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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


	☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30~~March 31, ~~2018~~ 2019


	☐ 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: 001-38478

CARBON BLACK, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		55-0810166
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1100 Winter Street
Waltham, MA		02451
(Address of principal executive offices)		(Zip Code)

(617) 393-7400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See 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	☒	Small reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

~~There~~Securities ~~were~~registered ~~67,917,331~~pursuant ~~shares~~to ofSection ~~the~~12(b) ~~registrant’s common stock with a par value~~ of ~~$0.001~~the ~~per share, outstanding as of October 22, 2018.~~Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	CBLK	The Nasdaq Global Select Market

There were 71,569,406 shares of the registrant’s common stock with a par value of $0.001 per share, outstanding as of April 30, 2019.

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CARBON BLACK, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

~~For~~MARCH ~~the Quarter Ended September 30~~31, ~~2018~~2019

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets	2
	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (Unaudited)		3
	Unaudited Condensed Consolidated Statements of Operations	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018 (Unaudited)		4
	Unaudited Condensed Consolidated Statements of Comprehensive Loss	4
	Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018 (Unaudited)		5
	Unaudited Condensed Consolidated Statement of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity	5
	Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2019 and 2018 (Unaudited)		6
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (Unaudited)		7
	Notes to Unaudited Condensed Consolidated Financial Statements	7
	Condensed Notes to the Consolidated Financial Statements (Unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36	38
Item 4.	Controls and Procedures	37	38
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	37		39
Item 1A.	Risk Factors	37		39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66		63
Item 6.	Exhibits	67
Item 3.	Defaults upon Senior Securities			63
	Signatures	68
Item 4.	Mine Safety Disclosures			63
Item 5.	Other Information			63
Item 6.	Exhibits			64
Signatures				65

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARBON BLACK, INC.

~~UNAUDITED CONDENSED~~ CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
(In thousands, except share and per share amounts)	2018		2017
Assets
Current assets:
Cash and cash equivalents	$	69,099	$	36,073
Short-term investments		94,666		—
Accounts receivable, net of allowances of $209 and $124 as of September 30, 2018 and December 31, 2017, respectively		51,582		60,850
Prepaid expenses and other current assets		8,967		6,040
Deferred commissions		11,801		9,551
Total current assets		236,115		112,514
Deferred commissions, net of current portion		23,171		20,404
Property and equipment, net		14,792		12,459
Intangible assets, net		2,919		4,092
Goodwill		119,656		119,656
Other-long term assets		531		2,436
Total assets	$	397,184	$	271,561
Liabilities, Redeemable Convertible and Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable	$	3,502	$	2,481
Accrued expenses		19,596		18,846
Deferred revenue		138,515		130,165
Deferred rent		1,176		944
Total current liabilities		162,789		152,436
Deferred revenue, net of current portion		38,316		38,535
Warrant liability		—		2,766
Deferred rent, net of current portion		2,774		3,114
Deferred tax liability		37		33
Other long-term liabilities		42		42
Total liabilities		203,958		196,926
Commitments and contingencies (Note 11)
Redeemable convertible preferred stock (Series B, C, D, E, E-1 and F), $0.001 par value, 94,101,207 authorized, 88,741,194 shares issued and outstanding with aggregate liquidation preference of $272,506 as of December 31, 2017. No shares authorized, issued or outstanding as of September 30, 2018.		—		333,204
Series A convertible preferred stock, $0.001 par value, 8,800,000 shares authorized, 3,851,806 shares issued and outstanding as of December 31, 2017. No shares authorized, issued or outstanding as of September 30, 2018.		—		1,510
Stockholders' equity (deficit):
Common stock, $0.001 par value, 500,000,000 shares and 156,650,000 shares authorized as of September 30, 2018 and December 31, 2017, respectively; 67,951,050 shares and 11,193,366 shares issued and 67,895,646 and 11,139,690 shares outstanding as of September 30, 2018 and December 31, 2017, respectively		68		11
Treasury stock, at cost, 55,404 and 53,676 shares as of September 30, 2018 and December 31, 2017, respectively		(6)		(6)
Additional-paid in capital		712,156		13,429
Accumulated other comprehensive loss		(30)		—
Accumulated deficit		(518,962)		(273,513)
Total stockholders' equity (deficit)		193,226		(260,079)
Total liabilities, redeemable convertible and convertible preferred stock and stockholders' equity (deficit)	$	397,184	$	271,561

(UNAUDITED)

See notes to unaudited condensed consolidated financial statements.


