Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS

DATADOG, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)


	June 30, 2023		December 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	291,304	$	338,985
Marketable securities	1,894,058		1,545,341
Accounts receivable, net of allowance for credit losses of $9,628 and $5,626 as of June 30, 2023 and December 31, 2022, respectively	333,102		399,551
Deferred contract costs, current	37,502		33,054
Prepaid expenses and other current assets	44,104		27,303
Total current assets	2,600,070		2,344,234
Property and equipment, net	145,100		125,346
Operating lease assets	122,198		87,629
Goodwill	350,029		348,277
Intangible assets, net	12,409		16,365
Deferred contract costs, non-current	60,511		55,338
Restricted cash	—		3,303
Other assets	21,856		24,360
TOTAL ASSETS	$	3,312,173	$	3,004,852
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	48,031	$	23,474
Accrued expenses and other current liabilities	127,009		171,158
Operating lease liabilities, current	18,852		22,092
Deferred revenue, current	567,470		543,024
Total current liabilities	761,362		759,748
Operating lease liabilities, non-current	125,694		76,582
Convertible senior notes, net	740,538		738,847
Deferred revenue, non-current	27,534		12,944
Other liabilities	7,686		6,226
Total liabilities	1,662,814		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 June 30, 2023 and December 31, 2022; 298,640,368 and 293,573,825 shares issued and outstanding as of June 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 June 30, 2023 and December 31, 2022; 25,936,360 and 25,616,018 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	1,891,995		1,625,190
Accumulated other comprehensive loss	(12,318)		(12,422)
Accumulated deficit	(230,321)		(202,266)
Total stockholders’ equity	1,649,359		1,410,505
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,312,173	$	3,004,852

See accompanying notes to condensed consolidated financial statements.

DATADOG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue	$	509,460	$	406,138	$	991,174	$	769,168
Cost of revenue	101,846		81,925		201,760		156,387
Gross profit	407,614		324,213		789,414		612,781
Operating expenses:
Research and development	239,494		177,699		468,972		328,307
Sales and marketing	147,455		115,270		292,426		216,436
General and administrative	42,671		34,383		84,992		60,763
Total operating expenses	429,620		327,352		846,390		605,506
Operating (loss) income	(22,006)		(3,139)		(56,976)		7,275
Other income (loss):
Interest expense	(1,526)		(4,541)		(3,707)		(9,788)
Interest income and other income, net	22,624		7,669		39,351		13,356
Other income, net	21,098		3,128		35,644		3,568
(Loss) income before provision for income taxes	(908)		(11)		(21,332)		10,843
Provision for income taxes	(3,061)		(4,868)		(6,723)		(5,984)
Net (loss) income	$	(3,969)	$	(4,879)	$	(28,055)	$	4,859
Net (loss) income attributable to common stockholders	$	(3,969)	$	(4,879)	$	(28,055)	$	4,859
Basic net (loss) income per share	$	(0.01)	$	(0.02)	$	(0.09)	$	0.02

Diluted net (loss) income per share	$	(0.01)	$	(0.02)	$	(0.09)	$	0.01
Weighted average shares used in calculating basic net (loss) income per share:	322,215		314,795		320,788		314,130
Weighted average shares used in calculating diluted net (loss) income per share:	322,215		314,795		320,788		345,444

See accompanying notes to condensed consolidated financial statements.

DATADOG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net (loss) income	$	(3,969)	$	(4,879)	$	(28,055)	$	4,859
Other comprehensive (loss) income:
Foreign currency translation adjustments	(579)		(2,565)		62		(3,104)
Unrealized gain (loss) on available-for-sale marketable securities	(5,966)		(3,389)		42		(11,575)
Other comprehensive (loss) income	(6,545)		(5,954)		104		(14,679)
Comprehensive loss	$	(10,514)	$	(10,833)	$	(27,951)	$	(9,820)

See accompanying notes to condensed consolidated financial statements.

