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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
__________________
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2019
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 001-38600
__________________
TENABLE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
__________________
Delaware
 
47-5580846
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
7021 Columbia Gateway Drive, Suite 500, Columbia, Maryland, 21046
(Address of principal executive offices, including zip code)
(410) 872-0555
(Registrant’s telephone number, including area code)
__________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
TENB
The Nasdaq Stock Market LLC
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 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
 
 
Emerging growth company
 
Smaller reporting 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. ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes         No   
The number of shares of the Registrant's common stock outstanding as of August 2, 2019 was 96,871,720.



TENABLE HOLDINGS, INC.
TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.        Financial Statements
TENABLE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
 
June 30, 2019
 
December 31, 2018
(in thousands, except per share data)
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
185,663

 
$
165,116

Short-term investments
111,301

 
118,119

Accounts receivable (net of allowance for doubtful accounts of $125 and $188 at June 30, 2019 and December 31, 2018, respectively)
68,983

 
68,261

Deferred commissions
24,867

 
23,272

Prepaid expenses and other current assets
20,316

 
22,020

Total current assets
411,130

 
396,788

Property and equipment, net
14,949

 
11,348

Deferred commissions (net of current portion)
36,999

 
36,162

Operating lease right-of-use assets
9,201

 
8,504

Other assets
8,490

 
7,810

Total assets
$
480,769

 
$
460,612

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,207

 
$
171

Accrued expenses
9,770

 
5,554

Accrued compensation
26,502

 
29,594

Deferred revenue
227,227

 
213,644

Operating lease liabilities
3,961

 
4,262

Other current liabilities
538

 
1,079

Total current liabilities
270,205

 
254,304

Deferred revenue (net of current portion)
80,106

 
76,259

Operating lease liabilities (net of current portion)
6,559

 
6,055

Other liabilities
2,940

 
2,231

Total liabilities
359,810

 
338,849

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock (par value: $0.01; 500,000 shares authorized; 96,808 and 93,126 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)
968

 
931

Additional paid-in capital
629,087

 
586,940

Accumulated other comprehensive income
80

 

Accumulated deficit
(509,176
)
 
(466,108
)
Total stockholders’ equity
120,959

 
121,763

Total liabilities and stockholders’ equity
$
480,769

 
$
460,612

The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents

TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share data)
2019
 
2018
 
2019
 
2018
Revenue
$
85,384

 
$
63,592

 
$
165,685

 
$
122,699

Cost of revenue
13,918

 
9,879

 
27,144

 
18,607

Gross profit
71,466

 
53,713

 
138,541

 
104,092

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
56,015

 
41,826

 
108,704

 
81,414

Research and development
21,698

 
17,791

 
43,633

 
34,976

General and administrative
15,987

 
10,541

 
31,123

 
19,596

Total operating expenses
93,700

 
70,158

 
183,460

 
135,986

Loss from operations
(22,234
)
 
(16,445
)
 
(44,919
)
 
(31,894
)
Interest income (expense), net
1,594

 
(23
)
 
3,150

 
(49
)
Other expense, net
(122
)
 
(438
)
 
(336
)
 
(420
)
Loss before income taxes
(20,762
)
 
(16,906
)
 
(42,105
)
 
(32,363
)
Provision for income taxes
866

 
244

 
963

 
675

Net loss
(21,628
)
 
(17,150
)
 
(43,068
)
 
(33,038
)
Accretion of Series A and B redeemable convertible preferred stock

 
(191
)
 

 
(379
)
Net loss attributable to common stockholders
$
(21,628
)
 
$
(17,341
)
 
$
(43,068
)
 
$
(33,417
)
 
 
 
 
 
 
 
 
Net loss per share attributable to common stockholders, basic and diluted
$
(0.23
)
 
$
(0.73
)
 
$
(0.45
)
 
$
(1.41
)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted
95,820

 
23,750

 
94,785

 
23,623

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Net loss
$
(21,628
)
 
$
(17,150
)
 
$
(43,068
)
 
$
(33,038
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized gains on available-for-sale securities
59

 

 
80

 

Other comprehensive income
59

 

 
80

 

Comprehensive loss
$
(21,569
)
 
$
(17,150
)
 
$
(42,988
)
 
