# DigitalOcean Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [DigitalOcean Holdings, Inc.](/companies/docn.md) (CIK 1582961)
- Form: 10-Q
- Filed: 2024-08-08
- Accepted by EDGAR: Aug 8, 2024, 16:30 ET
- Period: 2024-06-30
- Accession: 0001582961-24-000122
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1582961/000158296124000122/docn-20240630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1582961/000158296124000122/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $192.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $377.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $75.1m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $147.8m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $117.3m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $229.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-04-01 to 2024-06-30 | $34.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2024-01-01 to 2024-06-30 | $68.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | $22.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | $33.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $2.3m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $4.6m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $5.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | $5.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | $19.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | $33.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.20 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | $0.35 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.21 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | $0.37 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 93,832,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 94,005,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $138.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $75.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2024-01-01 to 2024-06-30 | $18.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-06-30 | $443.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $543.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $1.54bn | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $220.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $1.79bn | us-gaap:Liabilities |
| Long-term debt | at 2024-06-30 | $1.48bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-06-30 | −$253.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,198 characters.

*The following discussion and analysis of our financial condition and results of operations should be considered together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. This discussion, particularly information with respect to our outlook, key trends and uncertainties, our plans and strategy for our business, and our performance and future success, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Actual results could differ materially from those discussed below.*

### Overview

DigitalOcean is a leading cloud computing platform offering on-demand infrastructure and platform tools for startups and growing technology businesses. We were founded with the guiding principle that the transformative benefits of the cloud should be easy to leverage, broadly accessible, reliable and affordable. Our platform simplifies cloud computing, enabling our customers to rapidly accelerate innovation and increase their productivity and agility.

The lifecycle of a customer typically begins with users coming to our platform to explore a new technology or test an idea. Thousands of users come to DigitalOcean every month, paying a small amount to learn and to complete their discrete tasks. In many cases, these early users do not intend to remain on our platform beyond their initial testing. We refer to these users that spend less than or equal to $50 per month and utilize our platform for three months or less as “Testers”. Given their short time on our platform and their relatively small individual and aggregate spend, we do not consider Testers to be a meaningful part of our customer base. Once a user has remained on our platform for longer than three months, or spends greater than $50 per month, we consider them to be active and ongoing customers that have the intention to remain on our platform and to potentially scale their utilization of our products. We divide this customer population into the following three categories:

- Learners: users that both (i) spend less than or equal to $50 for the month-end period and (ii) have been on our platform for more than three months.
- Builders: users that spend greater than $50 and less than or equal to $500 for the month-end period.
- Scalers: users that spend greater than $500 for the month-end period.

As of June 30, 2024, we had approximately 638,000 Learners, Builders and Scalers using our platform to build, deploy and scale applications. We view Learners, Builders and Scalers as the most appropriate measure of our customer population, and Testers have therefore been excluded from the total customer population count.

Our users include software engineers, researchers, data scientists, system administrators, students and hobbyists. Our customers use our platform across numerous industry verticals and for a wide range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, managed services, and, most recently, artificial intelligence and machine learning (AI/ML) applications, among many others. We believe that our focus on simplicity, community, open source and customer support are the four key differentiators of our business, driving a broad range of customers around the world to build their applications on our platform.

We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings; and AI/ML, including our Machines, Notebooks and Deployments offerings. Our cloud platform was designed with simplicity in mind to ensure that startups and growing technology businesses can spend less time managing their infrastructure and more time building innovative applications that drive business growth. Improving the developer experience and increasing productivity are core to our mission. In just minutes, developers can set up thousands of virtual machines, secure their projects, enable performance monitoring and scale up and down as needed.

We generate revenue from the usage of our cloud computing platform by our customers. We recognize revenue based on the customer utilization of our offerings. Our pricing is primarily consumption-based and billed monthly in arrears, making it easy for our customers to track usage on an ongoing basis and optimize their deployments.

We have a highly efficient self-service customer acquisition model, which we complement with a sales force focused on inside sales, targeted outside sales and partnership opportunities to drive revenue growth. Our model enables customers to get started on our platform very quickly and without the need for assistance. We focus heavily on enabling a self-service, low-friction model that makes it easy for users to try, adopt and use our products. For each of the three months ended June 30, 2024 and 2023, our sales and marketing expense was approximately 10% and 9% of our revenue, respectively. The efficiency of our go-to-market model and our focus on the needs of startups and growing technology businesses has enabled us to drive organic growth and establish a truly global customer base across a broad range of industries.

Our customers are spread across approximately 190 countries and around two-thirds of our revenue has historically come from customers located outside the United States. For the three months ended June 30, 2024, 38% of our revenue was generated from North America, 28% from Europe, 23% from Asia and 11% from the rest of the world.

