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Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 001-36383
Five9, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware94-3394123
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
Bishop Ranch 8
4000 Executive Parkway, Suite 400
San Ramon, CA 94583
(Address of Principal Executive Offices) (Zip Code)
(925) 201-2000
(Registrant’s Telephone Number, Including Area Code)
_______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, par value $0.001 per shareFIVNThe NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No:  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  No: 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated filer(Do not check if a smaller reporting Company)Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  Yes:  No: 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes:  No: 
As of October 23, 2020, there were 65,981,567 shares of the Registrant’s common stock, par value $0.001 per share, outstanding.


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FIVE9, INC.
FORM 10-Q
TABLE OF CONTENTS

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve substantial risks and uncertainties. These statements reflect the current views of our senior management with respect to future events and our financial performance. These forward-looking statements include statements with respect to our business, expenses, strategies, losses, growth plans, product and client initiatives, market growth projections, and our industry. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.
Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. These factors include the information set forth in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Part II, Item 1A, of this Quarterly Report, which we encourage you to carefully read, and include the following:
the effects of the COVID-19 pandemic have materially affected how we, our clients and business partners are operating, and the duration and extent to which it will impact our future results of operations and overall financial performance remain uncertain;
adverse economic conditions may harm our business;
our quarterly and annual results may fluctuate significantly, including as a result of the timing and success of new product and feature introductions by us, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock;
if we are unable to attract new clients or sell additional services and functionality to our existing clients, our revenue and revenue growth will be harmed;
our recent rapid growth may not be indicative of our future growth, and even if we continue to grow rapidly, we may fail to manage our growth effectively;
failure to adequately retain and expand our sales force will impede our growth;
if we fail to manage our technical operations infrastructure, our existing clients may experience service outages, our new clients may experience delays in the deployment of our solution and we could be subject to, among other things, claims for credits or damages;
our growth depends in part on the success of our strategic relationships with third parties and our failure to successfully maintain, grow and manage these relationships could harm our business;
we have established, and are continuing to increase, our network of master agents and resellers to sell our solution; our failure to effectively develop, manage, and maintain this network could materially harm our revenues;
security breaches and improper access to or disclosure of our data or our clients’ data, or other cyber-attacks on our systems, could result in litigation and regulatory risk, harm our reputation and our business;
the markets in which we participate involve numerous competitors and are highly competitive, and if we do not compete effectively, our operating results could be harmed;
if our existing clients terminate their subscriptions or reduce their subscriptions and related usage, our revenues and gross margins will be harmed and we will be required to spend more money to grow our client base;
we sell our solution to larger organizations that require longer sales and implementation cycles and often demand more configuration and integration services or customized features and functions that we may not offer, any of which could delay or prevent these sales and harm our growth rates, business and operating results;
because a significant percentage of our revenue is derived from existing clients, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern;
we rely on third-party telecommunications and internet service providers to provide our clients and their customers with telecommunication services and connectivity to our cloud contact center software and any
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failure by these service providers to provide reliable services could cause us to lose clients and subject us to claims for credits or damages, among other things;
we have a history of losses and we may be unable to achieve or sustain profitability;
the contact center software solutions market is subject to rapid technological change, and we must develop and sell incremental and new products in order to maintain and grow our business;
we may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs;
we may acquire other companies or technologies, such as Inference Solutions Inc. ("Inference"), or be the target of strategic transactions, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results;
failure to comply with laws and regulations could harm our business and our reputation;
we may not have sufficient cash to service our convertible senior notes and repay such notes, if required; and
our acquisition of Inference is subject to various conditions to closing that may not be satisfied, and the amount of consideration to be paid for Inference is dependent on various purchase price adjustments, as well as whether or not certain earn-out metrics are satisfied.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may differ materially from what we anticipate. You should not place undue reliance on our forward-looking statements. Any forward-looking statements you read in this report reflect our views only as of the date of this report with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.