$
(33,038
)


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Table of Contents

TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
 
Redeemable Convertible Preferred Stock
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
Income
 
 
 
 
 
Series A
 
Series B
 
 
Common Stock
 
Additional
Paid-in
Capital
 
 
 
 
Total
Stockholders’
Equity (Deficit)
(in thousands)
Shares
 
Amount
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Accumulated Deficit
 
Balance at March 31, 2019

 
$

 

 
$

 
 
96,203
 
$
962

 
$
614,774

 
$
21

 
$
(487,548
)
 
$
128,209

Exercise of stock options

 

 

 

 
 
604

 
6

 
2,843

 

 

 
2,849

Vesting of restricted stock units

 

 

 

 
 
1

 

 

 

 

 

Stock-based compensation

 

 

 

 
 

 

 
11,470

 

 

 
11,470

Other comprehensive income

 

 

 

 
 

 

 

 
59

 

 
59

Net loss

 

 

 

 
 

 

 

 

 
(21,628
)
 
(21,628
)
Balance at June 30, 2019

 
$

 

 
$

 
 
96,808

 
$
968

 
$
629,087

 
$
80

 
$
(509,176
)
 
$
120,959

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018

 
$

 

 
$

 
 
93,126
 
$
931

 
$
586,940

 
$

 
$
(466,108
)
 
$
121,763

Exercise of stock options

 

 

 

 
 
3,242

 
32

 
12,695

 

 

 
12,727

Vesting of restricted stock units

 

 

 

 
 
1

 

 

 

 

 

Issuance of common stock under employee stock purchase plan

 

 

 

 
 
439

 
5

 
8,574

 

 

 
8,579

Stock-based compensation

 

 

 

 
 

 

 
20,878

 

 

 
20,878

Other comprehensive income

 

 

 

 
 

 

 

 
80

 

 
80

Net loss

 

 

 

 
 

 

 

 

 
(43,068
)
 
(43,068
)
Balance at June 30, 2019

 
$

 

 
$

 
 
96,808

 
$
968

 
$
629,087

 
$
80

 
$
(509,176
)
 
$
120,959

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2018
15,848

 
$
49,940

 
39,538

 
$
227,983

 
 
24,794
 
$
249

 
$
23,363

 
$

 
$
(408,475
)
 
$
(384,863
)
Accretion of Series A and B redeemable convertible preferred stock

 
6

 

 
185

 
 

 

 
(191
)
 

 

 
(191
)
Exercise of stock options

 

 

 

 
 
164

 
2

 
529

 

 

 
531

Repurchase of common stock

 

 

 

 
 
(7
)
 
(1
)
 
(74
)
 

 

 
(75
)
Stock-based compensation

 

 

 

 
 

 

 
3,024

 

 

 
3,024

Net loss

 

 

 

 
 

 

 

 

 
(17,150
)
 
(17,150
)
Balance at June 30, 2018
15,848

 
$
49,946

 
39,538

 
$
228,168

 
 
24,951

 
$
250

 
$
26,651

 
$

 
$
(425,625
)
 
$
(398,724
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
15,848
 
$
49,935

 
39,538
 
$
227,800

 
 
24,472
 
$
246

 
$
20,676

 
$

 
$
(392,587
)
 
$
(371,665
)
Accretion of Series A and B redeemable convertible preferred stock

 
11

 

 
368

 
 

 

 
(379
)
 

 

 
(379
)
Exercise of stock options

 

 

 

 
 
486

 
5

 
1,005

 

 

 
1,010

Repurchase of common stock

 

 

 

 
 
(7
)
 
(1
)
 
(74
)
 

 

 
(75
)
Stock-based compensation

 

 

 

 
 

 

 
5,423

 

 

 
5,423

Net loss

 

 

 

 
 

 

 

 

 
(33,038
)
 
(33,038
)
Balance at June 30, 2018
15,848

 
$
49,946

 
39,538

 
$
228,168

 
 
24,951

 
$
250

 
$
26,651

 
$

 
$
(425,625
)
 
$
(398,724
)
The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(43,068
)
 
$
(33,038
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
3,089

 
2,994

Stock-based compensation
20,692

 
5,423

Other
(1,022
)
 
664

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(658
)
 
