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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, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 001-36383
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.)
3001 Bishop Drive, Suite 350
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  No: 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 27, 2023, there were 72,695,935 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 our future events, strategies and financial trends and 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 under the caption "Risk Factors" set forth in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and Part II, Item 1A, of this Quarterly Report, which we encourage you to carefully read, and include the following:
adverse economic conditions, including the impact of macroeconomic deterioration, including continuing inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, and other factors, that may continue to harm our business;
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;
if our existing clients terminate their subscriptions or reduce their subscriptions and related usage, or fail to grow subscriptions at the rate they have in the past or that we might expect, our revenues and gross margins will be harmed, and we will be required to spend more money to grow our client base;
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 have established, and are continuing to increase, our network of technology solution brokers and resellers to sell our solution; our failure to effectively develop, manage, and maintain this network could materially harm our revenues;
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;
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;
further development of our AI solutions may not be successful and may result in reputational harm and our future operating results could be materially harmed;
the AI technology and features incorporated into our solution include new and evolving technologies that may present both legal and business risks;
the use of AI by our workforce may present risks to our business;
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;
the markets in which we participate involve a high number of competitors that are continuing to increase, and if we do not compete effectively, our operating results could be harmed;
we continue to expand our international operations, which exposes us to significant macroeconomic and other risks;
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, our business or financial results;
we may acquire other companies, or technologies or be the target of strategic transactions, or be impacted by transactions by other companies, which could divert our management’s attention, result in additional
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dilution to our stockholders or use a significant amount of our cash resources and otherwise disrupt our operations and harm our operating results;
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;
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 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 cloud contact center solutions, which we refer to as our solution, in order to maintain and grow our business;
our stock price has been volatile, may continue to be volatile and may decline, including due to factors beyond our control;
we may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs;
failure to comply with laws and regulations could harm our business and our reputation; and
we may not have sufficient cash to service our convertible senior notes and repay such notes, if required.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in, or incorporated into, 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, 2023December 31, 2022
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$127,828 $180,520 
Marketable investments572,462 433,743 
Accounts receivable, net94,436 87,494 
Prepaid expenses and other current assets37,627 29,711 
Deferred contract acquisition costs, net58,320 47,242 
Total current assets890,673 778,710 
Property and equipment, net102,029 101,221 
Operating lease right-of-use assets41,522 44,120 
Finance lease right-of-use assets4,612  
Intangible assets, net41,469 28,192 
Goodwill227,412 165,420 
Marketable investments 885 
Other assets16,603 11,057 
Deferred contract acquisition costs, net — less current portion132,124 114,880 
Total assets$1,456,444 $1,244,485 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$28,528 $23,629 
Accrued and other current liabilities59,511 53,092 
Operating lease liabilities11,454 10,626 
Finance lease liabilities1,617  
Accrued federal fees3,336 2,471 
Sales tax liabilities2,965 2,973 