	March 31,		December 31,
(In thousands, except share and per share amounts)	2019		2018
Assets
Current assets:
Cash and cash equivalents	$	72,880	$	67,868
Short-term investments		80,399		92,770
Accounts receivable, net of allowances of $210 and $300, as of March 31, 2019 and December 31, 2018, respectively		43,870		62,555
Prepaid expenses and other current assets		9,397		8,751
Deferred commissions		13,680		13,078
Total current assets		220,226		245,022
Deferred commissions, net of current portion		25,397		25,076
Property and equipment, net		13,253		14,370
Operating lease right-of-use assets		14,931		—
Intangible assets, net		2,204		2,529
Goodwill		119,656		119,656
Deferred tax asset		483		483
Other-long term assets		560		601
Total assets	$	396,710	$	407,737
Liabilities:
Current liabilities:
Accounts payable	$	4,846	$	4,663
Accrued expenses		13,901		20,669
Deferred revenue		146,912		152,522
Deferred rent		—		1,216
Operating lease short-term liability		5,339		—
Total current liabilities		170,998		179,070
Deferred revenue, net of current portion		36,296		40,371
Deferred rent, net of current portion		—		2,651
Operating lease long-term liability		13,344		—
Deferred tax liability		49		49
Other long-term liabilities		28		42
Total liabilities		220,715		222,183
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $0.001 par, 500,000,000 shares authorized:
71,396,964 and 69,738,599 shares issued, and 71,341,560 and 69,683,195 shares outstanding,as of March 31, 2019 and December 31, 2018, respectively		71		70
Treasury stock, at cost, 55,404 shares as of March 31, 2019 and December 31, 2018, respectively		(6)		(6)
Additional paid-in capital		733,129		723,051
Accumulated other comprehensive loss		—		(49)
Accumulated deficit		(557,199)		(537,512)
Total stockholders' equity		175,995		185,554
Total liabilities and stockholders' equity	$	396,710	$	407,737

2See accompanying condensed notes to the consolidated financial statements.

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CARBON BLACK, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except share and per share amounts)	2018		2017		2018		2017
Revenue:
Subscription, license and support	$	50,824	$	38,381	$	144,106	$	107,135
Services		2,591		3,128		8,735		9,010
Total revenue		53,415		41,509		152,841		116,145
Cost of revenue:
Subscription, license and support		9,015		6,842		24,278		17,417
Services		2,890		2,943		8,946		8,360
Total cost of revenue		11,905		9,785		33,224		25,777
Gross profit		41,510		31,724		119,617		90,368
Operating expenses:
Sales and marketing		35,818		25,988		101,657		75,078
Research and development		16,189		13,675		47,195		37,794
General and administrative		7,563		5,717		25,838		16,060
Total operating expenses		59,570		45,380		174,690		128,932
Loss from operations		(18,060)		(13,656)		(55,073)		(38,564)
Interest income, net		737		22		1,192		5
Change in fair value of warrant liability		—		(45)		(8,838)		79
Other income (expense), net		(173)		102		(547)		215
Loss before income taxes		(17,496)		(13,577)		(63,266)		(38,265)
Provision for income taxes		136		22		241		108
Net loss		(17,632)		(13,599)		(63,507)		(38,373)
Accretion of preferred stock to redemption value		—		(7,427)		(199,492)		(15,751)
Net loss attributable to common stockholders	$	(17,632)	$	(21,026)	$	(262,999)	$	(54,124)
Net loss per share attributable to common stockholders—basic and diluted	$	(0.26)	$	(1.99)	$	(6.34)	$	(5.27)
Weighted-average common shares outstanding—basic and diluted		67,837,240		10,587,153		41,494,203		10,263,962

See notes to unaudited condensed consolidated financial statements.