850

Prepaid expenses and other current assets
1,673

 
2,339

Deferred commissions
(2,432
)
 
(629
)
Other assets
(1,209
)
 
1,195

Accounts payable and accrued expenses
5,646

 
2,326

Accrued compensation
(3,092
)
 
(2,620
)
Deferred revenue
17,430

 
21,319

Other current liabilities
(487
)
 
(30
)
Other liabilities
441

 
(47
)
Net cash (used in) provided by operating activities
(2,997
)
 
746

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(5,335
)
 
(2,978
)
Purchases of short-term investments
(102,453
)
 

Sales and maturities of short-term investments
110,750

 

Net cash provided by (used in) investing activities
2,962

 
(2,978
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Principal payments under finance lease obligations
(8
)
 
(252
)
Payments of deferred offering costs

 
(1,515
)
Proceeds from stock issued in connection with the employee stock purchase plan
8,579

 

Proceeds from the exercise of stock options
12,727

 
1,010

Repurchases of common stock

 
(75
)
Net cash provided by (used in) financing activities
21,298

 
(832
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(716
)
 
(491
)
Net increase (decrease) in cash and cash equivalents and restricted cash
20,547

 
(3,555
)
Cash and cash equivalents and restricted cash at beginning of period
165,378

 
27,472

Cash and cash equivalents and restricted cash at end of period
$
185,925

 
$
23,917

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
49

 
$
56

Cash paid for income taxes
1,111

 
418

Supplemental cash flow information related to leases:
 
 
 
Operating cash payments for operating leases
$
2,286

 
$
2,065

Operating cash payments for finance leases
3

 
20

Financing cash payments for finance leases
8

 
252

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Asset retirement obligations
$
250

 
$

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

TENABLE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business and Summary of Significant Accounting Policies
Business Description
Tenable Holdings, Inc. (the “Company,” “we,” "us," or “our”) is a provider of Cyber Exposure solutions, which is a discipline for managing and measuring cybersecurity risk in the digital era. Our enterprise software platform enables broad visibility into an organization’s cyber exposure across the modern attack surface and deep insights that help organizations translate technical data into business insights to understand and reduce their cybersecurity risk.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Tenable Holdings, Inc. and our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“GAAP”) for interim financial information. The consolidated statements are unaudited and should be read in conjunction with the consolidated financial statements and related notes included in our 2018 Annual Report on Form 10-K ("10-K") filed with the Securities and Exchange Commission on March 1, 2019. The consolidated financial statements have been prepared on a basis consistent with the audited annual consolidated financial statements included in the 10-K and, in the opinion of management, include all adjustments of a normal recurring nature necessary to fairly state our financial position, our results of operations, and cash flows.
The results for the six months ended June 30, 2019 are not necessarily indicative of the operating results expected for the year ending December 31, 2019 or any other future period.
Initial Public Offering
On July 30, 2018, we completed our initial public offering ("IPO"), in which we issued and sold 12,535,000 shares of common stock at a price to the public of $23.00 per share, including 1,635,000 shares of common stock purchased by our underwriters from the full exercise of their over-allotment option. All of the shares sold in the IPO were sold by the Company. We received net proceeds of $264.6 million after deducting underwriting discounts and commissions and other offering expenses.
Upon the completion of our IPO, all 15,847,500 shares of our Series A Redeemable Convertible Preferred Stock ("Series A") and 39,538,354 shares of our Series B Redeemable Convertible Preferred Stock ("Series B") automatically converted into an aggregate of 55,385,854 shares of our common stock. Our Amended and Restated Certificate of Incorporation adopted in connection with the IPO authorizes a total of 500,000,000 shares of common stock and 10,000,000 shares of preferred stock.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates include, but are not limited to, the determination of the estimated economic life of perpetual licenses for revenue recognition, the estimated period of benefit for deferred commissions, useful lives of long-lived assets, the valuation of stock-based compensation, including the estimated underlying fair value of our common stock prior to our IPO, the incremental borrowing rate for operating leases, and the valuation of deferred tax assets. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable. Actual results could differ significantly from these estimates.