Our average revenue per customer (consisting of the aggregate revenue and customer counts for our Learners, Builders and Scalers, but excluding revenue and customer counts for Testers), or ARPU, has increased from $90.84 in the quarter ended June 30, 2023 to $99.45 in the quarter ended June 30, 2024. We had no material customer concentration as our top 25 customers made up approximately 8% and 7% of our revenue in the three months ended June 30, 2024 and 2023, respectively. Our annual run-rate revenue, or ARR, as of June 30, 2024 was $781 million, up from $682 million as of June 30, 2023. ARR as of the end of each month represents total revenue for that month multiplied by 12.

Growing our Builders and Scalers is a critical focus for us, and we have successfully increased the number of these customers and their percentage of our total revenue. We had approximately 18,000 Scalers as of June 30, 2024, up from approximately 16,000 as of June 30, 2023. We had approximately 143,000 Builders as of June 30, 2024, up from approximately 134,000 as of June 30, 2023. Revenue from Builders and Scalers increased 8% and 19%, respectively, for the three months ended June 30, 2024 from the three months ended June 30, 2023. Revenue from Builders and Scalers as a percentage of total revenue was 87% in the three months ended June 30, 2024 and 86% in the three months ended June 30, 2023.

### Key Factors Affecting Our Performance

### Increasing Importance of Cloud Computing and Developers

Our future success depends in large part on the continuing adoption of cloud computing, proliferation of cloud-native start ups and businesses and the increasing importance of developers, all of which are driving the adoption of our developer cloud platform. We believe our market opportunity is large and that these factors will continue to drive our growth.

### Increasing Usage by Our Existing Customers

Our existing customer base represents a significant opportunity for further sales expansion through increased usage of our platform and adoption of additional product offerings. We are highly focused on gaining a better understanding of the needs and growth plans of our existing customers. This deeper relationship with our customers will help us identify opportunities to educate our customer base on ways to utilize the platform more effectively for their individual use cases, as well as provide a feedback loop to inform our product roadmap. We are focusing our sales and support teams to prevent customer churn by ensuring that our products and services provide a high level of value. Our goal is to continue to increase our revenue from existing customers through the introduction of new products and features tailored to our customer base in addition to expanded customer outreach, focused on larger customers and specific use cases.

### Growing Our Base of Higher Spend Customers

We believe there is a substantial opportunity to further expand our customer base to attract more businesses that can scale on our platform. We are investing in strategies that we believe will attract Builders and Scalers, including new marketing initiatives that further optimize our self-service revenue funnel to help customers expand their usage and partnership initiatives to identify potential Builders and Scalers. In addition, our Cloudways and Paperspace acquisitions added a significant number of Builders and Scalers as these offerings provide premium managed services and high value AI/ML offerings, respectively.

### Investing in Our Platform and Product Offerings

We have a history of, and will continue to invest significantly in, delivering innovative products, features and functionality targeted at our core customer base. The market opportunity for our core IaaS services of compute, storage and networking continues to expand and we are making targeted investments to expand our IaaS revenue. Beyond IaaS, we continue to see large growth opportunities in the PaaS, SaaS and AI/ML markets and, accordingly, we have expanded our portfolio of products and offerings over the last few years. In addition, we may pursue both strategic partnerships and acquisitions, such as our acquisitions of Cloudways and Paperspace, that we believe will be complementary to our business, accelerate customer acquisition, increase usage of our platform and/or expand our product offerings in our core markets. Our results of operations may fluctuate as we make these investments to drive usage and take advantage of our expansive market opportunity.

### Macroeconomic Conditions

Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, supply chain disruptions, inflationary pressures, interest rates, financial and credit market fluctuations, volatility in the capital markets, liquidity concerns at, and failures of, banks and other financial institutions, international trade relations, political turmoil, political instability and transitions of power in regions where we operate, including Pakistan following the most recent general election, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine, the Middle East or elsewhere, could cause a decrease in business investments in information technology and negatively affect the growth of our business and our results of operations.

While our business model provides some resilience against these factors, we will continue to monitor the direct and indirect impacts of these or similar circumstances on our business and our results of operations, and will take appropriate measures, as necessary, to minimize potential risk exposure.

### Key Business Metrics

We utilize the key metrics set forth below to help us evaluate our business and growth, identify trends, formulate financial projections and make strategic decisions. We are not aware of any uniform standards for calculating these key metrics, and other companies may not calculate similarly titled metrics in a consistent manner, which may hinder comparability. The table below includes the impact of our acquisitions beginning in the period in which they were acquired with respect to the metrics disclosed.

|  | Three Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: |
| Learners(1) | 476,529 | 466,072 |
| Builders(1) | 143,425 | 134,290 |
| Scalers(1) | 17,618 | 15,847 |
| ARPU | $99.45 | $90.84 |
| ARR (in millions) | $781 | $682 |
| Net dollar retention rate | 97% | 104% |

(1) Customer count

### Learners, Builders & Scalers

While we believe the total number of these customers is an important indicator of the growth of our business and future revenue opportunity, the trends relating to our Builders and Scalers is of particular importance to us as these customers represent a significant majority of our revenue and revenue growth, and they are representative of the startup and growing technology business customers that grow on our platform and use multiple products.