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 Loss		Accumulated Deficit		Total Stockholders' Equity (Deficit)
Shares		Amount
BALANCE—March 31, 2023	321,446,243		$	3	$	1,744,221	$	(5,773)	$	(226,352)	$	1,512,099
Issuance of common stock upon exercise of stock options	1,534,681		—		5,441		—		—		5,441
Vesting of restricted and performance stock units	1,180,431		—		—		—		—		—
Issuance of restricted shares of common stock from acquisition	130,162		—		—		—		—		—
Issuance of common stock under the Employee Stock Purchase Plan	285,211		—		19,986		—		—		19,986
Stock-based compensation	—		—		122,347		—		—		122,347


Change in accumulated other comprehensive loss	—		—		—		(6,545)		—		(6,545)
Net loss	—		—		—		—		(3,969)		(3,969)
BALANCE—June 30, 2023	324,576,728		$	3	$	1,891,995	$	(12,318)	$	(230,321)	$	1,649,359


	Class A and Class B Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity (Deficit)
Shares		Amount
BALANCE—March 31, 2022	314,921,005		$	3	$	1,271,777	$	(12,555)	$	(142,368)	$	1,116,857
Issuance of common stock upon exercise of stock options	506,753		—		2,198		—		—		2,198
Vesting of restricted stock units	650,490		—		—		—		—		—
Issuance of restricted shares of common stock from acquisitions	191,019		—		7,608		—		—		7,608
Issuance of common stock under the Employee Stock Purchase Plan	146,515		—		13,557		—		—		13,557
Stock-based compensation	—		—		85,733		—		—		85,733
Change in accumulated other comprehensive loss	—		—		—		(5,954)		—		(5,954)
Net loss	—		—		—		—		(4,879)		(4,879)
BALANCE—June 30, 2022	316,415,782		$	3	$	1,380,873	$	(18,509)	$	(147,247)	$	1,215,120


	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Stockholders' Equity (Deficit)
	Shares	Amount
BALANCE—December 31, 2022	319,189,843	$	3	$	1,625,190	$	(12,422)	$	(202,266)	$	1,410,505
Issuance of common stock upon exercise of stock options	2,742,866	—		7,517		—		—		7,517

Vesting of restricted and performance stock units	2,228,646	—		—		—		—		—
Issuance of restricted shares of common stock from acquisitions	130,162	—		—		—		—		—
Issuance of common stock under the Employee Stock Purchase Plan	285,211	—		19,986		—		—		19,986
Stock-based compensation	—	—		239,302		—		—		239,302
Change in accumulated other comprehensive income	—	—		—		104		—		104
Net loss	—	—		—		—		(28,055)		(28,055)
BALANCE—June 30, 2023	324,576,728	$	3	$	1,891,995	$	(12,318)	$	(230,321)	$	1,649,359


		Class A and Class B Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity (Deficit)
	Shares		Amount
BALANCE—December 31, 2021		313,365,437		$	3	$	1,197,136	$	(3,830)	$	(152,106)	$	1,041,203
Issuance of common stock upon exercise of stock options		1,673,753		—		6,416		—		—		6,416
Vesting of early exercised stock options		—		—		33		—		—		33
Vesting of restricted stock units		1,039,058		—		—		—		—		—
Issuance of restricted shares of common stock from acquisitions		191,019		—		7,608		—		—		7,608
Issuance of common stock under the Employee Stock Purchase Plan		146,515		—		13,557		—		—		13,557
Stock-based compensation		—		—		156,123		—		—		156,123
Changes in accumulated other comprehensive loss		—		—		—		(14,679)		—		(14,679)
Net income		—		—		—		—		4,859		4,859
BALANCE—June 30, 2022		316,415,782		$	3	$	1,380,873	$	(18,509)	$	(147,247)	$	1,215,120

