(2,333	)		1,270
Accumulated deficit		(1,737,118	)		(1,644,151	)
Total stockholders’ equity		845,217			810,415
Total liabilities and stockholders’ equity	$	2,439,629		$	2,460,809

See accompanying notes to the condensed consolidated financial statements.

4

Confluent, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended March 31,
	2024			2023
Revenue:
Subscription	$	206,902		$	160,567
Services		10,335			13,735
Total revenue		217,237			174,302
Cost of revenue:
Subscription		48,355			42,905
Services		12,866			15,239
Total cost of revenue		61,221			58,144
Gross profit		156,016			116,158
Operating expenses:
Research and development		97,571			84,890
Sales and marketing		131,352			128,624
General and administrative		38,444			35,355
Restructuring and other related charges		-			33,382
Total operating expenses		267,367			282,251
Operating loss		(111,351	)		(166,093	)
Other income, net		20,850			15,185
Loss before income taxes		(90,501	)		(150,908	)
Provision for income taxes		2,466			1,647
Net loss	$	(92,967	)	$	(152,555	)
Net loss per share, basic and diluted	$	(0.30	)	$	(0.52	)
Weighted-average shares used to compute net loss per share, basic and diluted		314,203,181			291,864,975

See accompanying notes to the condensed consolidated financial statements.

5

Confluent, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2024			2023
Net loss	$	(92,967	)	$	(152,555	)
Other comprehensive (loss) income, net of tax:
Net unrealized (loss) gain on marketable securities		(1,866	)		4,159
Net unrealized (loss) gain on derivative instruments		(1,737	)		843
Other comprehensive (loss) income, net of tax		(3,603	)		5,002
Total comprehensive loss	$	(96,570	)	$	(147,553	)

See accompanying notes to the condensed consolidated financial statements.

6

Confluent, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

	Three Months Ended March 31, 2024
	Class A and Class B Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balances as of January 1, 2024		311,511,542	$	3	$	2,453,293	$	1,270		$	(1,644,151	)	$	810,415
Vesting of early exercised options		-		-		316		-			-			316
Issuance of common stock upon exercise of vested options		2,257,832		-		14,534		-			-			14,534
Vesting of restricted stock units		2,819,051		-		-		-			-			-
Issuance of common stock under employee stock purchase plan		674,155		-		15,603		-			-			15,603
Stock-based compensation		-		-		100,919		-			-			100,919
Other comprehensive loss, net of tax		-		-		-		(3,603	)		-			(3,603	)
Net loss		-		-		-		-			(92,967	)		(92,967	)
Balances as of March 31, 2024		317,262,580	$	3	$	2,584,665	$	(2,333	)	$	(1,737,118	)	$	845,217

	Three Months Ended March 31, 2023
	Class A and Class B Common Stock					Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares			Amount		Capital		Income (Loss)			Deficit			Equity
Balances as of January 1, 2023		289,384,180		$	3	$	1,980,335	$	(9,456	)	$	(1,201,405	)	$	769,477
Repurchases of unvested options		(30,828	)		-		-		-			-			-
Vesting of early exercised options		-			-		1,275		-			-			1,275
Issuance of common stock upon exercise of vested options		3,595,765			-		21,269		-			-			21,269
Vesting of restricted stock units		1,714,907			-		-		-			-			-
Issuance of common stock under employee stock purchase plan		714,586			-		17,172		-			-			17,172
Stock-based compensation		-			-		83,211		-			-			83,211
Other comprehensive income, net of tax		-			-		-		5,002			-			5,002
Net loss		-			-		-		-			(152,555	)		(152,555	)
Balances as of March 31, 2023		295,378,610		$	3	$	2,103,262	$	(4,454	)	$	(1,353,960	)	$	744,851

See accompanying notes to the condensed consolidated financial statements.

7

Confluent, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(92,967	)	$	(152,555	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		4,311			3,122
Net accretion of discounts on marketable securities		(10,396	)		(9,133	)
Amortization of debt issuance costs		953			939
Amortization of deferred contract acquisition costs		12,762			10,484
Non-cash operating lease costs		885			1,207
Lease abandonment charges		-			15,667
Stock-based compensation, net of amounts capitalized		95,322			79,289
Deferred income taxes		615			5
Other		849			279
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable		29,360			8,068
Deferred contract acquisition costs		(9,732	)		(10,160	)
Prepaid expenses and other assets		(1,929	)		3,141
Accounts payable		(4,932	)		(11,325	)
Accrued expenses and other liabilities		(43,752	)		(16,557	)
Operating lease liabilities		(1,935	)		(1,998	)
Deferred revenue		(5,368	)		1,755
Net cash used in operating activities		(25,954	)		(77,772	)
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalization of internal-use software costs		(5,539	)		(4,556	)
Purchases of marketable securities		(443,307	)		(453,356	)
Maturities of marketable securities		432,267			451,777
Purchases of property and equipment		(186	)		(546	)
Cash paid for business combinations, net of cash acquired		-			(45,802	)
Net cash used in investing activities		(16,765	)		(52,483	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock upon exercise of vested options		14,401			20,780
Repurchases of unvested options		-			(223	)
Proceeds from issuance of common stock under employee stock purchase plan		15,603			17,172
Net cash provided by financing activities		30,004			37,729
Effect of exchange rate changes on cash and cash equivalents		(673	)		205
Net decrease in cash and cash equivalents		(13,388	)		(92,321	)
Cash and cash equivalents at beginning of period		349,761			435,781
Cash and cash equivalents at end of period	$	336,373		$	343,460