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Revenue Recognition
We recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve this, we apply the following steps:
Identify the contract with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when or as performance obligations are satisfied
We generate revenue from subscription arrangements for software and cloud-based solutions, perpetual licenses, maintenance associated with perpetual licenses, and professional services and other revenue. We begin to recognize revenue when control of our software or services is transferred to the customer, which for sales made through distributors is concurrent with the transfer to the end user.
The following table presents a summary of revenue:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Subscription revenue
$
69,370

 
$
48,725

 
$
134,107

 
$
93,057

Perpetual license and maintenance revenue
13,553

 
13,412

 
27,080

 
26,889

Professional services and other revenue
2,461

 
1,455

 
4,498

 
2,753

Revenue
$
85,384

 
$
63,592

 
$
165,685

 
$
122,699


Subscription Revenue
Subscription arrangements generally have annual or multi-year contractual terms for the use of our software or cloud solutions, including ongoing software updates and the ability to identify the latest cybersecurity vulnerabilities. Revenue is recognized ratably over the subscription term given the critical utility provided by the ongoing updates that are released throughout the contract period.
Perpetual License and Maintenance Revenue
Our perpetual licenses are generally sold with one or more years of maintenance, which include ongoing software updates and the ongoing ability to identify the latest cybersecurity vulnerabilities. Given the critical utility provided by the ongoing software updates and updated ability to identify network vulnerabilities included in maintenance, we combine the perpetual license and the maintenance into a single performance obligation. Perpetual license arrangements generally contain a material right related to the customer’s ability to renew maintenance at a price that is less than the initial license fee. We apply a practical alternative to allocating a portion of the transaction price to the material right performance obligation and estimate a hypothetical transaction price which includes fees for expected maintenance renewals based on the estimated economic life of the perpetual license contracts. We allocate the transaction price between the cybersecurity subscription provided in the initial contract and the material right related to expected contract renewals based on the hypothetical transaction price. We recognize the amount allocated to the combined license and maintenance performance obligation over the initial contractual period, which is generally one year. We recognize the amount allocated to the material right over the expected maintenance renewal period, which begins at the end of the initial contractual term and is generally four years. We have estimated the five-year economic life of perpetual license contracts based on historical contract attrition, expected renewal periods, the lifecycle of the our technology and other factors. While we believe that the estimates we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results.

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Table of Contents

Professional Services and Other Revenue
Professional services and other revenue is primarily comprised of advisory services and training related to the deployment and optimization of our products. These services do not result in significant customization of our products. Professional services and other revenue is recognized as the services are performed.
Contracts with Multiple Performance Obligations
In cases where our contracts with customers contain multiple performance obligations, the contract transaction price is allocated on a relative standalone selling price basis. We typically determine standalone selling price based on observable selling prices of our products and services.
Variable Consideration
We record revenue from sales at the net sales price, which is the transaction price, including estimates of variable consideration when applicable. Certain of our customers may be entitled to receive credits and in certain circumstances, refunds, if service level commitments are not met. We have not historically experienced significant incidents affecting the ability to meet these service level commitments and any estimated refunds related to these agreements have not been material.
Sales through our channel network of distributors and resellers are generally discounted as compared to the price that we would sell to an end user. Revenue for sales through our channel network is recorded net of any distributor or reseller margin.
Concentrations
We sell and market our products and services through our field sales force that works closely with our channel partners, which includes a network of distributors and resellers, in developing sales opportunities. We use a two-tiered channel model whereby we sell our products and services to our distributors, which in turn sell to resellers, which then sell to end-users. We derived 90% of revenue through our channel network in the three and six months ended June 30, 2019 and 87% of revenue in the three and six months ended June 30, 2018. One of our distributors accounted for 43% of revenue in the three and six months ended June 30, 2019 and 46% of revenue in the three and six months ended June 30, 2018. That same distributor accounted for 42% and 46% of accounts receivable at June 30, 2019 and December 31, 2018, respectively.
Contract Balances
We generally bill our customers in advance and accounts receivable are recorded when we have the right to invoice the customer. Contract liabilities consist of deferred revenue and include customer billings and payments received in advance of performance under the contract. In the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018, we recognized revenue of $78.3 million, $51.7 million, $136.7 million and $99.2 million, respectively, that was included in the deferred revenue balance at the beginning of each of the respective periods.
Remaining Performance Obligations
At June 30, 2019, the future estimated revenue related to unsatisfied performance obligations was $313.0 million, with 74% expected to be recognized as revenue over the succeeding twelve months, and the remainder expected to be recognized over the four years thereafter.
Investments
We currently invest in commercial paper, corporate bonds and U.S. treasury and agency obligations. Our investments are classified as available-for-sale and recorded at fair value, with unrealized gains and losses reported in accumulated other comprehensive income within stockholders’ equity (deficit). We periodically review our investment portfolio to determine whether investments have indicators of possible impairment.