Deferred revenue64,565 57,816 
Convertible senior notes 169 
Total current liabilities171,976 150,776 
Convertible senior notes — less current portion741,169 738,376 
Sales tax liabilities — less current portion919 899 
Operating lease liabilities — less current portion38,336 41,389 
Finance lease liabilities — less current portion3,048  
Other long-term liabilities7,126 3,080 
Total liabilities962,574 934,520 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock73 71 
Additional paid-in capital887,087 635,668 
Accumulated other comprehensive loss (798)(2,688)
Accumulated deficit(392,492)(323,086)
Total stockholders’ equity493,870 309,965 
Total liabilities and stockholders’ equity$1,456,444 $1,244,485 
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, 2023September 30, 2022September 30, 2023September 30, 2022
Revenue$230,105 $198,342 $671,426 $570,501 
Cost of revenue111,080 94,111 320,197 271,207 
Gross profit119,025 104,231 351,229 299,294 
Operating expenses:
Research and development40,391 34,113 117,709 104,929 
Sales and marketing73,366 67,353 223,757 196,062 
General and administrative31,006 24,496 89,741 72,634 
Total operating expenses144,763 125,962 431,207 373,625 
Loss from operations(25,738)(21,731)(79,978)(74,331)
Other income (expense), net:
Interest expense(1,972)(1,879)(5,683)(5,606)
Interest income and other8,233 982 18,477 2,107 
Total other income (expense), net6,261 (897)12,794 (3,499)
Loss before income taxes(19,477)(22,628)(67,184)(77,830)
Provision for income taxes942 579 2,222 3,167 
Net loss$(20,419)$(23,207)$(69,406)$(80,997)
Net loss per share:
Basic and diluted$(0.28)$(0.33)$(0.97)$(1.16)
Shares used in computing net loss per share:
Basic and diluted72,356 70,232 71,751 69,656 
Comprehensive Loss:
Net loss$(20,419)$(23,207)$(69,406)$(80,997)
Other comprehensive income (loss)599 433 1,890 (3,814)
Comprehensive loss$(19,820)$(22,774)$(67,516)$(84,811)
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
Common StockAdditional Paid-In CapitalAccumulated
Other Comprehensive Income (Loss)
Accumulated
Deficit
Total Stockholders’ Equity
SharesAmount
Balance as of June 30, 202270,090 $70 $535,592 $(4,534)$(286,226)$244,902 
Issuance of common stock upon partial conversion of the 2023 convertible senior notes — (16)— — (16)
Partial unwind of capped calls and retirement of common stock related to the 2023 convertible senior notes — 5 — — 5 
Issuance of common stock upon exercise of stock options68  2,353 — — 2,353 
Issuance of common stock upon vesting of restricted stock units345 1  — — 1 
Stock-based compensation— — 44,974 — — 44,974 
Other comprehensive income— — — 433 — 433 
Net loss— — — — (23,207)(23,207)
Balance as of September 30, 202270,503 $71 $582,908 $(4,101)$(309,433)$269,445 
Balance as of June 30, 202372,180 $72 $832,197 $(1,397)$(372,073)$458,799 
Issuance of common stock upon exercise of stock options57 — 1,334 — — 1,334 
Issuance of common stock upon vesting of restricted stock units459 1 (1)— — — 
Issuance of common stock under ESPP— — — — — — 
Stock-based compensation— — 53,557 — — 53,557 
Other comprehensive income— — — 599 — 599 
Net loss— — — — (20,419)(20,419)
Balance as of September 30, 202372,696 $73 $887,087 $(798)$(392,492)$493,870 


See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
Common StockAdditional Paid-In CapitalAccumulated
Other Comprehensive Income (Loss)
Accumulated
Deficit
Total Stockholders’ Equity
SharesAmount
Balance as of December 31, 202168,488 $68 $439,787 $(287)$(228,436)$211,132 
Issuance of common stock upon partial conversion of the 2023 convertible senior notes574 — (275)— — (275)
Partial unwind of capped calls and retirement of common stock related to the 2023 convertible senior notes(119)— 8 — — 8 
Issuance of common stock upon exercise of stock options419 1 5,357 — — 5,358 
Issuance of common stock upon vesting of restricted stock units1,044 2  — — 2 
Issuance of common stock under ESPP97 — 8,338 — — 8,338 
Stock-based compensation— — 129,693 — — 129,693 
Other comprehensive loss— — — (3,814)— (3,814)
Net loss— — — — (80,997)(80,997)
Balance as of September 30, 202270,503 $71 $582,908 $(4,101)$(309,433)$269,445 
Balance as of December 31, 202271,047 $71 $635,668 $(2,688)$(323,086)$309,965 
Issuance of common stock upon partial conversion of the 2023 convertible senior notes2 — — — —  
Settlement at maturity of the outstanding capped calls and retirement of common stock related to the 2023 convertible senior notes(371)— 74,453 — — 74,453 
Issuance of common stock upon exercise of stock options436  8,315 — — 8,315 
Issuance of common stock upon vesting of restricted stock units1,378 2 (1)— — 1 
Issuance of common stock under ESPP204 — 9,444 — — 9,444 