### ARPU

We believe that our average revenue per customer, which we refer to as ARPU, is a strong indication of our ability to land new customers with higher spending levels and expand usage of our platform by our existing customers. We calculate ARPU on a monthly basis as our total revenue from Learners, Builders and Scalers in that period divided by the total number of Learner, Builder and Scaler customers determined as of the last day of the reported period. For a quarterly or annual period, ARPU is determined as the weighted average monthly ARPU over such three or 12-month period.

### ARR

Given the recurring nature of our business, we view annual run-rate revenue as an important indicator of our current progress towards meeting our revenue targets and projected growth rate going forward. We calculate ARR at a point in time by multiplying the revenue of the last month of the reported period by 12. For our ARR calculations, we include the total revenue from all customers, including Testers, Learners, Builders and Scalers.

### Net Dollar Retention Rate

Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue from our existing customers. We have a history of retaining customers for multiple years and in many cases increasing their spend with us over time. To help us measure our performance in this area, we monitor our net dollar retention rate. We calculate net dollar retention rate monthly by starting with the revenue from customers, including Testers, Learners, Builders and Scalers, for our IaaS, PaaS and SaaS offerings during the corresponding month 12 months prior, or the Prior Period Revenue. We then calculate the revenue from these same customers as of the current month, or the Current Period Revenue, including any expansion and net of any contraction or attrition from these customers over the last 12 months. The calculation also includes revenue from customers that generated revenue before, but not in, the corresponding month 12 months prior, but subsequently generated revenue in the current month and are therefore reflected in the Current Period Revenue. We include this group of re-engaged customers in this calculation because our customers frequently use our platform for projects that stop and start over time. We then divide the total Current Period Revenue by the total Prior Period Revenue to arrive at the net dollar retention rate for the relevant month. For our net dollar retention rate calculations, we include the total revenue from customers, including Testers, Learners, Builders and Scalers, for our IaaS, PaaS and SaaS offerings. For a quarterly or annual period, the net dollar retention rate is determined as the average monthly net dollar retention rates over such three or 12-month period.

### Components of Results of Operations

### Revenue

We offer mission-critical solutions across Infrastructure-as-a-Service (IaaS), including our Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (PaaS), including our Managed Database and Managed Kubernetes offerings; Software-as-a-Service (SaaS), including our Managed Hosting and Marketplace offerings; and AI/ML, including our Machines, Notebooks and Deployments offerings. We recognize revenue based on the customer utilization of these resources. Customer contracts are primarily month-to-month and generally do not include any minimum guaranteed quantities or fees. Fees are billed monthly, and payment is typically due upon invoicing. Revenue is recognized net of allowances for credits and any taxes collected from customers, which are subsequently remitted to governmental authorities.

We may offer sales incentives in the form of promotional and referral credits and grant credits to encourage customers to use our services. These types of promotional and referral credits typically expire in two months or less if not used. For credits earned with a purchase, they are recorded as contract liabilities when earned and recognized at the earlier of redemption or expiration. The majority of credits are redeemed in the month they are earned.

### Cost of Revenue

Cost of revenue consists primarily of fees related to operating in third-party co-location space at data center facilities, personnel expenses for those directly supporting our co-location facilities and non-personnel costs, including amortization of acquired technology, amortization of capitalized internal-use software development costs, and depreciation of our data center equipment. Third-party co-location facility costs include data center rental fees, power costs, maintenance fees, network and bandwidth. Personnel expenses include salaries, bonuses, benefits, and stock-based compensation.

We intend to continue to invest additional resources in our infrastructure to support our product portfolio and the scalability of our customer base. The level, timing and relative investment in our infrastructure could affect our cost of revenue in the future.

### Operating Expenses

#### Research and Development Expenses

Research and development expenses consist primarily of personnel costs including salaries, bonuses, benefits and stock-based compensation. Research and development expenses also include amortization of capitalized internal-use software development costs for research and development activities, which are amortized over three years, and professional services, as well as costs related to our efforts to add new features to our existing offerings, develop new offerings, and ensure the security, performance, and reliability of our global cloud platform. We expect research and development expenses to increase in absolute dollars as we continue to invest in our platform and product offerings.

#### Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel costs of our sales, marketing and customer support employees including salaries, bonuses, benefits and stock-based compensation. Sales and marketing expenses also include costs for marketing programs, commissions, advertising and professional service fees. We expect sales and marketing expenses to increase in absolute dollars as we enhance our product offerings and implement new marketing strategies.

#### General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs of our human resources, legal, finance and other administrative functions including salaries, bonuses, benefits, and stock-based compensation. General and administrative expenses also include provision for expected credit losses, software, payment processing fees, business insurance, depreciation and amortization expenses, rent and facilities costs, impairment of long-lived assets, acquisition related compensation, and other administrative costs. General and administrative expenses may increase in absolute dollars as we continue to grow our business.