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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
FIVE9, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30, 2020December 31, 2019
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$301,767 $77,976 
Marketable investments479,141 241,973 
Accounts receivable, net42,542 37,655 
Prepaid expenses and other current assets15,908 10,656 
Deferred contract acquisition costs17,932 13,014 
Total current assets857,290 381,274 
Property and equipment, net41,676 33,190 
Operating lease right-of-use assets8,669 8,746 
Intangible assets, net23,867 15,533 
Goodwill34,444 11,798 
Other assets3,258 1,184 
Deferred contract acquisition costs — less current portion44,083 30,655 
Total assets$1,013,287 $482,380 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$12,829 $10,156 
Accrued and other current liabilities40,814 18,385 
Operating lease liabilities4,307 5,064 
Accrued federal fees2,562 2,303 
Sales tax liabilities1,629 1,885 
Finance lease liabilities1,299 3,518 
Deferred revenue28,527 24,681 
Total current liabilities91,967 65,992 
Convertible senior notes646,592 209,604 
Sales tax liabilities — less current portion851 838 
Operating lease liabilities — less current portion4,679 4,329 
Finance lease liabilities — less current portion 809 
Other long-term liabilities6,809 4,350 
Total liabilities750,898 285,922 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock66 61 
Additional paid-in capital452,531 351,870 
Accumulated other comprehensive income 761 576 
Accumulated deficit(190,969)(156,049)
Total stockholders’ equity262,389 196,458 
Total liabilities and stockholders’ equity$1,013,287 $482,380 
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except per share data)