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CARBON BLACK, INC.

~~UNAUDITED CONDENSED~~ CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE LOSS~~OPERATIONS

	Three Months Ended September 30,				Nine Months Ended September 30,
In thousands	2018		2017		2018		2017
Net loss	$	(17,632)	$	(13,599)	$	(63,507)	$	(38,373)
Other comprehensive loss:
Unrealized loss on available-for-sale securities		(30)		-		(30)		-
Total other comprehensive loss		(30)		-		(30)		-
Comprehensive loss	$	(17,662)	$	(13,599)	$	(63,537)	$	(38,373)

(UNAUDITED)

See notes to unaudited condensed consolidated financial statements.


	Three Months Ended March 31,
(In thousands, except share and per share amounts)	2019		2018
Revenue:
Subscription, license and support	$	56,294	$	45,391
Services		2,262		3,043
Total revenue		58,556		48,434
Cost of revenue:
Subscription, license and support		10,502		7,212
Services		2,523		3,003
Total cost of revenue		13,025		10,215
Gross profit		45,531		38,219
Operating expenses:
Sales and marketing		39,410		30,678
Research and development		18,377		14,922
General and administrative		8,088		10,426
Total operating expenses		65,875		56,026
Loss from operations		(20,344)		(17,807)
Other income (expense), net:
Interest income		859		68
Interest expense		(31)		(23)
Change in fair value of warrant liability		—		(2,881)
Other income (expense), net		(105)		120
Total other income (expense), net		723		(2,716)
Loss before income taxes		(19,621)		(20,523)
Provision for income taxes		66		71
Net loss		(19,687)		(20,594)
Accretion of preferred stock to redemption value		—		(40,039)
Net loss attributable to common stockholders	$	(19,687)	$	(60,633)


Net loss per share attributable to common stockholders—basic and diluted	$	(0.28)	$	(5.38)
Weighted-average common shares outstanding—basic and diluted		70,474,542		11,264,252

See accompanying condensed notes to the consolidated financial statements.

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CARBON BLACK, INC.

~~UNAUDITED CONDENSED~~ CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~REDEEMABLE~~COMPREHENSIVE ~~CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK ANDSTOCKHOLDERS’ EQUITY~~LOSS

		Redeemable																											Accumulated
		Convertible				Convertible																	Additional					Other						Total
		Preferred Stock				Preferred Stock					Common Stock						Treasury Stock						Paid‑in						Comprehensive		Accumulated			Stockholders'
(In thousands, except share amounts)		Shares	Amount			Shares		Amount			Shares		Amount			Shares			Amount			Capital				Income (Loss)					Deficit			Equity
Balances at December 31, 2017	88,741,194			$	333,204		3,851,806		$	1,510		11,139,690		$	11			53,676		$	(6)			$	13,429		$					$	(273,513)		$	(260,079)
Exercise of Series A stock options	—				—		360,385			211		—			—			—			—				—					—			—			—
Accretion of redeemable convertible preferred stock to redemption value	—				199,492		—			—		—			—			—			—				(17,550)					—			(181,942)			(199,492)
Conversion of redeemable convertible preferred stock upon initial public offering	(88,741,194)				(532,696)		—			—		44,370,560			44			—			—				532,652					—			—			532,696
Conversion of convertible preferred stock upon initial public offering	—				—		(4,212,191)			(1,721)		1,709,063			2			—			—				1,719					—			—			1,721
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and offering costs incurred of $4,858	—				—		—			—		9,200,000			9			—			—				157,697					—			—			157,706
Issuance of common stock upon exercise of common stock warrants	—				—		—			—		712,063			1			—			—				11,603					—			—			11,604
Repurchase of common stock	—				—		—			—		(1,728)			—			1,728			—				—					—			—			—
Exercise of common stock options	—				—		—			—		765,998			1			—			—				3,136					—			—			3,137
Stock-based compensation expense	—				—		—			—		—			—			—			—				9,470					—			—			9,470
Unrealized loss on available-for-sale securities	—				—		—			—		—			—			—			—				—					(30)			—			(30)
Net loss	—				—		—			—		—			—			—			—				—					—			(63,507)			(63,507)
Balances at September 30, 2018	—			$	—		—		$	—		67,895,646		$	68			55,404		$	(6)			$	712,156		$			(30)		$	(518,962)		$	193,226