#### Restructuring and other charges

Restructuring and other charges consist primarily of personnel costs, such as notice period, employee severance payments and termination benefits, as well as stock-based compensation related to vesting of certain equity awards. The restructuring plan was substantially completed by the end of the third quarter of 2023.

### Other Income, net

Other income, net consists primarily of accretion/amortization of premium/discounts and interest income from our marketable securities, amortization of deferred financing fees on our convertible notes, loss on extinguishment of debt, and gains or losses on foreign currency exchange.

### Income Tax (Expense) Benefit

Income tax (expense) benefit is attributable to the mix of income in the jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be realized.

### Results of Operations

The following table sets forth our results of operations for the periods presented:

*(in thousands)*

|  | Three Months Ended June 30, 2024 | 2023 | Six Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $192,476 | $169,814 | $377,206 | $334,948 |
| Cost of revenue(1) | 75,139 | 67,354 | 147,783 | 139,233 |
| Gross profit | 117,337 | 102,460 | 229,423 | 195,715 |
| Operating expenses: |  |  |  |  |
| Research and development(1) | 34,040 | 38,569 | 68,011 | 76,841 |
| Sales and marketing(1) | 20,130 | 16,100 | 40,934 | 34,331 |
| General and administrative(1) | 40,839 | 48,858 | 86,612 | 97,797 |
| Restructuring and other charges(1) | — | 434 | — | 21,303 |
| Total operating expenses | 95,009 | 103,961 | 195,557 | 230,272 |
| Income (loss) from operations | 22,328 | (1,501) | 33,866 | (34,557) |
| Other income, net | 2,481 | 5,482 | 5,198 | 10,687 |
| Income (loss) before income taxes | 24,809 | 3,981 | 39,064 | (23,870) |
| Income tax (expense) benefit | (5,671) | (3,316) | (5,787) | 8,165 |
| Net income (loss) attributable to common stockholders | $19,138 | $665 | $33,277 | $(15,705) |

(1) Includes stock-based compensation as follows:

*(in thousands)*

|  | Three Months Ended June 30, 2024 | 2023 | Six Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $555 | $461 | $1,077 | $853 |
| Research and development | 8,885 | 16,188 | 18,271 | 25,778 |
| Sales and marketing | 3,261 | 3,726 | 7,042 | 7,058 |
| General and administrative | 9,132 | 16,054 | 18,320 | 30,334 |
| Restructuring and other charges | — | — | — | 3,937 |
| Total stock-based compensation | $21,833 | $36,429 | $44,710 | $67,960 |

26

The following table sets forth our results of operations as a percentage of revenue for the periods presented:

|  | Three Months Ended June 30, 2024 | 2023 | Six Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | 100% | 100% | 100% | 100% |
| Cost of revenue | 39 | 40 | 39 | 42 |
| Gross profit | 61 | 60 | 61 | 58 |
| Operating expenses: |  |  |  |  |
| Research and development | 18 | 23 | 18 | 23 |
| Sales and marketing | 10 | 9 | 11 | 10 |
| General and administrative | 21 | 29 | 23 | 29 |
| Restructuring and other charges | — | — | — | 6 |
| Total operating expenses\* | 49 | 61 | 52 | 68 |
| Income (loss) from operations | 12 | (1) | 9 | (10) |
| Other income, net | 1 | 3 | 1 | 3 |
| Income (loss) before income taxes | 13 | 2 | 10 | (7) |
| Income tax (expense) benefit | (3) | (2) | (2) | 2 |
| Net income (loss) attributable to common stockholders\* | 10% | —% | 9% | (5%) |

\*May not foot due to rounding

### Comparison of the Three Months Ended June 30, 2024 and 2023

### Revenue

*(in thousands)*

|  | Three Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $192,476 | $169,814 | $22,662 | 13% |

Revenue increased $22.7 million, or 13%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily driven by a 9% increase in ARPU to $99.45 from $90.84, and a 15% increase in revenue from Builders and Scalers. The increase in ARPU was primarily driven by continued adoption of our products by our customers leading to higher average usage on our platform.

### Cost of Revenue

*(in thousands)*

|  | Three Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $75,139 | $67,354 | $7,785 | 12% |

Cost of revenue increased $7.8 million, or 12%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase is primarily due to a $5.0 million increase in depreciation and amortization of acquired finance leases and acquired developed technology, a $0.7 million increase in third-party license fees, a $0.6 million increase in partnership costs, and a $0.6 million increase in co-location costs. Gross profit increased to 61% for the three months ended June 30, 2024 from 60% for the three months ended June 30, 2023, primarily due to a decrease in ancillary equipment and bandwidth expenses as a percentage of revenue as a result of our ongoing cost optimization efforts, offset by our continued investment in AI/ML offerings.

