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)


	March 31, 2024		December 31, 2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	282,218	$	330,339
Marketable securities	2,499,151		2,252,559
Accounts receivable, net of allowance for credit losses of $12,362 and $12,096 as of March 31, 2024 and December 31, 2023, respectively	451,057		509,279
Deferred contract costs, current	46,391		44,938
Prepaid expenses and other current assets	54,846		41,022
Total current assets	3,333,663		3,178,137
Property and equipment, net	182,419		171,872
Operating lease assets	173,270		126,562
Goodwill	351,437		352,694
Intangible assets, net	7,312		9,617
Deferred contract costs, non-current	73,067		73,728

Other assets	20,298		23,462
TOTAL ASSETS	$	4,141,466	$	3,936,072
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	64,316	$	87,712
Accrued expenses and other current liabilities	117,412		127,631
Operating lease liabilities, current	23,591		21,974
Deferred revenue, current	767,474		765,735
Total current liabilities	972,793		1,003,052
Operating lease liabilities, non-current	190,891		138,128
Convertible senior notes, net	743,085		742,235
Deferred revenue, non-current	26,191		21,210
Other liabilities	6,151		6,093
Total liabilities	1,939,111		1,910,718
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 March 31, 2024 and December 31, 2023; 308,019,729 and 305,395,175 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively	3		3
Class B common stock, $0.00001 par value per share; 310,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 25,945,861 and 25,684,571 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively	—		—
Additional paid-in capital	2,321,119		2,181,267
Accumulated other comprehensive loss	(7,700)		(2,218)
Accumulated deficit	(111,067)		(153,698)
Total stockholders’ equity	2,202,355		2,025,354
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,141,466	$	3,936,072

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 March 31,
	2024		2023
Revenue	$	611,253	$	481,714
Cost of revenue	110,098		99,914
Gross profit	501,155		381,800
Operating expenses:
Research and development	269,988		229,478
Sales and marketing	173,881		144,971
General and administrative	45,290		42,321
Total operating expenses	489,159		416,770
Operating income (loss)	11,996		(34,970)
Other income (loss):
Interest expense	(1,374)		(2,181)
Interest income and other income, net	35,563		16,727
Other income, net	34,189		14,546
Income (loss) before provision for income taxes	46,185		(20,424)
Provision for income taxes	3,554		3,662
Net income (loss)	$	42,631	$	(24,086)
Net income (loss) attributable to common stockholders	$	42,631	$	(24,086)
Basic net income (loss) per share	$	0.13	$	(0.08)

Diluted net income (loss) per share	$	0.12	$	(0.08)
Weighted average shares used in calculating basic net income (loss) per share:	331,806		319,286
Weighted average shares used in calculating diluted net income (loss) per share:	355,979		319,286

See accompanying notes to condensed consolidated financial statements.

DATADOG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2024		2023
Net income (loss)	$	42,631	$	(24,086)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(2,264)		641
Unrealized gain (loss) on available-for-sale marketable securities	(3,218)		6,008
Other comprehensive (loss) income	(5,482)		6,649
Comprehensive income (loss)	$	37,149	$	(17,437)

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—December 31, 2023	331,079,746		$	3	$	2,181,267	$	(2,218)	$	(153,698)	$	2,025,354
Issuance of common stock upon exercise of stock options	1,340,644		—		2,173		—		—		2,173
Vesting of restricted and performance stock units	1,545,200		—		—		—		—		—

Stock-based compensation	—		—		137,679		—		—		137,679


Change in accumulated other comprehensive loss	—		—		—		(5,482)		—		(5,482)
Net income	—		—		—		—		42,631		42,631
BALANCE—March 31, 2024	333,965,590		$	3	$	2,321,119	$	(7,700)	$	(111,067)	$	2,202,355


	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	1,208,185		—		2,076		—		—		2,076
Vesting of restricted and performance stock units	1,048,215		—		—		—		—		—


Stock-based compensation	—		—		116,955		—		—		116,955
Change in accumulated other comprehensive (loss) income	—		—		—		6,649		—		6,649
Net loss	—		—		—		—		(24,086)		(24,086)
BALANCE—March 31, 2023	321,446,243		$	3	$	1,744,221	$	(5,773)	$	(226,352)	$	1,512,099

