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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 September 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 November 8, 2019 was 98,187,608.



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
 
September 30, 2019
 
December 31, 2018
(in thousands, except per share data)
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
171,303

 
$
165,116

Short-term investments
125,333

 
118,119

Accounts receivable (net of allowance for doubtful accounts of $557 and $188 at September 30, 2019 and December 31, 2018, respectively)
81,201

 
68,261

Deferred commissions
26,030

 
23,272

Prepaid expenses and other current assets
21,126

 
22,020

Total current assets
424,993

 
396,788

Property and equipment, net
18,525

 
11,348

Deferred commissions (net of current portion)
38,493

 
36,162

Operating lease right-of-use assets
40,346

 
8,504

Other assets
9,855

 
7,810

Total assets
$
532,212

 
$
460,612

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
795

 
$
171

Accrued expenses
9,474

 
5,554

Accrued compensation
24,244

 
29,594

Deferred revenue
245,985

 
213,644

Operating lease liabilities
3,970

 
4,262

Other current liabilities
701

 
1,079

Total current liabilities
285,169

 
254,304

Deferred revenue (net of current portion)
83,390

 
76,259

Operating lease liabilities (net of current portion)
37,788

 
6,055

Other liabilities
2,677

 
2,231

Total liabilities
409,024

 
338,849

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock (par value: $0.01; 500,000 shares authorized; 97,960 and 93,126 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively)
980

 
931

Additional paid-in capital
648,964

 
586,940

Accumulated other comprehensive income
60

 

Accumulated deficit
(526,816
)
 
(466,108
)
Total stockholders’ equity
123,188

 
121,763

Total liabilities and stockholders’ equity
$
532,212

 
$
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 September 30,
 
Nine Months Ended September 30,
(in thousands, except per share data)
2019
 
2018
 
2019
 
2018
Revenue
$
91,852

 
$
69,440

 
$
257,537

 
$
192,139

Cost of revenue
15,245

 
12,161

 
42,389

 
30,768

Gross profit
76,607

 
57,279

 
215,148

 
161,371

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
56,699

 
44,550

 
165,403

 
125,964

Research and development
20,763

 
20,553

 
64,396

 
55,529

General and administrative
17,472

 
13,272

 
48,595

 
32,868

Total operating expenses
94,934

 
78,375

 
278,394

 
214,361

Loss from operations
(18,327
)
 
(21,096
)
 
(63,246
)
 
(52,990
)
Interest income, net
1,527

 
894

 
4,677

 
845

Other expense, net
(240
)
 
(185
)
 
(576
)
 
(605
)
Loss before income taxes
(17,040
)
 
(20,387
)
 
(59,145
)
 
(52,750
)
Provision for income taxes
600

 
482

 
1,563

 
1,157

Net loss
(17,640
)
 
(20,869
)
 
(60,708
)
 
(53,907
)
Accretion of Series A and B redeemable convertible preferred stock

 
(55
)
 

 
(434
)
Net loss attributable to common stockholders
$
(17,640
)
 
$
(20,924
)
 
$
(60,708
)
 
$
(54,341
)
 
 
 
 
 
 
 
 
Net loss per share attributable to common stockholders, basic and diluted
$
(0.18
)
 
$
(0.28
)
 
$
(0.64
)
 
$
(1.34
)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted
96,709

 
74,261

 
95,433

 
40,688

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 September 30,
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Net loss
$
(17,640
)
 
$
(20,869
)
 
$
(60,708
)
 
$
(53,907
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Unrealized (losses) gains on available-for-sale securities
(20
)
 

 
60

 

Other comprehensive (loss) income
(20
)
 

 
60

 

Comprehensive loss
$
(17,660
)
 
$
(20,869
)
 
$
(60,648
)
 
$
(53,907
)


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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 June 30, 2019

 
$

 

 
$

 
 
96,808

 
$
968

 
$
629,087

 
$
80

 
$
(509,176
)
 
$
120,959

Exercise of stock options

 

 

 

 
 
383

 
4

 
2,717

 

 

 
2,721

Vesting of restricted stock units

 

 

 

 
 
431

 
5

 
(5
)
 

 

 

Issuance of common stock under employee stock purchase plan

 

 

 

 
 
338

 
3

 
6,547

 

 

 
6,550

Stock-based compensation

 

 

 

 
 

 

 
10,618

 

 

 
10,618

Other comprehensive loss

 

 

 

 
 

 

 

 
(20
)
 

 
(20
)
Net loss

 

 

 

 
 

 

 

 

 
(17,640
)
 
(17,640
)
Balance at September 30, 2019

 
$

 

 
$

 
 
97,960

 
$
980

 
$
648,964

 
$
60

 
$
(526,816
)
 
$
123,188

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018

 
$

 