### Operating Expenses

*(in thousands)*

|  | Three Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $34,040 | $38,569 | $(4,529) | (12%) |
| Sales and marketing | 20,130 | 16,100 | 4,030 | 25% |
| General and administrative | 40,839 | 48,858 | (8,019) | (16%) |
| Restructuring and other charges | — | 434 | (434) | (100%) |
| Total operating expenses | $95,009 | $103,961 | $(8,952) | (9%) |

Research and development expenses decreased $4.5 million, or 12%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease is primarily due to a $3.6 million reduction in personnel costs primarily relating to the restructuring we announced in February 2023 and a $2.3 million increase in capitalized internal-use software development costs, partially offset by a $1.3 million increase in professional services costs.

Sales and marketing expenses increased $4.0 million, or 25%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase is primarily due to a $1.5 million increase in personnel costs, a $1.5 million increase in advertising expenses and a $0.7 million increase in depreciation and amortization of acquired intangible assets.

General and administrative expenses decreased $8.0 million, or 16%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease is due to a $9.0 million reduction in personnel costs relating to stock-based compensation largely as a result of the departure of our former CEO, partially offset by a $0.9 million increase in recruiting costs and a $0.5 million increase in payment processing costs.

There were $0.4 million in Restructuring and other charges during the three months ended June 30, 2023 and no such charges during the three months ended June 30, 2024. These charges were primarily due to one-time severance and benefit payments in connection with the restructuring we announced in February 2023.

### Other Income, net

*(in thousands)*

|  | Three Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other income, net | $2,481 | $5,482 | $(3,001) | (55%) |

Other income, net decreased $3.0 million, or 55%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to the maturity of interest bearing marketable securities used for our share repurchases and capital expenditures.

### Income Tax Expense

*(in thousands)*

|  | Three Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Income tax (expense) benefit | $(5,671) | $(3,316) | $(2,355) | 71% |

Income tax expense increased $2.4 million, or 71%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily as a result of increased worldwide pretax income creating a higher tax expense in 2024 compared to 2023.

### Comparison of the Six Months Ended June 30, 2024 and 2023

### Revenue

*(in thousands)*

|  | Six Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $377,206 | $334,948 | $42,258 | 13% |

Revenue increased $42.3 million, or 13%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase in revenue was primarily driven by a 9% increase in ARPU to $97.28 from $89.59; and a 14% increase in revenue from Builders and Scalers. The increase in ARPU was primarily driven by continued adoption of our products by our customers leading to higher average usage of our platform.

### Cost of Revenue

*(in thousands)*

|  | Six Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $147,783 | $139,233 | $8,550 | 6% |

Cost of revenue increased $8.6 million, or 6%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase is primarily due to a $7.9 million increase in depreciation and amortization from acquired finance leases and acquired developed technology, a $1.3 million increase in partnership costs and a $1.1 million increase in third-party license fees, partially offset by decreases of $1.5 million in bandwidth expenses due to reduction in our consumption from certain vendors and $1.4 million in ancillary equipment. Gross profit increased to 61% for the six months ended June 30, 2024 from 58% for the six months ended June 30, 2023, primarily due to a decrease in co-location costs and ancillary equipment expenses as a percentage of revenue as a result of our ongoing cost optimization efforts.

### Operating Expenses

*(in thousands)*

|  | Six Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $68,011 | $76,841 | $(8,830) | (11%) |
| Sales and marketing | 40,934 | 34,331 | 6,603 | 19% |
| General and administrative | 86,612 | 97,797 | (11,185) | (11%) |
| Restructuring and other charges | — | 21,303 | (21,303) | (100%) |
| Total operating expenses | $195,557 | $230,272 | $(34,715) | (15%) |

Research and development expenses decreased $8.8 million, or 11%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease is primarily due to a $6.4 million reduction in personnel costs primarily relating to the restructuring we announced in February 2023 and a $2.8 million increase in capitalized internal-use software development costs, offset by a $1.0 million increase in professional services costs.

Sales and marketing expenses increased $6.6 million, or 19%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase is primarily due to a $3.1 million increase in advertising expenses, a $1.5 million increase in personnel costs, and a $1.5 million increase in amortization of acquired intangibles assets.

General and administrative expenses decreased $11.2 million, or 11%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease is primarily due to a $13.9 million reduction in personnel costs relating to stock-based compensation largely as a result of the departure of our former CEO, partially offset by a $1.0 million increase in professional services costs and a $0.9 million increase in payment processing costs.

Restructuring and other charges decreased $21.3 million, or 100%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. These charges were primarily due to one-time severance and benefit payments, as well as stock-based compensation related to vesting of certain equity awards in connection with the restructuring we announced in February 2023, which was substantially completed by the third quarter of 2023.

### Other Income, net

*(in thousands)*

|  | Six Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other income, net | $5,198 | $10,687 | $(5,489) | (51)% |

Other income, net decreased $5.5 million, or 51%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to the maturity of interest bearing marketable securities used for our share repurchases and capital expenditures.