See accompanying notes to condensed consolidated financial statements

DATADOG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(28,055)	$	4,859
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	20,825		15,512
(Accretion) amortization of (discounts) premiums on marketable securities	(13,291)		6,697
Amortization of issuance costs	1,691		1,682
Amortization of deferred contract costs	17,996		12,580
Stock-based compensation, net of amounts capitalized	231,065		149,283
Non-cash lease expense	12,196		9,686
Allowance for credit losses on accounts receivable	6,311		1,931
Loss on disposal of property and equipment	421		1,149
Changes in operating assets and liabilities:
Accounts receivable, net	60,139		(38,100)
Deferred contract costs	(27,618)		(21,469)
Prepaid expenses and other current assets	(16,823)		(12,629)
Other assets	2,241		(1,752)
Accounts payable	24,897		23,179
Accrued expenses and other liabilities	(44,089)		(4,310)
Deferred revenue	39,039		72,050
Net cash provided by operating activities	286,945		220,348

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(1,390,334)		(718,785)
Maturities of marketable securities	1,018,317		516,754
Proceeds from sale of marketable securities	36,633		2,006
Purchases of property and equipment	(11,078)		(15,501)
Capitalized software development costs	(17,798)		(14,780)
Cash paid for acquisition of businesses; net of cash acquired	(2,025)		(39,566)
Net cash used in investing activities	(366,285)		(269,872)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	7,534		6,451
Proceeds from issuance of common stock under the employee stock purchase plan	19,986		13,557
Repayments of convertible senior notes	—		(3)
Net cash provided by financing activities	27,520		20,005

Effect of exchange rate changes on cash, cash equivalents and restricted cash	836		(2,871)

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(50,984)		(32,390)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period	342,288		274,463
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period	$	291,304	$	242,073

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	10,677	$	386

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued property and equipment purchases	$	274	$	1,078
Stock-based compensation included in capitalized software development costs	$	8,237	$	6,840
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	$	291,304	$	238,859
Restricted cash	—		3,214
Total cash, cash equivalents and restricted cash	$	291,304	$	242,073

See accompanying notes to condensed consolidated financial statements.

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.

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 June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023
	Amortized Cost		Unrealized Gain		Unrealized Losses		Fair Value
Corporate debt securities	$	615,957	$	179	$	(4,486)	$	611,650
Commercial paper	513,046		7		(400)		512,653
Certificates of deposit	189,897		16		(230)		189,683
U.S. government treasury securities	390,669		15		(3,971)		386,713
U.S. government agency securities	194,506		—		(1,147)		193,359
Marketable securities	$	1,904,075	$	217	$	(10,234)	$	1,894,058


	December 31, 2022
	Amortized Cost		Unrealized Gain		Unrealized Losses		Fair Value
Corporate debt securities	$	813,598	$	64	$	(7,554)	$	806,108
Commercial paper	357,030		64		(821)		356,273
Certificates of deposit	174,080		37		(587)		173,530
U.S. government treasury securities	120,977		—		(1,099)		119,878
U.S. government agency securities	89,718		12		(178)		89,552
Marketable securities	$	1,555,403	$	177	$	(10,239)	$	1,545,341

As of June 30, 2023, the fair values of available-for-sale marketable securities, by remaining contractual maturity, were as follows (in thousands):


Due within one year	$	1,233,012
Due in one year through five years	661,046
Total	$	1,894,058

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.

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 June 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 June 30, 2023
	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	205,309	$	—	$	—	$	205,309
Commercial paper	—		37,327		—		37,327
Certificates of deposit	—		18,198		—		18,198
Marketable Securities:
Corporate debt securities	—		611,650		—		611,650
Commercial paper	—		512,653		—		512,653
Certificates of deposit	—		189,683		—		189,683
U.S. government treasury securities	—		386,713		—		386,713
U.S. government agency securities	—		193,359		—		193,359
Total financial assets	$	205,309	$	1,949,583	$	—	$	2,154,892


	Fair Value Measurement as of December 31, 2022
	Level 1		Level 2		Level 3		Total
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.

5. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Computers and equipment	$	33,723	$	33,376
Furniture and fixtures	14,078		13,315
Leasehold improvements	36,316		27,683
Capitalized software development costs	164,432		134,890
Total property and equipment	$	248,549	$	209,264
Less: accumulated depreciation and amortization	(103,449)		(83,918)
Total property and equipment, net	$	145,100	$	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 $8.3 million and $16.4 million for the three and six months ended June 30, 2023, respectively. Depreciation and amortization expense was approximately $6.4 million and $12.2 million for the three and six months ended June 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):


	June 30, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Amortization Period
Developed technology	$	23,482	$	(12,539)	$	10,943	3 years
Customer relationships	3,300		(1,834)		1,466		4 years
Total	$	26,782	$	(14,373)	$	12,409


	December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Amortization Period
Developed technology	$	24,460	$	(9,970)	$	14,490	3 years
Customer relationships	3,300		(1,425)		1,875		4 years
Total	$	27,760	$	(11,395)	$	16,365

Intangible amortization expense was approximately $2.3 million and $1.7 million for the three months ended June 30, 2023 and 2022, respectively, and $4.5 million and $3.3 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, future amortization expense by year is expected to be as follows (in thousands):


	Amount
Remainder of 2023	$	4,367
2024	5,913
2025	2,066
2026	63
Total	$	12,409

Goodwill

The changes in the carrying amount of goodwill were as follows (in thousands):


	Amount
Balance as of December 31, 2022	$	348,277
2023 Acquisition	2,029
Foreign currency translation adjustments	(277)
Balance as of June 30, 2023	$	350,029

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

(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 June 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 June 30, 2023. Therefore the 2025 Notes are not convertible, in whole or in part, at the option of the holders between July 1, 2023 through September 30, 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 June 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.

The net carrying amount of the liability component of the 2025 Notes was as follows (in thousands):


	June 30, 2023		December 31, 2022
Convertible senior notes, net:
Principal	$	747,496	$	747,496
Unamortized debt issuance costs	(6,958)		(8,649)
Net carrying amount	$	740,538	$	738,847

As of June 30, 2023, the total estimated fair value of the 2025 Notes was approximately $928.9 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 six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Contractual interest expense	$	234	$	233	$	468	$	467
Amortization of issuance costs	846		842		1,691		1,682
Total	$	1,080	$	1,075	$	2,159	$	2,149

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 six months ended June 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 six months ended June 30, 2023, the Company incurred expense of $1.7 million and $3.1 million, respectively, for matching contributions. For the three and six months ended June 30, 2022, the Company incurred expense of $1.5 million and $2.7 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 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating lease cost(1)	$	8,070	$	6,028	$	15,450	$	11,265

Short-term lease cost	2,200		2,155		4,719		3,324

1)Includes non-cash lease expense of $6.3 million and $5.3 million for the three months ended June 30, 2023 and 2022, respectively, and $12.2 million and $9.7 million for the six months ended June 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):


	Six Months Ended June 30,
	2023		2022
Cash paid for amounts included in measurement of lease liabilities	$	4,145	$	11,682
Operating lease assets obtained in exchange for new lease liabilities	46,290		13,129

Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands):


	Amount
Remainder of 2023	$	1,330
2024	19,030
2025	28,848
2026	26,662
2027	26,081
2028 and beyond	92,374
Total lease payments	$	194,325
Less: imputed interest	(49,779)
Present value of lease liabilities	$	144,546

As of June 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 2023 and 2025 with total undiscounted future payments of $151.0 million and a weighted-average lease term of 8.9 years.