(UNAUDITED)

See notes to unaudited condensed consolidated financial statements.


	Three Months Ended March 31,
(In thousands)	2019		2018
Net loss	$	(19,687)	$	(20,594)
Other comprehensive income (loss), net of related taxes:
Net unrealized gains (losses) on available-for-sale securities, net of related taxes of zero		49		-
Other comprehensive income (loss)		49		-
Total comprehensive loss	$	(19,638)	$	(20,594)

See accompanying condensed notes to the consolidated financial statements.

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CARBON BLACK, INC.

~~UNAUDITED CONDENSED~~ CONSOLIDATED STATEMENTS OF ~~CASH~~REDEEMABLE ~~FLOWS~~CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

	Nine Months Ended September 30,
(In thousands)	2018		2017
Cash flows from operating activities:
Net loss	$	(63,507)	$	(38,373)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		5,881		5,204
Stock-based compensation expense		9,470		6,649
Provisions for doubtful accounts		140		(159)
Non-cash interest expense		34		15
Change in fair value of warrant liability		8,838		(79)
Deferred income taxes		4		—
Other non-cash income		(115)		—
Changes in operating assets and liabilities:
Accounts receivable		9,127		(2,517)
Prepaid expenses and other assets		(2,657)		(1,916)
Deferred commissions		(5,017)		(4,122)
Accounts payable		1,236		1,136
Accrued expenses		751		(1,686)
Deferred revenue		8,131		23,711
Deferred rent		(109)		(200)
Other long-term liabilities		(263)		(59)
Net cash used in operating activities		(28,056)		(12,396)
Cash flows from investing activities:
Purchases of short-term investments		(94,581)		—
Purchases of property and equipment		(5,354)		(4,228)
Capitalization of internal-use software costs		(1,901)		(714)
Net cash used in investing activities		(101,836)		(4,942)
Cash flows from financing activities:
Proceeds from exercise of stock options		3,348		2,349
Repayments of line of credit		—		(5,500)
Proceeds from initial public offering, net of offering costs of $2,947		159,617		—
Payments of deferred financing costs		(47)		(84)
Net cash provided by (used in) financing activities		162,918		(3,235)
Net increase (decrease) in cash and cash equivalents		33,026		(20,573)
Cash and cash equivalents at beginning of period		36,073		51,503
Cash and cash equivalents at end of period	$	69,099	$	30,930
Supplemental disclosure of non-cash investing and financing activities:
Conversion of redeemable convertible preferred stock upon initial public offering	$	532,696	$	—
Conversion of convertible preferred stock upon initial public offering		1,720		—
Issuance of common stock upon exercise of common stock warrants		11,604		—
Deferred IPO costs paid in prior periods		1,911		—
Accretion of preferred stock to redemption value		199,492		15,751
Additions to property and equipment included in accounts payable at period end		75		139
Series B preferred stock issued upon exercise of Series B Warrant		—		225
Series F preferred stock and common stock issued upon termination of customer warrant in connection with acquisition of Confer Technologies, Inc.		—		1,347

(UNAUDITED)

See notes to unaudited condensed consolidated financial statements.