### Income Tax (Expense) Benefit

*(in thousands)*

|  | Six Months Ended June 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Income tax (expense) benefit | $(5,787) | $8,165 | $(13,952) | (171)% |

Income tax expense increased $14.0 million, or 171%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily as a result of U.S. pre-tax losses creating a tax benefit in 2023 as compared to U.S. pre-tax income creating a tax expense in 2024.

### Liquidity and Capital Resources

We have funded our operations since inception primarily with cash flow generated by operations, private offerings of our equity and debt securities, borrowings under our existing credit facility and capital expenditure financings. Cash provided from these sources is used primarily for operating expenses, such as personnel and co-location costs, and capital expenditures, including our investments in AI/ML and core product offerings. From time to time, we may also use excess cash for share repurchases and investments in marketable securities and cash equivalents.

We believe our existing cash and cash equivalents, cash flow from operations and availability under our Credit Facility (as defined below) will be sufficient to support working capital and capital expenditure requirements and our outstanding contractual commitments for at least the next 12 months and in the long term.

In February 2024, our Board of Directors approved an additional repurchase program of up to an aggregate of $140 million of our common stock through fiscal year 2025. For the six months ended June 30, 2024, we repurchased and retired 497,364 shares of common stock for an aggregate purchase price of $18.2 million. The program will expire on December 31, 2025.

As of June 30, 2024, we had $153,698 of estimated undiscounted fixed payment obligations for leases of co-location space at data center facilities and, to a lesser extent, office space, that have not yet commenced and were not included on the Condensed Consolidated Balance Sheets. These leases are expected to commence between September 2024 and August 2025, and have a weighted average lease term of 6 years.

As of June 30, 2024, we had $443.1 million in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash and money market funds.

We may from time to time seek to retire or purchase our outstanding equity or debt, including the repurchase of our common stock or the Convertible Notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, any such purchases or exchanges may result in us acquiring and retiring a substantial amount of such indebtedness, which could impact the trading liquidity of such indebtedness.

The following table summarizes our cash flows for the periods presented:

*(In thousands)*

|  | Six Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $138,033 | $100,376 |
| Net cash provided by investing activities | 12,095 | 243,709 |
| Net cash used in financing activities | (24,193) | (364,985) |
| Increase (decrease) in cash, cash equivalents and restricted cash | 125,874 | (20,915) |

### Operating Activities

Our largest source of operating cash is cash collections from sales to our customers. Our primary uses of cash from operating activities are for personnel costs, co-location costs, payment processing fees, bandwidth and connectivity, server maintenance and software licensing fees.

Net cash provided by operating activities was $138.0 million and $100.4 million for the six months ended June 30, 2024 and 2023, respectively. The increase was primarily driven by an increase in cash collections from higher revenues. These increases were partially offset by payments for leases, acquisition related compensation and cash bonuses.

### Investing Activities

Net cash provided by investing activities was $12.1 million for the six months ended June 30, 2024 compared to $243.7 million for the six months ended June 30, 2023. The decrease in cash provided by investing activities was primarily driven by a $204.0 million reallocation of our marketable securities portfolio to cash equivalents and an increase of $28.7 million in cash payments for capital expenditures, partially offset by a $2.5 million decrease in cash activity for asset acquisitions.

### Financing Activities

Net cash used in financing activities of $24.2 million and $365.0 million for the six months ended June 30, 2024 and 2023, respectively, was primarily due to the repurchase and retirement of our common stock for $18.2 million and $368.9 million, respectively.

### Contractual Obligations and Commitments

Except as disclosed in Note 8. Commitments and Contingencies in our condensed consolidated financial statements, there have been no material changes to our obligations under our operating leases and purchase commitments as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

### Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies as compared to those disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

### Recently Adopted Accounting Pronouncements

For information on recently issued accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, in our Notes to condensed consolidated financial statements included in Part I, Item 1. “Financial Statements and Supplementary Data” included in this Form 10-Q.

### Non‑GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with non-GAAP financial measures including: (i) adjusted EBITDA and adjusted EBITDA margin and (ii) non-GAAP net income and non-GAAP diluted net income per share. These measures are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Our calculations of each of these measures may differ from the calculations of measures with the same or similar titles by other companies and therefore comparability may be limited. Because of these limitations, when evaluating our performance, you should consider each of these non-GAAP financial measures alongside other financial performance measures, including the most directly comparable financial measure calculated in accordance with GAAP and our other GAAP results. A reconciliation of each of our non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP is set forth below.

### Adjusted EBITDA and Adjusted EBITDA Margin

We define adjusted EBITDA as net income (loss) attributable to common stockholders, adjusted to exclude depreciation and amortization, stock-based compensation, interest expense, acquisition related compensation, acquisition and integration related costs, income tax expense, restructuring and other charges, restructuring related charges, impairment of long-lived assets, and other income, net. We define adjusted EBITDA margin as adjusted EBITDA as a percentage of revenue. We believe that adjusted EBITDA, when taken together with our GAAP financial results, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business, evaluating our operating performance, and for internal planning and forecasting purposes.