Stock-based compensation— — 159,208 — — 159,208 
Other comprehensive income— — — 1,890 — 1,890 
Net loss— — — — (69,406)(69,406)
Balance as of September 30, 202372,696 $73 $887,087 $(798)$(392,492)$493,870 


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, 2023September 30, 2022
Cash flows from operating activities:
Net loss$(69,406)$(80,997)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization35,553 33,650 
Amortization of operating lease right-of-use assets9,234 7,491 
Amortization of deferred contract acquisition costs40,088 29,245 
(Accretion of discount) amortization of premium on marketable investments(7,684)1,006 
Provision for credit losses795 812 
Stock-based compensation156,721 128,682 
Amortization of discount and issuance costs on convertible senior notes2,793 2,796 
Deferred taxes438 2,076 
Change in fair of value of contingent consideration 260 
Payment of contingent consideration liability in excess of acquisition-date fair value (5,900)
Other669 503 
Changes in operating assets and liabilities:
Accounts receivable(6,661)(5,337)
Prepaid expenses and other current assets(6,537)(2,228)
Deferred contract acquisition costs(68,410)(62,835)
Other assets(4,892)(213)
Accounts payable5,562 1,008 
Accrued and other current liabilities(2,006)796 
Accrued federal fees and sales tax liabilities877 (2,001)
Deferred revenue1,544 9,519 
Other liabilities3,616 (2,208)
Net cash provided by operating activities92,294 56,125 
Cash flows from investing activities:
Purchases of marketable investments(544,713)(250,278)
Proceeds from sales of marketable investments971 600 
Proceeds from maturities of marketable investments415,117 321,311 
Purchases of property and equipment(19,941)(46,028)
Capitalization of software development costs(5,820)(2,420)
Cash paid to acquire Aceyus(80,588) 
Payments of initial direct costs (282)
Cash paid for an equity investment in a privately-held company (2,000)
Net cash (used in) provided by investing activities(234,974)20,903 
Cash flows from financing activities:
Repayment of outstanding 2023 convertible senior notes at maturity(169) 
Cash received from the settlement at maturity of the outstanding capped calls associated with the 2023 convertible senior notes74,453  
Repurchase of a portion of 2023 convertible senior notes, net of costs (34,057)
Proceeds from exercise of common stock options8,315 5,358 
Proceeds from sale of common stock under ESPP9,444 8,338 
Payment of contingent consideration liability up to acquisition-date fair value (18,100)
Payment of holdback related to an acquisition(500) 
Payments of finance leases(496) 
Net cash provided by (used in) financing activities91,047 (38,461)
Net (decrease) increase in cash, cash equivalents and restricted cash(51,633)38,567 
Cash, cash equivalents and restricted cash:
Beginning of period180,987 91,391 
End of period$129,354 $129,958 
Supplemental disclosures of cash flow data:
Cash paid for interest$1,956 $1,870 
Cash paid for income taxes$1,124 $932 
Non-cash investing and financing activities:
Equipment and software purchased and unpaid at period-end$11,419 $13,372 
Capitalization of leasehold improvements and furniture and fixtures through non-cash lease incentive$ $109 
Acquisition and related transaction costs accrued at period-end$330 $ 
Stock-based compensation included in capitalized software development costs$2,487 $1,011 
Reconciliation of Cash, Cash Equivalents and Restricted Cash to the Condensed Consolidated Balance Sheets - Beginning of Period:
Cash and cash equivalents$180,520 $90,878 
Restricted cash in other assets467 513 
Total cash, cash equivalents and restricted cash$180,987 $91,391 
Reconciliation of Cash, Cash Equivalents and Restricted Cash to the Condensed Consolidated Balance Sheets - End of Period:
Cash and cash equivalents$127,828 $129,492 
Restricted cash in other assets1,526 466 
Total cash, cash equivalents and restricted cash$129,354 $129,958 
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, Asia and Australia, 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, 2022. 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, as well as the fair value of assets acquired and liabilities assumed through business combinations. 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
There have been no material changes from the significant accounting policies previously disclosed in Part II, Item 8, of 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.
Recent Accounting Pronouncements Not Yet Effective
The Company has reviewed or is in the process of evaluating all 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 condensed consolidated financial position, operating results or statements of cash flows.