Weighted average remaining lease term and discount rate for the Company’s operating leases are as follows:


	June 30, 2023
Weighted-average remaining lease term (years)	7.0
Weighted-average discount rate	5.91	%

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
North America	$	355,965	$	291,159	$	697,181	$	551,021
International	153,495		114,979		293,993		218,147
Total	$	509,460	$	406,138	$	991,174	$	769,168

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 June 30, 2023 and 2022, which was included in the deferred revenue balances at the beginning of each such period, was $261.0 million and $198.3 million, respectively. Revenue recognized during the six months ended June 30, 2023 and 2022 that was included in the deferred revenue balances at the beginning of each such period was $391.7 million and $279.9 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 June 30, 2023 and December 31, 2022, the aggregate transaction price allocated to remaining performance obligations was $1,252.5 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 six months ended June 30, 2023 and 2022, the Company charged $2.4 million and $0.9 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 June 30, 2023 and December 31, 2022, unbilled accounts receivable of approximately $66.7 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 $98.0 million and $88.4 million as of June 30, 2023 and December 31, 2022, respectively. Amortization expense was $9.4 million and $6.6 million for the three months ended June 30, 2023 and 2022, respectively, and was $18.0 million and $12.6 million for the six months ended June 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 months ended June 30, 2023, there were no shares of Class B common stock converted into Class A common stock. During the six months ended June 30, 2023 483,392 shares of Class B common stock were converted into Class A common stock.

As of June 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 298,640,368 shares of Class A common stock and 25,936,360 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 June 30, 2023, there were 15,776,443 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 June 30, 2023, there were 76,009,808 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, 2022	18,551,857	$	3.24	4.4	$	1,303,464
Options granted	—	—
Options exercised	(2,742,866)	2.74
Options forfeited or expired	(8,622)	7.90
Balance outstanding—June 30, 2023	15,800,369	$	3.32	3.9	$	1,501,929
Ending Exercisable—June 30, 2023	15,555,455	$	3.19	3.9	$	1,480,763

As of June 30, 2023, there were 23,926 shares of Class A common stock and 15,776,443 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 $2.2 million and $10.1 million as of June 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 0.2 years and 0.6 years as of June 30, 2023 and December 31, 2022, respectively.

There were no options granted during the six months ended June 30, 2023 and 2022. The Company received approximately $7.5 million and $6.5 million in cash proceeds from options exercised during the six months ended June 30, 2023 and 2022, respectively. The intrinsic value of options exercised during the six months ended June 30, 2023 and 2022 was

approximately $210.4 million and $217.0 million, respectively. The aggregate fair value of options vested during the six months ended June 30, 2023 and 2022 was $9.6 million and $12.7 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:


	Shares	Weighted- Average Grant Date Fair Value
Balance—December 31, 2022	12,378,683	$	106.19
Awarded	4,000,325	72.19
Vested	(2,228,646)	106.27
Forfeited/canceled	(751,006)	105.06
Balance—June 30, 2023	13,399,356	$	96.09

The Company granted no restricted shares of Class A common stock in connection with acquisitions during the six months ended June 30, 2023. In addition, we issued 130,162 fully-vested shares in April 2023 in connection with an acquisition that closed in 2021.

Total compensation cost related to unvested RSUs and restricted shares of common stock not yet recognized was approximately $1,107.6 million and $1,151.1 million as of June 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 2.8 years and 2.9 years as of June 30, 2023 and December 31, 2022.

Total compensation cost related to unvested PSUs not yet recognized was approximately $41.4 million and $19.0 million as of June 30, 2023 and December 31, 2022, respectively. The weighted-average period over which this compensation cost related to unvested PSUs will be recognized is 1.8 years and 1.4 years as of June 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 $4.0 million and $8.5 million of stock-based compensation expense related to the ESPP during the three and six months ended June 30, 2023, respectively. As of June 30, 2023, $5.9 million has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions. During the three months ended June 30, 2023, the Company issued 285,211 shares of Class A common stock under the ESPP. As of June 30, 2023, 17,713,278 shares of Class A common stock remain available for grant under the ESPP.