Our calculation of adjusted EBITDA and adjusted EBITDA margin may differ from the calculations of adjusted EBITDA and adjusted EBITDA margin by other companies and therefore comparability may be limited. Because of these limitations, when evaluating our performance, you should consider adjusted EBITDA and adjusted EBITDA margin alongside other financial performance measures, including our net income (loss) attributable to common stockholders and other GAAP results.

The following table presents a reconciliation of Net income (loss) attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to adjusted EBITDA for each of the periods presented:

*(In thousands)*

|  | Three Months Ended June 30, 2024 | 2023 | Six Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| GAAP Net income (loss) attributable to common stockholders | $19,138 | $665 | $33,277 | $(15,705) |
| Adjustments: |  |  |  |  |
| Depreciation and amortization | 33,129 | 27,618 | 65,016 | 56,531 |
| Stock-based compensation(1) | 21,833 | 36,429 | 44,563 | 64,023 |
| Interest expense | 2,321 | 2,112 | 4,625 | 4,301 |
| Acquisition related compensation | 3,716 | 6,980 | 8,246 | 14,581 |
| Acquisition and integration related costs | (19) | 1,446 | — | 2,747 |
| Income tax expense | 5,671 | 3,316 | 5,787 | (8,165) |
| Restructuring and other charges(1) | — | 434 | — | 21,303 |
| Restructuring related charges(1)(2) | 243 | 820 | 3,863 | 2,727 |
| Impairment of long-lived assets | 356 | — | 356 | 553 |
| Other income, net(3) | (4,802) | (7,594) | (9,823) | (14,988) |
| Adjusted EBITDA | $81,586 | $72,226 | $155,910 | $127,908 |
| As a percentage of revenue: |  |  |  |  |
| Net income (loss) margin | 10% | —% | 9% | (5%) |
| Adjusted EBITDA margin | 42% | 43% | 41% | 38% |

(1) For the six months ended June 30, 2024, non-GAAP stock-based compensation excludes $0.1 million as it is presented in Restructuring related charges. For the six months ended June 30, 2023, non-GAAP stock-based compensation excludes $3.9 million, as it is presented in Restructuring and other charges. There were no reclassifications of stock-based compensation for the three months ended June 30, 2024 and 2023.

(2) For the three and six months ended June 30, 2024, primarily consists of executive reorganization charges. For the three and six months ended June 30, 2023, primarily consists of salary continuation charges.

(3) For the three and six months ended June 30, 2024 and 2023, primarily consists of interest and accretion income from our cash and cash equivalents and marketable securities.

### Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share

We define non-GAAP net income as net income (loss) attributable to common stockholders, excluding stock-based compensation, acquisition related compensation, amortization of acquired intangibles, acquisition and integration related costs, restructuring and other charges, restructuring related charges, impairment of long-lived assets, and other unusual or non-recurring transactions as they occur. We define non-GAAP diluted net income per share as non-GAAP net income divided by the weighted-average diluted shares outstanding, which includes the potentially dilutive effect of our stock options, RSUs, PRSUs, and Convertible Notes.

We believe non-GAAP diluted net income per share provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric generally eliminates the effects of unusual or non-recurring items from period to period for reasons unrelated to overall operating performance.

The following table presents a reconciliation of Net income (loss) attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to Non-GAAP Net income for each of the periods presented:

*(In thousands, except per share amounts)*

|  | Three Months Ended June 30, 2024 | 2023 | Six Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| GAAP Net income (loss) attributable to common stockholders | $19,138 | $665 | $33,277 | $(15,705) |
| Stock-based compensation(1) | 21,833 | 36,429 | 44,563 | 64,023 |
| Acquisition related compensation | 3,716 | 6,980 | 8,246 | 14,581 |
| Amortization of acquired intangible assets | 5,735 | 3,790 | 11,470 | 7,580 |
| Acquisition and integration related costs | (19) | 1,446 | — | 2,747 |
| Restructuring and other charges(1) | — | 434 | — | 21,303 |
| Restructuring related charges(1)(2) | 243 | 820 | 3,863 | 2,727 |
| Impairment of long-lived assets | 356 | — | 356 | 553 |
| Non-GAAP income tax adjustment(3) | (3,397) | (5,844) | (11,423) | (23,404) |
| Non-GAAP Net income | $47,605 | $44,720 | $90,352 | $74,405 |
| Non-cash charges related to convertible notes(4) | $1,588 | $1,561 | $3,174 | $3,121 |
| Non-GAAP Net income used to compute net income per share, diluted | $49,193 | $46,281 | $93,526 | $77,526 |
| GAAP Net income (loss) per share attributable to common stockholders, diluted | $0.20 | $0.01 | $0.35 | $(0.17) |
| Stock-based compensation(1) | 0.21 | 0.35 | 0.44 | 0.60 |
| Acquisition related compensation | 0.04 | 0.07 | 0.08 | 0.14 |
| Amortization of acquired intangible assets | 0.06 | 0.04 | 0.11 | 0.07 |
| Acquisition and integration related costs | — | 0.01 | — | 0.03 |
| Restructuring and other charges(1) | — | — | — | 0.20 |
| Restructuring related charges(1)(2) | — | 0.01 | 0.04 | 0.03 |
| Impairment of long-lived assets | — | — | — | 0.01 |
| Non-cash charges related to convertible notes(4) | 0.02 | 0.01 | 0.03 | 0.03 |
| Non-GAAP income tax adjustment(3) | (0.03) | (0.06) | (0.11) | (0.22) |
| Non-GAAP Net income per share, diluted\* | $0.48 | $0.44 | $0.91 | $0.72 |
| GAAP Weighted-average shares used to compute net income (loss) per share, diluted | 93,832 | 96,247 | 94,005 | 92,327 |
| Weighted-average dilutive effect of potentially dilutive securities | 8,403 | 8,403 | 8,403 | 15,583 |
| Non-GAAP Weighted-average shares used to compute net income per share, diluted | 102,235 | 104,650 | 102,408 | 107,910 |