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2. Revenue
Contract Balances
The following table provides information about accounts receivable, net, deferred contract acquisition costs, net, contract assets and contract liabilities from contracts with customers (in thousands):
September 30, 2023December 31, 2022
Accounts receivable, net$94,436 $87,494 
Deferred contract acquisition costs, net:
Current$58,320 $47,242 
Non-current132,124 114,880 
Total deferred contract acquisition costs, net$190,444 $162,122 
Contract assets and contract liabilities:
Contract assets (included in prepaid expenses and other current assets)$2,878 $3,401 
Contract liabilities (deferred revenue) (64,565)(57,816)
Noncurrent contract liabilities (deferred revenue) (included in other long-term liabilities)(1,558)(1,178)
Net contract liabilities$(63,245)$(55,593)
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 an estimated 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, 2023, the Company recognized revenue of $4.3 million and $45.8 million, respectively, related to its contract liabilities at December 31, 2022.
Remaining Performance Obligations
As of September 30, 2023, 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 $1,046.3 million. The Company expects to recognize revenue on approximately three-fourths of the remaining performance obligations over the next 24 months, with the balance recognized thereafter. The Company excludes 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.
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 intent is that all marketable investments are available for use in its current operations, including marketable investments with maturity dates greater than one year from September 30, 2023. The Company’s
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marketable investments as of September 30, 2023 and December 31, 2022 were as follows (in thousands):
September 30, 2023
Short-Term Marketable InvestmentsCostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$1,206 $ $ $1,206 
U.S. treasury securities263,979 10 (903)263,086 
U.S. agency securities267,458  (659)266,799 
Commercial paper31,412 1 (10)31,403 
Corporate bonds10,056  (88)9,968 
Total$574,111 $11 $(1,660)$572,462 

December 31, 2022
Short-Term Marketable InvestmentsCostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$747 $ $(13)$734 
U.S. treasury securities186,776 8 (1,382)185,402 
U.S. agency and government-sponsored securities197,597 29 (1,660)195,966 
Commercial paper25,386   25,386 
Municipal bonds22,764  (145)22,619 
Corporate bonds3,658  (22)3,636 
Total$436,928 $37 $(3,222)$433,743 
December 31, 2022
Long-term Marketable InvestmentsCostGross Unrealized GainsGross Unrealized LossesFair Value
U.S. agency securities$885 $ $ $885 
Total$885 $ $ $885 
The following table presents the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than 12 months as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Gross Unrealized LossesFair ValueGross Unrealized LossesFair Value
Certificates of deposit$ $ $(13)$734 
U.S. treasury securities(903)123,889 (1,382)126,534 
U.S. agency securities(659)266,183 (1,660)172,458 
Commercial paper(10)28,284   
Municipal bonds  (145)12,623 
Corporate bonds(88)9,969 (22)3,636 
Total$(1,660)$428,325 $(3,222)$315,985 
Although the Company had certain available-for-sale debt securities in an unrealized loss position as of September 30, 2023, 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.
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The amortized cost and fair value of the Company’s marketable investments by contractual maturity as of September 30, 2023 were as follows (in thousands):
CostFair Value
Due within one year$456,826 $456,282 
Due after one year through two years117,285 116,180 
Total$574,111 $572,462 

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.
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The following tables set forth the Company’s assets measured at fair value by level within the fair value hierarchy (in thousands):
September 30, 2023
Level 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$34,026 $ $ $34,026 
Certificates of deposit 249  249 
U.S. treasury securities11,970   11,970 
Total cash equivalents$45,996 $249 $ $46,245 
Marketable investments
Certificates of deposit$ $1,206 $ $1,206 
U.S. treasury securities263,086   263,086 
U.S. agency securities and government sponsored securities 266,799  266,799 
Commercial paper 31,403  31,403 
Corporate bonds 9,968  9,968 
Total marketable investments$263,086 $309,376 $ $572,462 




December 31, 2022
Level 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$37,560 $ $ $37,560 
U.S. treasury securities19,700   19,700 
Total cash equivalents$57,260 $ $ $57,260 
Marketable investments (short and long-term)
Certificates of deposit$ $734 $ $734 
U.S. treasury securities185,402   185,402 
U.S. agency and government-sponsored securities 196,851  196,851 
Commercial paper 25,386  25,386 
Municipal bonds 22,619  22,619 
Corporate bonds 3,636  3,636 
Total marketable investments$185,402 $249,226 $ $434,628 
As of December 31, 2022, the estimated fair value of the Company’s outstanding 2023 convertible senior notes was $0.3 million. The 2023 convertible senior notes matured on May 1, 2023. As of September 30, 2023 and December 31, 2022, the estimated fair value of the Company's outstanding 2025 convertible senior notes was $698.5 million and $687.1 million, respectively. 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.