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	4,157	$	2,355	$	7,882	$	4,008
Research and development	75,730		53,309		150,433		98,005
Sales and marketing	25,884		17,590		48,898		32,185
General and administrative	12,566		9,145		23,852		15,085
Stock-based compensation, net of amounts capitalized	118,337		82,399		231,065		149,283
Capitalized stock-based compensation expense	4,010		3,334		8,237		6,840
Total stock-based compensation expense	$	122,347	$	85,733	$	239,302	$	156,123

**12.**Interest Income and Other Income, Net

Interest income and other income, net consist of the following (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Interest income	$	23,355	$	6,755	$	41,875	$	12,251
Other (loss) income, net	(731)		914		(2,524)		1,105
Interest income and other income, net	$	22,624	$	7,669	$	39,351	$	13,356

13.Income Taxes

The Company recorded a provision for income taxes of $3.1 million and $4.9 million for the three months ended June 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 six months ended June 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 six months ended June 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 (Loss) Income Per Share

Basic and diluted net (loss) income per common share is presented in conformity with the two-class method required for participating securities. Basic and diluted net (loss) income 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 (loss) income per share of Class A common stock, the undistributed earnings are equal to net (loss) income for that computation.

The following table presents the calculation of basic and diluted net (loss) income per share (in thousands, except per share data):


	Three Months Ended June 30,								Six Months Ended June 30,
	2023				2022				2023				2022
Basic net (loss) income per share:	Class A		Class B		Class A		Class B		Class A		Class B		Class A		Class B
Numerator:
Net (loss) income	$	(3,652)	$	(317)	$	(4,421)	$	(458)	$	(25,811)	$	(2,244)	$	4,281	$	578
Denominator:
Weighted-average shares used in calculating net (loss) income per share, basic	296,466		25,749		285,265		29,530		295,126		25,662		276,779		37,351
Basic net (loss) income per share	$	(0.01)	$	(0.01)	$	(0.02)	$	(0.02)	$	(0.09)	$	(0.09)	$	0.02	$	0.02
Diluted net (loss) income per share:
Numerator:
Allocation of distributed net (loss) income for basic computation	$	(3,652)	$	(317)	$	(4,421)	$	(458)	$	(25,811)	$	(2,244)	$	4,281	$	578
Reallocation of undistributed net (loss) income as a result of conversion of Class B to Class A shares	(317)		—		(458)		—		(2,244)		—		578		—
Allocation of undistributed (loss) income	$	(3,969)	$	(317)	$	(4,879)	$	(458)	$	(28,055)	$	(2,244)	$	4,859	$	578
Denominator:
Number of shares used in basic calculation	296,466		25,749		285,265		29,530		295,126		25,662		276,779		37,351
Weighted-average effect of diluted securities:
Conversion of Class B to Class A common shares outstanding	25,749		—		29,530		—		25,662		—		37,351		—
Employee stock options	—		—		—		—		—		—		19,602		—
Employee stock purchase plan	—		—		—		—		—		—		32		—
Unvested early exercises	—		—		—		—		—		—		5		—
Restricted stock units	—		—		—		—		—		—		2,955		—
Unvested restricted stock in connection with acquisition	—		—		—		—		—		—		622		—
Shares issuable upon conversion of the convertible senior notes	—		—		—		—		—		—		8,098		—
Number of shares used in diluted calculation	322,215		25,749		314,795		29,530		320,788		25,662		345,444		37,351
Diluted net (loss) income per share	$	(0.01)	$	(0.01)	$	(0.02)	$	(0.02)	$	(0.09)	$	(0.09)	$	0.01	$	0.02

Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands):


	As of June 30,
	2023	2022
Shares subject to outstanding stock options, RSUs and PSUs	29,200	2,127
Unvested restricted shares of common stock	799	—
Shares subject to the employee stock purchase plan	254	—
Shares issuable upon conversion of the convertible senior notes	8,098	—
Total	38,351	2,127

ASU No. 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share when the instruments may be settled in cash or shares. The Company uses the if-converted method for calculating any potential dilutive effect of the conversion options embedded in the 2025 Notes on diluted net income per share as required under ASU No. 2020-06 to determine the dilutive effect of the Notes. See Note 7, Convertible Senior Notes for more information.

The Company entered into Capped Calls in connection with the issuance of the 2025 Notes. The effect of the Capped Calls was also excluded from the calculation of diluted net income per share as the effect of the Capped Calls would have been anti-dilutive. 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.

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