 
$

 
 
93,126

 
$
931

 
$
586,940

 
$

 
$
(466,108
)
 
$
121,763

Exercise of stock options

 

 

 

 
 
3,625

 
36

 
15,412

 

 

 
15,448

Vesting of restricted stock units

 

 

 

 
 
432

 
5

 
(5
)
 

 

 

Issuance of common stock under employee stock purchase plan

 

 

 

 
 
777

 
8

 
15,121

 

 

 
15,129

Stock-based compensation

 

 

 

 
 

 

 
31,496

 

 

 
31,496

Other comprehensive income

 

 

 

 
 

 

 

 
60

 

 
60

Net loss

 

 

 

 
 

 

 

 

 
(60,708
)
 
(60,708
)
Balance at September 30, 2019

 
$

 

 
$

 
 
97,960

 
$
980

 
$
648,964

 
$
60

 
$
(526,816
)
 
$
123,188

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
15,848

 
$
49,946

 
39,538

 
$
228,168

 
 
24,951

 
$
250

 
$
26,651

 
$

 
$
(425,625
)
 
$
(398,724
)
Accretion of Series A and B redeemable convertible preferred stock

 
2

 

 
53

 
 

 

 
(55
)
 

 

 
(55
)
Exercise of stock options

 

 

 

 
 
168

 
1

 
404

 

 

 
405

Stock-based compensation

 

 

 

 
 

 

 
8,836

 

 

 
8,836

Issuance of common stock in connection with initial public offering, net of underwriting discounts and commissions and other offering expenses

 

 

 

 
 
12,535

 
125

 
264,674

 

 

 
264,799

Conversion of redeemable convertible preferred stock to common stock upon initial public offering
(15,848
)
 
(49,948
)
 
(39,538
)
 
(228,221
)
 
 
55,386

 
554

 
277,615

 

 

 
278,169

Net loss

 

 

 

 
 

 

 

 

 
(20,869
)
 
(20,869
)
Balance at September 30, 2018

 
$

 

 
$

 
 
93,040

 
$
930

 
$
578,125

 
$

 
$
(446,494
)
 
$
132,561

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
13

 

 
421

 
 

 

 
(434
)
 

 

 
(434
)
Exercise of stock options

 

 

 

 
 
654

 
6

 
1,409

 

 

 
1,415

Repurchase of common stock

 

 

 

 
 
(7
)
 
(1
)
 
(74
)
 

 

 
(75
)
Stock-based compensation

 

 

 

 
 

 

 
14,259

 

 

 
14,259

Issuance of common stock in connection with initial public offering, net of underwriting discounts and commissions and other offering expenses

 

 

 

 
 
12,535

 
125

 
264,674

 

 

 
264,799

Conversion of redeemable convertible preferred stock to common stock upon initial public offering
(15,848
)
 
(49,948
)
 
(39,538
)
 
(228,221
)
 
 
55,386

 
554

 
277,615

 

 

 
278,169

Net loss

 

 

 

 
 

 

 

 

 
(53,907
)
 
(53,907
)
Balance at September 30, 2018

 
$

 

 
$

 
 
93,040

 
$
930

 
$
578,125

 
$

 
$
(446,494
)
 
$
132,561

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

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TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(60,708
)
 
$
(53,907
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
4,604

 
4,580

Stock-based compensation
31,191

 
14,206

Other
(787
)
 
771

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(13,309
)
 
(8,190
)
Prepaid expenses and other current assets
820

 
941

Deferred commissions
(5,089
)
 
(2,708
)
Other assets
(2,386
)
 
315

Accounts payable and accrued expenses
3,892

 
1,930

Accrued compensation
(5,350
)
 
1,252

Deferred revenue
39,472

 
39,880

Other current liabilities
(195
)
 
(4
)
Other liabilities
173

 
(71
)
Net cash used in operating activities
(7,672
)
 
(1,005
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(10,262
)
 
(4,140
)
Purchases of short-term investments
(179,703
)
 
(34,114
)
Sales and maturities of short-term investments
174,485

 

Net cash used in investing activities
(15,480
)
 
(38,254
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from initial public offering, net of underwriting discounts and commissions

 
268,531

Payments of costs related to initial public offering

 
(3,732
)
Principal payments under finance lease obligations
(12
)
 
(389
)
Proceeds from stock issued in connection with the employee stock purchase plan
15,129

 

Proceeds from the exercise of stock options
15,448

 
1,415

Repurchases of common stock

 
(75
)
Net cash provided by financing activities
30,565

 
265,750

Effect of exchange rate changes on cash and cash equivalents and restricted cash
(1,226
)
 
(675
)
Net increase in cash and cash equivalents and restricted cash
6,187

 
225,816

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
$
171,565

 
$
253,288

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
73

 
$
85

Cash paid for income taxes
1,507

 
920

Supplemental cash flow information related to leases:
 