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In February 2022, the Company made a $2.0 million equity investment in a privately-held company that it does not have the ability to exercise significant influence over. The Company elected the measurement alternative for an equity security without a readily determinable fair value. Accordingly, this investment is accounted for at its cost minus impairment, if any, and is classified within Level 3. If the Company identifies observable price changes in orderly transactions for such investment or a similar investment, it will measure the investment at fair value as of the date that the observable transactions or events occurred.
Except for the $2.0 million equity investment described above, there were no assets or liabilities measured at fair value on a non-recurring basis as of September 30, 2023 and December 31, 2022.
The fair value of the Company’s other financial instruments, including accounts receivable, accounts payable and other current liabilities, approximate their carrying value due to the relatively short maturity of those instruments. The carrying amounts of the Company’s operating and 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, 2023December 31, 2022
Cash$81,583 $123,260 
Certificates of deposit249  
Money market funds34,026 37,560 
U.S. treasury securities11,970 19,700 
Total cash and cash equivalents$127,828 $180,520 
Accounts receivable, net consisted of the following (in thousands):
September 30, 2023December 31, 2022
Trade accounts receivable$83,122 $77,621 
Unbilled trade accounts receivable, net of advance client deposits11,567 10,135 
Allowance for credit losses
(253)(262)
Accounts receivable, net$94,436 $87,494 
Prepaid expenses and other current assets consisted of the following (in thousands):
September 30, 2023December 31, 2022
Prepaid expenses$26,325 $17,151 
Other current assets8,424 9,159 
Contract assets2,878 3,401 
Prepaid expenses and other current assets$37,627 $29,711 
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Property and equipment, net consisted of the following (in thousands):
September 30, 2023December 31, 2022
Computer and network equipment$149,051 $148,789 
Computer software56,498 50,955 
Internal-use software development costs14,419 6,111 
Furniture and fixtures4,690 3,326 
Leasehold improvements6,042 6,574 
Property and equipment230,700 215,755 
Accumulated depreciation and amortization(128,671)(114,534)
Property and equipment, net$102,029 $101,221 
Depreciation and amortization expense associated with property and equipment was $9.3 million and $26.7 million for the three and nine months ended September 30, 2023, respectively. Depreciation and amortization expense associated with property and equipment was $8.3 million and $24.8 million for the three and nine months ended September 30, 2022, respectively.
Property and equipment capitalized under finance lease obligations consists primarily of computer and network equipment and was immaterial as of September 30, 2023 and December 31, 2022.
Other assets consisted of the following (in thousands):
September 30, 2023December 31, 2022
Other assets$11,069 $5,081 
Equity investment in a privately-held company2,000 2,000 
Deferred tax assets3,534 3,976 
Total$16,603 $11,057 
Accrued and other current liabilities consisted of the following (in thousands):
September 30, 2023December 31, 2022
Accrued expenses$20,051 $19,343 
Accrued compensation and benefits39,460 33,749 
Accrued and other current liabilities$59,511 $53,092 
Other long-term liabilities consisted of the following (in thousands):
September 30, 2023December 31, 2022
Deferred revenue$1,558 $1,178 
Deferred tax liabilities463 157 
Other long-term liabilities5,105 1,745 
Other long-term liabilities$7,126 $3,080 

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5. Goodwill and Intangible Assets
Goodwill of $62.6 million and intangible assets of $22.0 million were recorded as a result of the Company's acquisition of Aceyus, Inc. ("Aceyus") in August 2023. See Note 13 for further details. The following table summarizes the activity in the Company's goodwill and intangible asset balances during the nine months ended September 30, 2023 (in thousands):
GoodwillIntangible Assets
Beginning of the period, December 31, 2022$165,420 $28,192 
  Addition (Aceyus)61,992 22,150 
  Amortization— (8,873)
End of the period, September 30, 2023$227,412 $41,469 
The components of intangible assets were as follows (in thousands):
September 30, 2023December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountWeighted Average Remaining Amortization period (Years)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountWeighted Average Remaining Amortization period (Years)
Developed technology$75,314 $(37,472)$37,842 5.3$56,214 $(28,881)$27,333 3.2
Acquired workforce470 (470) 0.0470 (470) 0.0
Customer relationships4,150 (1,002)3,148 4.31,600 (741)859 2.7
Trademarks1,000 (521)479 2.9500 (500) 0.0
Total$80,934 $(39,465)$41,469 5.2$58,784 $(30,592)$28,192 3.2
Amortization expense related to intangible assets was $3.2 million and $8.9 million for the three and nine months ended September 30, 2023, respectively. Amortization expense related to intangible assets was $2.9 million and $8.8 million for the three and nine months ended September 30, 2022, respectively.