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Table of Contents

Deferred Commissions
Sales commissions, including related incremental fringe benefit costs, are considered to be incremental costs of obtaining a contract. Sales commissions on initial sales are not commensurate with sales commissions on contract renewals and therefore are recognized over an estimated period of benefit, which ranges between three and four years for subscription arrangements and five years for perpetual license arrangements. We estimate the period of benefit based on the expected contract term including renewal periods, the lifecycle of our technology, and other factors. Sales commissions on contract renewals are capitalized and amortized ratably over the contract term, with the exception of contracts with renewal periods that are one year or less, in which case the incremental costs are expensed as incurred.
The following summarizes the activity of deferred incremental costs of obtaining a contract in the periods presented:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Beginning balance
$
59,811

 
$
50,451

 
$
59,434

 
$
50,176

Capitalization of contract acquisition costs
8,608

 
4,700

 
15,234

 
9,847

Amortization of deferred contract acquisition costs
(6,553
)
 
(4,346
)
 
(12,802
)
 
(9,218
)
Ending balance
$
61,866

 
$
50,805

 
$
61,866

 
$
50,805



Amortization of deferred contract acquisition costs is included in sales and marketing expense in the consolidated statements of operations.
Leases
We early adopted Accounting Standards Codification Topic 842, Leases ("ASC 842"), as of January 1, 2018 using the modified retrospective method. We elected the package of practical expedients as permitted under the transition guidance, which allowed us to not reassess whether arrangements contain leases, not reassess lease classification, and not reassess initial direct costs.
The impact of the adoption of ASC 842 on previously reported interim financial statements included the recognition of right-of-use ("ROU") assets and lease liabilities, as well as the derecognition of the construction-in-progress and construction financing obligation. There was no material impact to previously reported results of operations for any interim period.
We determine if an arrangement contains a lease and the classification of that lease, if applicable, at inception. We have elected to not recognize a lease liability or ROU asset for short-term leases (leases with a term of twelve months or less). For contracts with lease and non-lease components, we have elected to not allocate the contract consideration, and account for the lease and non-lease components as a single lease component. Additionally, we enter into arrangements to use shared office spaces and other facilities, and have determined that these arrangements do not contain leases as we do not have the right to use an identified asset. Operating leases are included in operating lease ROU assets, operating lease liabilities and operating lease liabilities (net of current portion) in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities and other liabilities in our consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The implicit rate within our operating leases is generally not determinable and we use our incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment. We determine our incremental borrowing rate for each lease using our current borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives. Certain of our leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option.

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Table of Contents

Lease expense for lease payments is recognized on a straight-line basis over the term of the lease.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13 — Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. This guidance is effective for us beginning January 1, 2020, and will be adopted using the modified-retrospective method. We are currently evaluating the potential impact of this standard on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15 — Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under this ASU, implementation costs related to a cloud computing arrangement that is a service contract will be capitalized consistent with the requirements for capitalizing internal-use software development costs. The capitalized implementation costs are subsequently expensed over the term of the hosting arrangement. This guidance is effective for us beginning January 1, 2020, and can be adopted prospectively or retrospectively. We are currently evaluating adoption methods and the impact of this standard.
2. Cash and Cash Equivalents and Short-Term Investments
At June 30, 2019 and December 31, 2018, cash and cash equivalents excluded $0.3 million of restricted cash, which is related to an account established as collateral for a lease arrangement and was included in other assets on the consolidated balance sheets.
The following tables summarize the amortized cost, unrealized gain and loss and estimated fair value of cash equivalents and short-term investments:
 
June 30, 2019
(in thousands)
Amortized Cost
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
37,659

 
$

 
$

 
$
37,659

Commercial paper
9,094

 