 
 
Operating cash payments for operating leases
$
3,297

 
$
3,098

Operating cash payments for finance leases
5

 
29

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Asset retirement obligations
$
121

 
$
67

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

7

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, measuring and comparing 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 nine months ended September 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 September 30,
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Subscription revenue
$
75,503

 
$
53,511

 
$
209,610

 
$
146,568

Perpetual license and maintenance revenue
13,797

 
13,864

 
40,877

 
40,753

Professional services and other revenue
2,552

 
2,065

 
7,050

 
4,818

Revenue
$
91,852

 
$
69,440

 
$
257,537

 
$
192,139


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 91%, 88%, 90%, and 87% of revenue through our channel network in the three months ended September 30, 2019 and 2018 and the nine months ended September 30, 2019 and 2018, respectively. One of our distributors accounted for 43% of revenue in the three and nine months ended September 30, 2019 and 46% of revenue in the three and nine months ended September 30, 2018. That same distributor accounted for 40% and 46% of accounts receivable at September 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 September 30, 2019 and 2018 and the nine months ended September 30, 2019 and 2018, we recognized revenue of $84.6 million, $62.5 million, $184.3 million and $133.3 million, respectively, that was included in the deferred revenue balance at the beginning of each of the respective periods.
Remaining Performance Obligations
At September 30, 2019, the future estimated revenue related to unsatisfied performance obligations was $333.4 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

10

Table of Contents

other comprehensive income within stockholders’ equity (deficit). We periodically review our investment portfolio to determine whether investments have indicators of possible impairment.
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 September 30,
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Beginning balance
$
61,866

 
$
50,805

 
$
59,434

 
$
50,176

Capitalization of contract acquisition costs
9,612

 
7,138

 
24,846

 
16,985

Amortization of deferred contract acquisition costs
(6,955
)
 
(5,059
)
 
(19,757
)
 
(14,277
)
Ending balance
$
64,523

 
$
52,884

 
$
64,523

 
$
52,884



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 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 right-of-use ("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 and is estimated for each lease based on the rate we would have to pay for a collateralized loan with the same term and payments as the lease. We consider various factors, including our current borrowing rate, level of collateralization, estimated credit rating and currency 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. Options to extend or terminate a lease are considered in connection with calculating the ROU asset and related lease liability when it is reasonably certain that we will exercise that option.
Lease expense for lease payments is recognized on a straight-line basis over the term of the lease.

11

Table of Contents

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 will be adopted on a prospective basis. We are currently evaluating the potential impact of this standard.
2. Cash and Cash Equivalents and Short-Term Investments
At September 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:
 
September 30, 2019
(in thousands)
Amortized Cost
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
28,043

 
$

 
$

 
$
28,043

Commercial paper
4,496

 

 

 
4,496

Total cash equivalents
$
32,539

 
$

 
$

 
$
32,539

 
 
 
 
 
 
 
 
Short-term investments:
 
 
 
 
 
 
 
Commercial paper
$
56,754

 
$

 
$

 
$
56,754

Corporate bonds
15,993

 
32

 

 
16,025

U.S. Treasury and agency obligations
52,526

 
35

 
(7
)
 
52,554

Total short-term investments
$
125,273

 
$
67

 
$
(7
)
 
$
125,333


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


For any investments that were in an unrealized loss position, we considered if we intended on selling the investments before maturity and if it is more-likely-than-not that we would have to sell the security before the recovery of the amortized cost basis. We concluded that there were no other-than-temporary impairments at September 30, 2019.
At September 30, 2019 and December 31, 2018, all of our short-term investments had maturities within the next twelve months.
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:
 
September 30, 2019
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents
 
 
 
 
 
 
 
Money market funds
$
28,043

 
$

 
$

 
$
28,043

Commercial paper

 
4,496

 

 
4,496

 
$
28,043

 
$
4,496

 
$

 
$
32,539

 
 
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
 
Commercial paper
$

 
$
56,754

 
$

 
$
56,754

Corporate bonds

 
16,025

 

 
16,025

U.S. Treasury and agency obligations

 
52,554

 

 
52,554

 
$

 
$
125,333

 
$

 
$
125,333


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 September 30, 2019 or December 31, 2018.
4. Property and Equipment, Net
Property and equipment, net consisted of the following:
(in thousands)
September 30, 2019
 
December 31, 2018
Computer software and equipment
$
20,221

 
$
13,038

Furniture and fixtures
3,738

 
2,376

Leasehold improvements
9,230

 
7,266

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

 
1,854

Total
35,055

 
24,534

Less: accumulated depreciation and amortization
(16,530
)
 
(13,186
)
Property and equipment, net
$