\*May not foot due to rounding

(1) For the six months ended June 30, 2024, non-GAAP stock-based compensation excludes $0.1 million as it is presented in Restructuring related charges. For the six months ended June 30, 2023, non-GAAP stock-based compensation excludes $3.9 million, as it is presented in Restructuring and other charges. There were no reclassifications of stock-based compensation for the three months ended June 30, 2024 and 2023.

(2) For the three and six months ended June 30, 2024, primarily consists of executive reorganization charges. For the three and six months ended June 30, 2023, primarily consists of salary continuation charges.

(3) For the periods in fiscal year 2024, we used a tax rate of 16%, which we believe is a reasonable estimate of our long-term effective tax rate applicable to non-GAAP pre-tax income for 2024. For the periods in fiscal year 2023, we used a tax rate of 17%, which we believe was a reasonable estimate of our long-term effective tax rate applicable to non-GAAP pre-tax income for 2023.

(4) Consists of non-cash interest expense for amortization of deferred financing fees related to the Convertible Notes.

## Market risk

As filed, 159 characters.

There have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

## Controls and procedures

As filed, 6,982 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2024. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer, concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting described below.

### Material Weakness in Internal Control over Financial Reporting

As previously disclosed, we identified a material weakness in our internal control over financial reporting that continued to exist as of June 30, 2024. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. We did not design and maintain effective controls over the accounting for income taxes. Specifically, we did not have the appropriate skills and level of experience to assess complicated tax matters. Additionally, we did not properly identify, risk assess, design and maintain effective controls related to the income tax provision, including controls related to the evaluation of tax deductions and the impact on our tax provision. This material weakness resulted in immaterial errors to the income tax expense, deferred taxes, accrued tax liabilities and income tax disclosures which were adjusted in the Company's revised consolidated financial statements for the year ended December 31, 2022. The material weakness also resulted in material errors to the income tax expense, deferred taxes and accrued tax liabilities which were adjusted in the Company's restated condensed consolidated financial statements for the three months ended March 31, 2023. This material weakness could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

### Remediation Plan with Respect to Material Weakness

Management is committed to taking the necessary steps to remediate the above identified material weakness. We are implementing a plan to remediate the material weakness as follows:

a. In March 2023, we hired a VP of Tax with over 25 years of tax leadership experience.

b. In the second quarter of 2024, we continued to supplement our tax resources through the use of a third-party tax advisor and intend to continue utilizing the third-party tax advisor.

c. In the first and second quarter of 2024, we augmented our team with additional tax personnel who have the appropriate knowledge, training and experience to analyze, record and disclose tax accounting matters timely and accurately, and to design and maintain appropriate accounting policies, procedures and controls over income taxes, commensurate with our financial reporting requirements.

d. In the second quarter of 2024, we continued to evaluate the design of newly implemented controls to address the identification, accounting, reporting and review of complex tax transactions.

We continue to execute upon our remediation plan for the material weakness and report the status of the remediation plan to the Audit Committee on a regular basis.

We have made progress remediating the material weakness, and we believe our remediation plan to be sufficient to remediate the identified material weakness. However, the implementation of these remediation measures requires validation and testing of the design and operating effectiveness of internal control over a sustained period of financial reporting prior to reaching a determination that the material weakness has been remediated. As we continue to validate and test our internal control over financial reporting, we may determine that additional measures or modifications to the remediation plan are necessary or appropriate.

### Changes in Internal Control Over Financial Reporting

Except as described above, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

## Risk factors

As filed, 403 characters.

Please refer to Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 for a description of certain significant risks and uncertainties to which our business, financial condition and results of operations are subject. There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Filed Aug 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001582961-24-000122. Last ingested by Listed: Nov 3, 2026, 10:08 ET. No prices; not investment advice.