Three Months EndedNine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Revenue$112,143 $83,769 $307,023 $235,743 
Cost of revenue46,561 34,472 129,051 96,571 
Gross profit65,582 49,297 177,972 139,172 
Operating expenses:
Research and development17,674 11,665 50,071 33,022 
Sales and marketing32,969 25,014 95,360 69,965 
General and administrative16,724 12,146 47,511 35,950 
Total operating expenses67,367 48,825 192,942 138,937 
Income (loss) from operations(1,785)472 (14,970)235 
Other income (expense), net:
Interest expense(9,649)(3,486)(18,867)(10,288)
Interest income and other349 1,460 (3,544)4,695 
Total other income (expense), net(9,300)(2,026)(22,411)(5,593)
Loss before income taxes(11,085)(1,554)(37,381)(5,358)
Provision for (benefit from) income taxes346 50 (2,461)30 
Net loss$(11,431)$(1,604)$(34,920)$(5,388)
Net loss per share:
Basic and diluted$(0.17)$(0.03)$(0.55)$(0.09)
Shares used in computing net loss per share:
Basic and diluted65,460 60,781 63,490 60,074 
Comprehensive Loss:
Net loss$(11,431)$(1,604)$(34,920)$(5,388)
Other comprehensive income (loss)(243)81 185 320 
Comprehensive loss$(11,674)$(1,523)$(34,735)$(5,068)
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
Common StockAdditional Paid-In CapitalAccumulated
Other Comprehensive Income (Loss)
Accumulated
Deficit
Total Stockholders’ Equity
SharesAmount
Balance as of June 30, 201960,619 $61 $321,644 $146 $(155,281)$166,570 
Issuance of common stock upon exercise of stock options165 — 1,849 — — 1,849 
Issuance of common stock upon vesting of restricted stock units272 — — — — — 
Stock-based compensation— — 11,075 — — 11,075 
Other comprehensive income— — — 81 — 81 
Net loss— — — — (1,604)$(1,604)
Balance as of September 30, 201961,056 $61 $334,568 $227 $(156,885)$177,971 
Balance as of June 30, 202065,296 $65 $432,877 $1,004 $(179,538)$254,408 
Equity component from conversion of the 2023 convertible senior notes— — (10,623)— — (10,623)
Issuance of common stock upon partial conversion of the 2023 convertible senior notes80 — 10,145 — — 10,145 
Issuance of common stock upon exercise of stock options143 1 2,846 — — 2,847 
Issuance of common stock upon vesting of restricted stock units271 — — — — — 
Stock-based compensation— — 17,286 — — 17,286 
Other comprehensive loss— — — (243)— (243)
Net loss— — — — (11,431)(11,431)
Balance as of September 30, 202065,790 $66 $452,531 $761 $(190,969)$262,389 
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
Common StockAdditional Paid-In CapitalAccumulated
Other Comprehensive Income (Loss)
Accumulated
Deficit
Total Stockholders’ Equity
SharesAmount
Balance as of December 31, 201859,210 $59 $294,279 $(93)$(151,497)$142,748 
Issuance of common stock upon exercise of stock options825 2 6,096 — — 6,098 
Issuance of common stock upon vesting of restricted stock units912 — — — — — 
Issuance of common stock under ESPP109 — 3,996 — — 3,996 
Stock-based compensation— — 30,197 — — 30,197 
Other comprehensive income— — — 320 — 320 
Net loss— — — — (5,388)$(5,388)
Balance as of September 30, 201961,056 $61 $334,568 $227 $(156,885)$177,971 
Balance as of December 31, 201961,544 $61 $351,870 $576 $(156,049)$196,458 
Equity component of issuance of the 2025 convertible senior notes, net of issuance costs— — 154,363 — — 154,363 
Purchase of capped calls related to the 2025 convertible senior notes— — (90,448)— — (90,448)
Equity component from conversion of the 2023 convertible senior notes— — (304,432)— — (304,432)
Issuance of common stock upon partial conversion of the 2023 convertible senior notes2,804 3 278,715 — — 278,718 
Issuance of common stock upon exercise of stock options465 1 8,927 — — 8,928 
Issuance of common stock upon vesting of restricted stock units874 1 (1)— — — 
Issuance of common stock under ESPP103 — 5,666 — — 5,666 
Stock-based compensation— — 47,871 — — 47,871 
Other comprehensive income— — — 185 — 185 
Net loss— — — — (34,920)(34,920)
Balance as of September 30, 202065,790 $66 $452,531 $761 $(190,969)$262,389 
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30, 2020September 30, 2019
Cash flows from operating activities:
Net loss$(34,920)$(5,388)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization17,750 10,050 
Amortization of operating lease right-of-use assets4,227 3,420 
Amortization of premium on marketable investments1,819 (1,036)
Provision for doubtful accounts578 78 
Stock-based compensation47,871 30,197 
Gain on sale of convertible note held for investment (217)
Amortization of discount and issuance costs on convertible senior notes17,204 9,484 
Loss on early extinguishment of debt6,077  
Tax benefit of valuation allowance associated with an acquisition(2,910) 
Others73 2 
Changes in operating assets and liabilities:
Accounts receivable(5,306)(6,677)
Prepaid expenses and other current assets(5,445)(3,172)
Deferred contract acquisition costs(18,345)(9,035)
Other assets(2,074)(264)
Accounts payable2,667 100 
Accrued and other current liabilities13,528 3,522 
Accrued federal fees and sales tax liability16 233 
Deferred revenue5,246 4,391 
Other liabilities(66)(33)
Net cash provided by operating activities47,990 35,655 
Cash flows from investing activities:
Purchases of marketable investments(507,046)(274,401)
Proceeds from maturities of marketable investments268,207 285,281 
Purchases of property and equipment(20,412)(12,776)
Cash paid to acquire Virtual Observer(28,313) 
Cash paid to acquire substantially all of the assets of Whendu LLC (100) 
Proceeds from sale of convertible note held for investment 217 
Net cash used in investing activities(287,664)(1,679)
Cash flows from financing activities:
Proceeds from issuance of 2025 convertible senior notes, net of issuance costs 728,812  