See accompanying notes to condensed consolidated financial statements

DATADOG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	42,631	$	(24,086)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	12,895		10,275
Accretion of discounts on marketable securities	(14,126)		(5,195)
Amortization of issuance costs	850		845
Amortization of deferred contract costs	11,844		8,648
Stock-based compensation, net of amounts capitalized	135,033		112,728
Non-cash lease expense	6,810		5,944
Allowance for credit losses on accounts receivable	2,732		3,732
Loss on disposal of property and equipment	43		88
Changes in operating assets and liabilities:
Accounts receivable, net	55,490		28,773
Deferred contract costs	(12,636)		(11,750)
Prepaid expenses and other current assets	(14,075)		(15,810)
Other assets	2,614		164
Accounts payable	(17,122)		18,545
Accrued expenses and other liabilities	(7,433)		(28,080)
Deferred revenue	6,720		28,966
Net cash provided by operating activities	212,270		133,787

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(637,351)		(757,787)
Maturities of marketable securities	401,666		497,648
Proceeds from sale of marketable securities	—		21,341
Purchases of property and equipment	(14,158)		(8,739)
Capitalized software development costs	(11,365)		(8,711)

Net cash used in investing activities	(261,208)		(256,248)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	2,191		2,098


Net cash provided by financing activities	2,191		2,098

Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,374)		623

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(48,121)		(119,740)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period	330,339		342,288
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period	$	282,218	$	222,548

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	4,647	$	3,022

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued property and equipment purchases	$	813	$	304
Stock-based compensation included in capitalized software development costs	$	2,646	$	4,227




RECONCILIATION OF CASH AND CASH EQUIVALENTS WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEETS TO THE AMOUNTS SHOWN IN THE STATEMENTS OF CASH FLOWS ABOVE:
Cash and cash equivalents	$	282,218	$	222,548

Total cash and cash equivalents	$	282,218	$	222,548

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, user experience monitoring, cloud security, 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 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, 2024 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, 2023, as filed with the SEC on February 23, 2024 (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.

Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07**,** Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU No. 2023-07”), which intends to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in this ASU should be applied retrospectively to all prior

periods presented in the financial statements. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09**,** Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU No. 2023-09”), which intends to increase the transparency of income tax disclosures, particularly the rate reconciliation table and disclosures about income taxes paid. For public business entities, it is effective for annual periods beginning after December 15, 2024, and interim periods beginning after December 15, 2025, with early adoption permitted. The Company has not early adopted ASU No. 2023-09 as of March 31, 2024 and is evaluating its impact.

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 March 31, 2024 and December 31, 2023 (in thousands):


	March 31, 2024
	Amortized Cost		Unrealized Gain		Unrealized Losses		Fair Value
Corporate debt securities	$	1,320,167	$	424	$	(2,176)	$	1,318,415
U.S. government treasury securities	459,310		—		(2,291)		457,019
Commercial paper	439,956		119		(119)		439,956
Certificates of deposit	187,728		194		(9)		187,913
U.S. government agency securities	96,134		—		(286)		95,848
Marketable securities	$	2,503,295	$	737	$	(4,881)	$	2,499,151


	December 31, 2023
	Amortized Cost		Unrealized Gain		Unrealized Losses		Fair Value
Corporate debt securities	$	776,323	$	770	$	(1,140)	$	775,953
Commercial paper	605,291		570		(75)		605,786
U.S. government treasury securities	460,854		390		(1,399)		459,845
Certificates of deposit	264,405		335		(15)		264,725
U.S. government agency securities	146,611		—		(361)		146,250
Marketable securities	$	2,253,484	$	2,065	$	(2,990)	$	2,252,559

As of March 31, 2024, the fair values of available-for-sale marketable securities, by remaining contractual maturity, were as follows (in thousands):


Due within one year	$	1,652,826
Due in one year through five years	846,325
Total	$	2,499,151

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 March 31, 2024 and December 31, 2023, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):


	Fair Value Measurement as of March 31, 2024
	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	268,229	$	—	$	—	$	268,229