 

 
9,094

Total cash equivalents
$
46,753

 
$

 
$

 
$
46,753

 
 
 
 
 
 
 
 
Short-term investments:
 
 
 
 
 
 
 
Commercial paper
$
46,220

 
$

 
$

 
$
46,220

Corporate bonds
20,219

 
37

 

 
20,256

U.S. Treasury and agency obligations
44,782

 
43

 

 
44,825

Total short-term investments
$
111,221

 
$
80

 
$

 
$
111,301


12

Table of Contents

 
December 31, 2018
(in thousands)
Amortized Cost
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
38,022

 
$

 
$

 
$
38,022

Total cash equivalents
$
38,022

 
$

 
$

 
$
38,022

 
 
 
 
 
 
 
 
Short-term investments:
 
 
 
 
 
 
 
Commercial paper
$
79,634

 
$

 
$

 
$
79,634

Corporate bonds
16,119

 

 

 
16,119

U.S. Treasury and agency obligations
22,366

 

 

 
22,366

Total short-term investments
$
118,119

 
$

 
$

 
$
118,119


At June 30, 2019 and December 31, 2018, all of our short-term investments had maturities within the next twelve months, and none of our short-term investments were in an unrealized loss position.
3. Fair Value Measurements
We measure certain financial instruments at fair value using a fair value hierarchy. In the hierarchy, assets are classified based on the lowest level inputs used in valuation into the following categories:
Level 1 — Quoted prices in active markets for identical assets and liabilities;
Level 2 — Observable inputs including quoted market prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in inactive markets, or inputs that are corroborated by observable market data; and
Level 3 — Unobservable inputs.
The following tables summarize assets that are measured at fair value on a recurring basis:
 
June 30, 2019
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents
 
 
 
 
 
 
 
Money market funds
$
37,659

 
$

 
$

 
$
37,659

Commercial paper

 
9,094

 

 
9,094

 
$
37,659

 
$
9,094

 
$

 
$
46,753

 
 
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
 
Commercial paper
$

 
$
46,220

 
$

 
$
46,220

Corporate bonds

 
20,256

 

 
20,256

U.S. Treasury and agency obligations

 
44,825

 

 
44,825

 
$

 
$
111,301

 
$

 
$
111,301


13

Table of Contents

 
December 31, 2018
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents
 
 
 
 
 
 
 
Money market funds
$
38,022

 
$

 
$

 
$
38,022

 
$
38,022

 
$

 
$

 
$
38,022

 
 
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
 
Commercial paper
$

 
$
79,634

 
$

 
$
79,634

Corporate bonds

 
16,119

 

 
16,119

U.S. Treasury and agency obligations

 
22,366

 

 
22,366

 
$

 
$
118,119

 
$

 
$
118,119


We did not have any liabilities measured and recorded at fair value at June 30, 2019 or December 31, 2018.
4. Property and Equipment, Net
Property and equipment, net consisted of the following:
(in thousands)
June 30, 2019
 
December 31, 2018
Computer software and equipment
$
17,433

 
$
13,038

Furniture and fixtures
2,375

 
2,376

Leasehold improvements
9,090

 
7,266

Right-of-use assets under finance leases
1,866

 
1,854

Total
30,764

 
24,534

Less: accumulated depreciation and amortization
(15,815
)
 
(13,186
)
Property and equipment, net
$
14,949

 
$
11,348


Depreciation and amortization related to property and equipment was $1.3 million, $1.4 million, $2.8 million and $2.7 million in the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018, respectively.
5. Leases
We have operating leases for office facilities and finance leases for computer and office equipment. Our leases have remaining terms of less than one year to eight years, some of which include one or more options to renew, with renewal terms up to five years and some of which include options to terminate the leases within the next three to six years. The ROU assets and liabilities as of June 30, 2019 assume the option to early terminate one of our leases in 2021 and one of our leases in 2025.
The components of lease expense were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Operating lease cost
$
1,100

 
$
917

 
$
2,081

 
$
1,770

 
 
 
 
 
 
 
 
Finance lease cost
 
 
 
 
 
 
 
Amortization of ROU assets
$
155

 
$
152

 
$
308

 
$
304

Interest on lease liabilities
1

 
10