Payments for capped call transactions related to the 2025 convertible senior notes(90,448) 
Repurchase of a portion of 2023 convertible senior notes, net of costs(186,465) 
Proceeds from exercise of common stock options8,928 6,097 
Proceeds from sale of common stock under ESPP5,666 3,996 
Payments of finance leases(3,028)(5,408)
Net cash provided by financing activities463,465 4,685 
Net increase in cash and cash equivalents223,791 38,661 
Cash and cash equivalents:
Beginning of period77,976 81,912 
End of period$301,767 $120,573 
Supplemental disclosures of cash flow data:
Cash paid for interest$346 $746 
Cash paid for income taxes$161 $204 
Non-cash investing and financing activities:
Equipment purchased and unpaid at period-end$3,721 $862 
Capitalization of leasehold improvement through non-cash lease incentive$ $42 
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Five9, Inc. and its wholly-owned subsidiaries (the “Company”) is a provider of cloud software for contact centers. The Company was incorporated in Delaware in 2001 and is headquartered in San Ramon, California. The Company has offices in Europe and Asia, which primarily provide research, development, sales, marketing, and client support services.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The significant estimates made by management affect revenue and related reserves. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in more timely recognition of credit losses. The Company adopted ASU 2016-13 using the modified retrospective method on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial position, operating results or cash flows. See Notes 3 and 4 for further information on the impact of this adoption.
Recent Accounting Pronouncements Not Yet Effective
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. ASU 2020-06 also requires the application of the if-converted
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method for calculating diluted earnings per share and the treasury stock method will be no longer available. This standard will be effective for the Company fiscal years beginning in the first quarter of 2022, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2020-06 will have on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which amends its guidance to simplify the accounting for income taxes by, among other things, removing exceptions to certain general principles in Topic 740, Income Taxes. This standard will be effective for the Company beginning in the first quarter of 2021, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.
The Company has reviewed or is in the process of evaluating all other issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such accounting pronouncements will cause a material impact on its consolidated financial position, operating results or cash flows.
2. Revenue
Contract Balances
The following table provides information about accounts receivable, net, deferred contract acquisition costs, contract assets and contract liabilities from contracts with customers (in thousands):
September 30, 2020December 31, 2019
Accounts receivable, net$42,542 $37,655 
Deferred contract acquisition costs:
Current$17,932 $13,014 
Non-current44,083 30,655 
Total deferred contract acquisition costs$62,015 $43,669 
Contract assets and contract liabilities:
Contract assets (included in prepaid expenses and other current assets)$1,075 $825 
Contract liabilities (deferred revenue) 28,527 24,681 
Contract liabilities (deferred revenue) (included in other long-term liabilities)3,434 1,550 
Net contract liabilities$(30,886)$(25,406)
The Company receives payments from customers based upon billing cycles. Invoice payment terms are usually 30 days or less. Accounts receivable are recorded when the right to consideration becomes unconditional.
Deferred contract acquisition costs are recorded when incurred and are amortized over a customer benefit period of five years.
The Company’s contract assets consist of unbilled amounts typically resulting from professional services revenue recognition when it exceeds the total amounts billed to the customer. The Company’s contract liabilities consist of advance payments and billings in excess of revenue recognized.
In the three and nine months ended September 30, 2020, the Company recognized revenue of $1.7 million and $21.7 million, respectively, related to its contract liabilities at December 31, 2019.
Remaining Performance Obligations
As of September 30, 2020, the aggregate amount of the total transaction price allocated in contracts with original duration of greater than one year to the remaining performance obligations was $286.5 million. The Company expects to recognize revenue on approximately three-fourths of the remaining performance obligation over the next 24 months, with the balance recognized thereafter. The Company has elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are part of contracts with an original expected duration of one year or less. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligations pursuant to ASC 606.
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3. Investments and Fair Value Measurements
Marketable Investments
The Company’s marketable investments have been classified and accounted for as available-for-sale. The Company’s marketable investments as of September 30, 2020 and December 31, 2019 were as follows (in thousands):
September 30, 2020
CostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$3,729 $1 $ $3,730 
U.S. treasury302,412 160  302,572 
U.S. agency securities148,836 85  148,921 
Commercial paper5,991   5,991 
Municipal bonds1,661 1  1,662 
Corporate bonds16,251 14  16,265 
Total$478,880 $261 $ $479,141 