Marketable Securities:
Corporate debt securities	—		1,318,415		—		1,318,415
Commercial paper	—		439,956		—		439,956
Certificates of deposit	—		187,913		—		187,913
U.S. government treasury securities	—		457,019		—		457,019
U.S. government agency securities	—		95,848		—		95,848
Total financial assets	$	268,229	$	2,499,151	$	—	$	2,767,380


	Fair Value Measurement as of December 31, 2023
	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	240,909	$	—	$	—	$	240,909
Corporate debt securities	—		484		—		484
U.S. government treasury securities	—		53,972		—		53,972
Marketable Securities:
Corporate debt securities	—		775,953		—		775,953
Commercial paper	—		605,786		—		605,786
Certificates of deposit	—		264,725		—		264,725
U.S. government treasury securities	—		459,845		—		459,845
U.S. government agency securities	—		146,250		—		146,250
Total financial assets	$	240,909	$	2,307,015	$	—	$	2,547,924

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):


	March 31, 2024		December 31, 2023
Computers and equipment	$	36,844	$	35,736
Furniture and fixtures	19,049		17,202
Leasehold improvements	59,035		55,111
Capitalized software development costs	210,363		192,691
Total property and equipment	$	325,291	$	300,740
Less: accumulated depreciation and amortization	(142,872)		(128,868)
Total property and equipment, net	$	182,419	$	171,872

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 $10.7 million and $8.1 million for the three months ended March 31, 2024 and 2023, respectively.

6. Acquisitions, Intangible Assets and Goodwill

2023 Acquisitions

During the year ended December 31, 2023, the Company entered into three 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 $2.1 million and goodwill in the amount of $3.5 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):


	March 31, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Amortization Period
Developed technology	$	24,995	$	(18,528)	$	6,467	3 Years
Customer relationships	3,300		(2,455)		845		4 Years
Total	$	28,295	$	(20,983)	$	7,312


	December 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Amortization Period
Developed technology	$	24,995	$	(16,428)	$	8,567	3 years
Customer relationships	3,300		(2,250)		1,050		4 years
Total	$	28,295	$	(18,678)	$	9,617

Intangible amortization expense was approximately $2.2 million for each of the three months ended March 31, 2024 and 2023.

As of March 31, 2024, future amortization expense by year is expected to be as follows (in thousands):


	Amount
Remainder of 2024	$	4,214
2025	2,572
2026	526

Total	$	7,312

Goodwill

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


	Amount
Balance as of December 31, 2023	$	352,694

Foreign currency translation adjustments	(1,257)
Balance as of March 31, 2024	$	351,437

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 March 31, 2024, the conditional conversion feature of the 2025 Notes was triggered as 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 quarter ended March 31, 2024 was greater than or equal to 130% of the conversion price on each applicable trading day. Therefore the 2025 Notes are convertible, in whole or in part, at the option of the holders between April 1, 2024 through June 30, 2024. 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 March 31, 2024, 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):


	March 31, 2024		December 31, 2023
Convertible senior notes, net:
Principal	$	747,496	$	747,496
Unamortized debt issuance costs	(4,411)		(5,261)
Net carrying amount	$	743,085	$	742,235

As of March 31, 2024, the total estimated fair value of the 2025 Notes was approximately $1,055.1 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 months ended March 31, 2024 and 2023 (in thousands):


	Three Months Ended March 31,
	2024		2023
Contractual interest expense	$	234	$	234
Amortization of issuance costs	850		845
Total	$	1,084	$	1,079

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 three months ended March 31, 2024, 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 months ended March 31, 2024 and 2023, the Company incurred expense of $1.8 million and $1.4 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 2024 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 March 31,
	2024		2023
Operating lease cost (1)	$	10,530	$	7,380

Short-term lease cost	1,315		2,519

1)Includes non-cash lease expense of $6.8 million and $5.9 million for the three months ended March 31, 2024 and 2023, respectively.

Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows (in thousands):


	Three Months Ended March 31,
	2024		2023
Cash paid for amounts included in measurement of lease liabilities	$	2,284	$	6,552
Operating lease assets obtained in exchange for new lease liabilities	55,042		12,539

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


	Amount
Remainder of 2024	$	15,129
2025	40,865
2026	40,106
2027	36,849
2028	33,775
2029 and beyond	117,938
Total lease payments	$	284,662
Less: imputed interest	(70,180)
Present value of lease liabilities	$	214,482

As of March 31, 2024, the Company had various operating leases that had not yet commenced, which are excluded from the table above. The operating leases will commence in fiscal year 2025 with total undiscounted future payments of $58.0 million and a weighted-average lease term of 8.5 years.

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


	March 31, 2024
Weighted-average remaining lease term (years)	7.3
Weighted-average discount rate	6.44	%

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 March 31,
	2024		2023
North America (1)	$	425,600	$	341,216
International	185,653		140,498
Total	$	611,253	$	481,714

1)Includes revenue from the United States of $404.5 million and $323.5 million for the three months ended March 31, 2024 and 2023, respectively.

Deferred Revenue and Remaining Performance Obligations

Certain of the Company’s customers pay in advance of satisfaction of performance obligations and other customers with monthly contract terms are billed in arrears on a monthly basis. The Company records contract liabilities to deferred revenue when customers are billed or when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts.

Revenue recognized during the three months ended March 31, 2024 and 2023, which was included in the deferred revenue balances at the beginning of each such period, was $346.8 million and $245.3 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 March 31, 2024 and December 31, 2023, the aggregate transaction price allocated to remaining performance obligations was $1,731.5 million and $1,839.4 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 three months ended March 31, 2024 and 2023, the Company charged $2.6 million and $1.3 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 March 31, 2024 and December 31, 2023, unbilled accounts receivable of approximately $75.5 million and $61.2 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 $119.5 million and $118.7 million as of March 31, 2024 and December 31, 2023, respectively. Amortization expense was $11.8 million and $8.6 million for the three months ended March 31, 2024 and 2023, 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 March 31, 2024, 220,174 shares of Class B common stock were converted into Class A common stock.

As of March 31, 2024, 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 308,019,729 shares of Class A common stock and 25,945,861 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 March 31, 2024, there were 10,716,958 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 March 31, 2024, there were 88,787,760 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, 2023	12,077,635	$	3.24	3.4	$	1,426,912
Options granted	—	—
Options exercised	(1,340,644)	1.62
Options forfeited or expired	(63)	1.27
Balance outstanding—March 31, 2024	10,736,928	$	3.44	3.3	$	1,290,186
Ending Exercisable—March 31, 2024	10,734,508	$	3.43	3.3	$	1,289,952

As of March 31, 2024, there were 19,970 shares of Class A common stock and 10,716,958 shares of Class B common stock issuable upon the exercise of options outstanding. As of December 31, 2023, there were 22,926 shares of Class A common stock and 12,054,709 shares of Class B common stock issuable upon the exercise of options outstanding.

Approximately all compensation cost related to unvested awards was recognized as of March 31, 2024 and December 31, 2023. The weighted-average period over which this compensation cost related to unvested employee awards will be recognized is 0.7 years and 1.0 year as of March 31, 2024 and December 31, 2023, respectively.

There were no options granted during the three months ended March 31, 2024 and 2023. The Company received approximately $2.2 million and $2.1 million in cash proceeds from options exercised during the three months ended March 31, 2024 and 2023, respectively. The intrinsic value of options exercised during the three months ended March 31, 2024 and 2023 was approximately $164.7 million and $86.3 million, respectively. The aggregate fair value of options vested during the three

months ended March 31, 2024 was insignificant. The aggregate fair value of option vested during the three months ended March 31, 2023 was $5.0 million.

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, 2023	13,663,501	$	99.13
Awarded	1,362,439	123.77
Vested	(1,545,200)	87.65
Forfeited/canceled	(406,489)	100.22
Balance—March 31, 2024	13,074,251	$	103.02

The Company granted no restricted shares of Class A common stock in connection with acquisitions, as the Company did not complete any acquisitions during the three months ended March 31, 2024.