8

	Three Months Ended March 31,
	2024		2023
Supplementary cash flow disclosures:
Cash paid for:
Income taxes	$	1,814	$	1,883
Non-cash investing and financing activities:
Stock-based compensation capitalized as internal-use software costs	$	5,597	$	3,922
Vesting of early exercised stock options	$	316	$	1,275

See accompanying notes to the condensed consolidated financial statements.

9

Confluent, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Description of Business

Description of Business

Confluent, Inc. (“Confluent” or the “Company”) created a data infrastructure platform focused on data in motion. Confluent’s platform allows customers to connect their applications, systems, and data layers and can be deployed either as a self-managed software offering, Confluent Platform, or as a fully-managed cloud-native software-as-a-service (“SaaS”) offering, Confluent Cloud. Confluent also offers professional services and education services. The Company was incorporated in the state of Delaware in September 2014 and is headquartered in California with various other global office locations.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. 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. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on February 21, 2024 (the “Annual Report”).

In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2024 and the results of operations and cash flows for the three months ended March 31, 2024 and 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, the standalone selling price ("SSP") for each distinct performance obligation included in customer contracts, deferred contract acquisition costs and their period of benefit, stock-based compensation expense, the fair value of acquired intangible assets, capitalization and estimated useful life of internal-use software, the incremental borrowing rate used to measure operating lease liabilities, and accounting for income taxes.

The Company bases its estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions about future events and their effects, including the impact of global macroeconomic conditions, cannot be determined with certainty and therefore require the exercise of judgment. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed consolidated financial statements.

10

Significant Accounting Policies

There were no significant changes to the Company’s significant accounting policies disclosed in “Note 2 – Basis of Presentation and Summary of Significant Accounting Policies” of the Company’s Annual Report.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

Segment Reporting: In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

Income Taxes: In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This ASU is effective for fiscal years beginning after December 15, 2024, and may be applied on a retrospective or prospective basis. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

3. Marketable Securities

The following tables summarize the fair values of the Company’s marketable securities (in thousands):

	March 31, 2024
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. treasury securities	$	761,343	$	26	$	(1,355	)	$	760,014
Corporate notes and bonds		393,175		223		(931	)		392,467
U.S. agency obligations		369,850		144		(939	)		369,055
Commercial paper		49,072		-		(22	)		49,050
Total marketable securities	$	1,573,440	$	393	$	(3,247	)	$	1,570,586

	December 31, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. treasury securities	$	834,235	$	257	$	(1,355	)	$	833,137
U.S. agency obligations		403,035		599		(875	)		402,759
Corporate notes and bonds		279,328		838		(457	)		279,709
Commercial paper		35,407		-		(3	)		35,404
Total marketable securities	$	1,552,005	$	1,694	$	(2,690	)	$	1,551,009

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The following tables summarize the fair values and unrealized losses of the Company’s marketable securities, classified by the length of time that the securities have been in a continuous unrealized loss position (in thousands):

	March 31, 2024
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. treasury securities	$	602,515	$	(1,306	)	$	21,930	$	(49	)	$	624,445	$	(1,355	)
U.S. agency obligations		229,157		(641	)		75,738		(298	)		304,895		(939	)
Corporate notes and bonds		278,565		(856	)		16,277		(75	)		294,842		(931	)
Commercial paper		12,270		(22	)		-		-			12,270		(22	)
Total	$	1,122,507	$	(2,825	)	$	113,945	$	(422	)	$	1,236,452	$	(3,247	)

	December 31, 2023
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. treasury securities	$	487,260	$	(1,074	)	$	46,130	$	(281	)	$	533,390	$	(1,355	)
U.S. agency obligations		206,105		(390	)		80,657		(485	)		286,762		(875	)
Corporate notes and bonds		100,295		(293	)		31,277		(164	)		131,572		(457	)
Commercial paper		6,810		(3	)		-		-			6,810		(3	)
Total	$	800,470	$	(1,760	)	$	158,064	$	(930	)	$	958,534	$	(2,690	)

For available-for-sale debt securities in an unrealized loss position, the Company does not intend to sell these securities and it is more likely than not that the Company will hold these securities until maturity or a recovery of the cost basis. The Company determined that the decline in fair value of these securities was not due to credit-related factors, and no allowance for expected credit losses was recorded as of March 31, 2024 and December 31, 2023. Realized gains and losses were not material for the three months ended March 31, 2024 and 2023.