As of September 30, 2023, the expected future amortization expense for intangible assets was as follows (in thousands):
PeriodExpected Future Amortization Expense
Remaining 2023$3,143 
202410,591 
20258,660 
20267,201 
20272,898 
Thereafter8,976 
Total$41,469 

6. Debt
2025 Convertible Senior Notes and Related Capped Call Transactions
In May and June 2020, the Company issued $747.5 million aggregate principal amount of 2025 convertible senior notes in a private offering, which aggregate principal amount included the exercise in full of the initial purchasers’ option to purchase up to an additional $97.5 million principal amount of the 2025 convertible senior notes. The 2025 convertible senior notes mature on June 1, 2025 and bear interest at a fixed rate of 0.500% per
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annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The total net proceeds from the issuance of the 2025 convertible senior notes, after deducting initial purchasers' discounts and commissions and estimated debt issuance costs, were approximately $728.8 million.
Each $1,000 principal amount of the 2025 convertible senior notes is initially convertible into 7.4437 shares of the Company’s common stock (the “2025 Conversion Option”), which is equivalent to an initial conversion price of approximately $134.34 per share of common stock, subject to adjustment upon the occurrence of specified events. The initial conversion price represents a premium of approximately 30% to the $103.34 per share closing price of the Company’s common stock on The Nasdaq Global Market on May 21, 2020. The 2025 convertible senior notes are convertible, in multiples of $1,000 principal amount, at the option of the holders prior to the close of business on the business day immediately preceding March 1, 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 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 five consecutive trading day period (the “2025 Measurement Period”) in which the trading price (as defined in the 2025 Indenture governing the 2025 convertible senior notes) per $1,000 principal amount of the 2025 convertible senior notes for each trading day of the 2025 Measurement Period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate in effect on each such trading day; (3) if the Company calls any or all of the 2025 convertible senior notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after March 1, 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 2025 convertible senior notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. 
Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. If the Company undergoes a fundamental change (as defined in the indenture governing the 2025 convertible senior notes), subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their 2025 convertible senior notes, in principal amounts of $1,000 or a multiple thereof, at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 convertible senior notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their notes in connection with such corporate event or during the relevant redemption period.
There have been no changes to the initial conversion price of the 2025 convertible senior notes since issuance. The closing market price of the Company's common stock of $64.30 per share on September 29, 2023, the last trading day during the three months ended September 30, 2023, was below $174.64 per share, which represents 130% of the initial conversion price of $134.34 per share. Additionally, the last reported sale price of the Company’s 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, September 29, 2023, was not greater than or equal to 130% of the initial conversion price. As such, during the three months ended September 30, 2023, the conditions allowing holders of the 2025 convertible senior notes to convert were not met. The 2025 convertible senior notes are therefore not convertible during the three months ending December 31, 2023.
The 2025 convertible senior notes became redeemable at the Company's option on June 6, 2023. The Company may redeem for cash all or any portion of the 2025 convertible senior notes, at its option, prior to March 1, 2025, if the last reported sale price of its common stock has been 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 not more than two trading days immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 convertible senior notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. No sinking fund is provided for the 2025 convertible senior notes. During the three months ended September 30, 2023, the conditions allowing the Company to redeem for cash all or any portion of the 2025 convertible senior notes were not met.
The 2025 convertible senior notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2025 convertible senior notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of
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the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.
The net carrying amount of the 2025 convertible senior notes as of September 30, 2023 and as of December 31, 2022 was as follows (in thousands):
September 30, 2023December 31, 2022
Principal$747,500 $747,500 
Unamortized issuance costs(6,331)(9,124)
Net carrying amount$741,169 $738,376 
Interest ex