Total compensation cost related to unvested RSUs and restricted shares of common stock not yet recognized was approximately $1,193.8 million and $1,187.3 million as of March 31, 2024 and December 31, 2023, respectively. The weighted-average period over which this compensation cost related to unvested RSUs and restricted shares of common stock will be recognized is 2.7 years and 2.8 years as of March 31, 2024 and December 31, 2023, respectively.

Total compensation cost related to unvested PSUs not yet recognized was approximately $18.3 million and $25.1 million as of March 31, 2024 and December 31, 2023, respectively. The weighted-average period over which this compensation cost related to unvested PSUs will be recognized is 1.4 years and 1.3 years as of March 31, 2024 and December 31, 2023, respectively.

Employee Stock Purchase Plan

In September 2019, the Board adopted and approved the 2019 Employee Stock Purchase Plan (the “ESPP”).

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. Historically offering periods have been approximately 6 months. 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 $4.3 million of stock-based compensation expense related to the ESPP during the three months ended March 31, 2024. As of March 31, 2024, $17.9 million has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions. There were no purchases related to the ESPP in the three months ended March 31, 2024. As of March 31, 2024, 20,791,856 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.

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 March 31,
	2024		2023
Cost of revenue	$	5,527	$	3,725
Research and development	88,413		74,703
Sales and marketing	28,531		23,014
General and administrative	12,562		11,286
Stock-based compensation, net of amounts capitalized	135,033		112,728
Capitalized stock-based compensation expense	2,646		4,227
Total stock-based compensation expense	$	137,679	$	116,955

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

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


	Three Months Ended March 31,
	2024		2023
Interest income	$	35,435	$	18,520
Other income (loss), net	128		(1,793)
Interest income and other income, net	$	35,563	$	16,727

13.Income Taxes

The Company recorded a provision for income taxes of $3.6 million and $3.7 million for the three months ended March 31, 2024 and 2023, respectively. The Company has generated U.S. operating income 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 three months ended March 31, 2024 and 2023. 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 three months ended March 31, 2024, the Act did not materially impact the Company’s provision for income tax. The Company will continue to monitor any changes in tax law.

**14.**Net Income (Loss) Per Share

Basic and diluted net income (loss) per common share is presented in conformity with the two-class method required for participating securities. Basic and diluted net income (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the period. The undistributed earnings are allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as the conversion of Class B common stock is assumed in the computation of the diluted net income (loss) per share of Class A common stock, the undistributed earnings are equal to net income (loss) for that computation.

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


	Three Months Ended March 31,
	2024				2023
Basic net income (loss) per share:	Class A		Class B		Class A		Class B
Numerator:
Net income (loss)	$	39,306	$	3,325	$	(22,157)	$	(1,929)
Denominator:
Weighted-average shares used in calculating net income (loss) per share, basic	305,927		25,879		293,712		25,574
Basic net income (loss) per share	$	0.13	$	0.13	$	(0.08)	$	(0.08)
Diluted net income (loss) per share:
Numerator:
Allocation of distributed net income (loss) for basic computation	$	39,306	$	3,325	$	(22,157)	$	(1,929)
Reallocation of undistributed net income (loss) as a result of conversion of Class B to Class A shares	3,325		—		(1,929)		—
Allocation of undistributed income (loss)	$	42,631	$	3,325	$	(24,086)	$	(1,929)
Denominator:
Number of shares used in basic calculation	305,927		25,879		293,712		25,574
Weighted-average effect of diluted securities:
Conversion of Class B to Class A common shares outstanding	25,879		—		25,574		—
Employee stock options	11,047		—		—		—
Employee stock purchase plan	34		—		—		—

Restricted stock units and performance stock units	4,475		—		—		—
Unvested restricted stock in connection with acquisition	519		—		—		—
Shares issuable upon conversion of the convertible senior notes	8,098		—		—		—
Number of shares used in diluted calculation	355,979		25,879		319,286		25,574
Diluted net income (loss) per share	$	0.12	$	0.13	$	(0.08)	$	(0.08)

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 March 31,
	2024	2023
Shares subject to outstanding stock options, RSUs and PSUs	966	30,512
Unvested restricted shares of common stock	—	1,088
Shares subject to the employee stock purchase plan	—	311
Shares issuable upon conversion of the convertible senior notes	—	8,098
Total	966	40,009

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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