The following table summarizes the contractual maturities of the Company’s marketable securities (in thousands):

	March 31, 2024
	Amortized Cost		Fair Value
Due within one year	$	1,123,419	$	1,121,345
Due after one year through five years		450,021		449,241
Total	$	1,573,440	$	1,570,586

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4. Fair Value of Financial Instruments

The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	March 31, 2024
	Level 1		Level 2		Total
Assets:
Cash equivalents:
Money market funds	$	269,918	$	-	$	269,918
U.S. treasury securities		-		29,063		29,063
Commercial paper		-		3,973		3,973
Marketable securities:
U.S. treasury securities		-		760,014		760,014
Corporate notes and bonds		-		392,467		392,467
U.S. agency obligations		-		369,055		369,055
Commercial paper		-		49,050		49,050
Derivative instruments:
Foreign currency forward contracts		-		1,172		1,172
Total assets	$	269,918	$	1,604,794	$	1,874,712
Liabilities:
Derivative instruments:
Foreign currency forward contracts	$	-	$	773	$	773
Total liabilities	$	-	$	773	$	773

	December 31, 2023
	Level 1		Level 2		Total
Assets:
Cash equivalents:
Money market funds	$	264,923	$	-	$	264,923
U.S. treasury securities		-		52,130		52,130
Marketable securities:
U.S. treasury securities		-		833,137		833,137
U.S. agency obligations		-		402,759		402,759
Corporate notes and bonds		-		279,709		279,709
Commercial paper		-		35,404		35,404
Derivative instruments:
Foreign currency forward contracts		-		3,219		3,219
Total assets	$	264,923	$	1,606,358	$	1,871,281
Liabilities:
Derivative instruments:
Foreign currency forward contracts	$	-	$	1,272	$	1,272
Total liabilities	$	-	$	1,272	$	1,272

The Company classifies its highly liquid money market funds within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its U.S. treasury securities, corporate notes and bonds, U.S. agency obligations, commercial paper, and foreign currency forward contracts within Level 2 of the fair value hierarchy 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 that may not be actively traded. There were no transfers of financial instruments between valuation levels during the three months ended March 31, 2024 and 2023.

13

As of March 31, 2024 and December 31, 2023, the total estimated fair value of the Company’s 0% convertible senior notes due 2027 was $943.3 million and $917.9 million, respectively. The fair value was determined based on the quoted price of the convertible senior notes in an inactive market on the last trading day of the reporting period and is classified within Level 2 of the fair value hierarchy. See Note 8 for further information on the Company’s convertible senior notes.

5. Derivative Instruments and Hedging

The Company enters into foreign currency forward contracts with certain financial institutions to mitigate the impact of foreign currency fluctuations on future cash flows and earnings. Derivative instruments that hedge the exposure to variability in expected future cash flows are designated as cash flow hedges. The Company records changes in the fair value of these derivatives as a component of accumulated other comprehensive income (loss) (“AOCI”) and subsequently reclassifies the related gains or losses into cost of revenue or operating expense in the same period, or periods, during which the hedged transaction affects earnings. The Company classifies cash flows related to its cash flow hedges as operating activities in its condensed consolidated statements of cash flows.

Derivative instruments that hedge the exposure to variability in the fair value of assets or liabilities denominated in non-USD currencies are not designated as hedges for financial reporting purposes. The Company records changes in the fair value of these derivatives in other income (expense), net in the condensed consolidated statements of operations. The Company classifies cash flows related to these derivatives as operating activities in its condensed consolidated statements of cash flows.

The following table summarizes the notional amounts of the Company’s derivative instruments (in thousands):

	March 31, 2024		December 31, 2023
Foreign currency forward contracts designated as hedging instruments	$	83,992	$	125,617
Foreign currency forward contracts not designated as hedging instruments		73,892		99,918
Total derivative instruments	$	157,884	$	225,535

The Company has master netting agreements with each of its counterparties, which permit net settlement of multiple, separate derivative contracts with a single payment. The Company does not have collateral requirements with any of its counterparties. Although the Company is allowed to present the fair value of derivative instruments on a net basis according to master netting arrangements, the Company has elected to present its derivative instruments on a gross basis in the condensed consolidated financial statements. The Company’s derivative instruments generally have maturities of 18 months or less. The Company does not use derivative instruments for trading or speculative purposes. The following table summarizes the fair value of the Company’s derivative instruments on the condensed consolidated balance sheets (in thousands):

14

	Balance Sheet Location	March 31, 2024		December 31, 2023
Derivative Assets:
Foreign currency forward contracts designated as hedging instruments	Prepaid expenses and other current assets	$	725	$	1,789
Foreign currency forward contracts not designated as hedging instruments	Prepaid expenses and other current assets		395		906
Foreign currency forward contracts designated as hedging instruments	Other assets, non-current		52