December 31, 2019
CostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$161 $1 $ $162 
U.S. treasury31,933 8 (1)31,940 
U.S. agency securities177,629 110 (9)177,730 
Commercial paper15,240   15,240 
Municipal bonds3,014 1  3,015 
Corporate bonds13,876 10  13,886 
Total$241,853 $130 $(10)$241,973 
The following table presents the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than 12 months as of September 30, 2020 and December 31, 2019 (in thousands):
September 30, 2020December 31, 2019
Gross Unrealized LossesFair ValueGross Unrealized LossesFair Value
U.S. treasury$ $1,498 $(1)$12,926 
U.S. agency securities  (9)36,322 
Corporate bonds   251 
Total$ $1,498 $(10)$49,499 

Although the Company had certain available-for-sale debt securities in an unrealized loss position as of September 30, 2020, no impairment loss was recorded since it did not intend to sell them, did not anticipate a need to sell them, and the decline in fair value was not due to any credit-related factors, which it is now required to assess upon adoption of ASU 2016-13.
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The contractual maturities of the Company’s marketable investments as of September 30, 2020 and December 31, 2019 were less than one year.



Fair Value Measurements
The Company carries cash equivalents and marketable investments at fair value. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 — Observable inputs, which include unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 inputs, such as quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are based on management’s assumptions, including fair value measurements determined by using pricing models, discounted cash flow methodologies or similar techniques.
The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.
Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. The Company performs routine procedures such as comparing prices obtained from independent source to ensure that appropriate fair values are recorded.
The following tables set forth the Company’s assets measured at fair value by level within the fair value hierarchy (in thousands):
September 30, 2020
Level 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$172,482 $ $ $172,482 
U.S. treasury49,994   49,994 
Total cash equivalents$222,476 $ $ $222,476 
Marketable investments
Certificates of deposit$ $3,730 $ $3,730 
U.S. treasury302,572   302,572 
U.S. agency securities 148,921  148,921 
Commercial paper 5,991  5,991 
Municipal bonds 1,662  1,662 
Corporate bonds 16,265  16,265 
Total marketable investments$302,572 $176,569 $ $479,141 

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December 31, 2019
Level 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$2,179 $ $ $2,179 
Commercial paper 2,697  2,697 
Total cash equivalents$2,179 $2,697 $ $4,876 
Marketable investments
Certificates of deposit$ $162 $ $162 
U.S. treasury31,940   31,940 
U.S. agency securities 177,730  177,730 
Commercial paper 15,240  15,240 
Municipal bonds 3,015  3,015 
Corporate bonds 13,886  13,886 
Total marketable investments$31,940 $210,033 $ $241,973 
As of September 30, 2020 and December 31, 2019, the estimated fair value of the Company’s outstanding 0.125% convertible senior notes due 2023 (the "2023 convertible senior notes") was $229.8 million and $437.0 million, respectively. As of September 30, 2020, the estimated fair value of the Company's outstanding 0.500% convertible senior notes due 2025 (the "2025 convertible senior notes" and, together with the 2023 convertible senior notes, the "convertible senior notes") was $904.3 million. The fair values were determined based on the quoted price of the convertible senior notes in an inactive market on the last trading day of the reporting period and have been classified as Level 2 in the fair value hierarchy. See Note 6 for further information on the Company’s convertible senior notes.
There were no assets or liabilities measured at fair value on a non-recurring basis as of September 30, 2020 and December 31, 2019.
The Company’s other financial instruments’ fair value, including accounts receivable, accounts payable and other current liabilities, approximate its carrying value due to the relatively short maturity of those instruments. The carrying amounts of the Company’s finance leases approximate their fair value, which is the present value of expected future cash payments based on assumptions about current interest rates and the creditworthiness of the Company.

4. Financial Statement Components
Cash and cash equivalents consisted of the following (in thousands):
September 30, 2020December 31, 2019
Cash$79,291 $73,100 
Money market funds172,482 2,179 
U.S. treasury49,994  
Commercial paper 2,697 
Total cash and cash equivalents$301,767 $77,976 
Accounts receivable, net consisted of the following (in thousands):
September 30, 2020December 31, 2019
Trade accounts receivable$37,959 $34,591 
Unbilled trade accounts receivable, net of advance client deposits4,702 3,075 
Allowance for doubtful accounts
(119)(11)
Accounts receivable, net$42,542 $37,655 
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Table of Contents
The Company's adoption of ASU 2016-13 on January 1, 2020 required it to shift from an incurred loss impairment model to an expected credit loss model, which requires it to consider historical loss rates and expectations of forward-looking losses to estimate its allowance for doubtful accounts on its trade accounts receivables, unbilled accounts receivables and contract assets. The adoption of this new standard resulted in an increase to the allowance for doubtful accounts reserve of $0.2 million and $0.5 million during the three and nine months ended September 30, 2020, respectively. The following table presents the change in the allowance for doubtful accounts, including consideration of expected credit losses, for the three and nine months ended September 30, 2020 (in thousands):