	Redeemable														Accumulated
	Convertible			Convertible									Additional		Other				Total
	Preferred Stock			Preferred Stock			Common Stock			Treasury Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
(In thousands, except share amounts)	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity (Deficit)
Balance at December 31, 2017	88,741,194	$	333,204	3,851,806	$	1,510	11,139,690	$	11	53,676	$	(6)	$	13,429	$	—	$	(273,513)	$	(260,079)
Net loss	—		—	—		—	—		—	—		—		—		—		(20,594)		(20,594)
Exercise of Series A stock options	—		—	185,063		89	—		—	—		—		—		—		—		—
Exercise of common stock options	—		—	—		—	274,840		—	—		—		976		—		—		976
Stock-based compensation expense	—		—	—		—	—		—	—		—		2,389		—		—		2,389
Accretion of redeemable convertible preferred stock to redemption value	—		40,039	—		—	—		—	—		—		(16,794)		—		(23,245)		(40,039)
Repurchase of common stock	—		—	—		—	(1,728)		—	1,728		—		—		—		—		—
Balance at March 31, 2018	88,741,194	$	373,243	4,036,869	$	1,599	11,412,802	$	11	55,404	$	(6)	$	—	$	—	$	(317,352)	$	(317,347)
Balance at December 31, 2018	—	$	—	—	$	—	69,683,195	$	70	55,404	$	(6)	$	723,051	$	(49)	$	(537,512)	$	185,554
Net loss	—		—	—		—	—		—	—		—		—		—		(19,687)		(19,687)
Exercise of common stock options	—		—	—		—	1,535,993		1	—		—		6,225		—		—		6,226
Vesting of restricted stock units, net of shares withheld for employee taxes	—		—	—		—	122,372		—	—		—		(351)		—		—		(351)
Stock-based compensation expense	—		—	—		—	—		—	—		—		4,204		—		—		4,204
Unrealized gain (loss) on available-for-sale securities	—		—	—		—	—		—	—		—		—		49		—		49
Balance at March 31, 2019	—	$	—	—	$	—	71,341,560	$	71	55,404	$	(6)	$	733,129	$	—	$	(557,199)	$	175,995

See accompanying condensed notes to the consolidated financial statements.

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CARBON BLACK, INC.

~~NOTES TO UNAUDITED CONDENSED~~ CONSOLIDATED ~~FINANCIAL~~ STATEMENTS OF CASH FLOWS

(~~Amounts in thousands, except share and per share amounts~~UNAUDITED)

1. OVERVIEW AND BASIS OF PRESENTATION


	Three Months Ended March 31,
(In thousands)	2019		2018
Cash flows from operating activities:
Net loss	$	(19,687)	$	(20,594)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		2,124		1,905
Stock-based compensation expense		4,204		2,389
Provisions for doubtful accounts		(41)		19
Non-cash interest expense		16		9
Change in fair value of warrant liability		—		2,881
Deferred income taxes		—		4
Other non-cash income		(383)		—
Changes in operating assets and liabilities:
Accounts receivable		18,726		24,031
Prepaid expenses and other assets		(893)		(1,861)
Deferred commissions		(923)		(494)
Accounts payable		236		25
Accrued expenses		(7,482)		(2,305)
Deferred revenue		(9,686)		(6,703)
Deferred rent		—		(82)
Operating leases right-of-use assets		1,088		—
Operating leases liability		(1,202)		—
Other long-term liabilities		(13)		(1)
Net cash used in operating activities		(13,916)		(777)
Cash flows from investing activities:
Purchases of short-term investments		(15,897)		—
Sale and maturities of short-term investments		28,700		—
Purchases of property and equipment		(577)		(1,495)
Capitalization of internal-use software costs		(160)		(293)
Net cash provided by (used in) investing activities		12,066		(1,788)
Cash flows from financing activities:
Proceeds from exercise of stock options		6,546		1,065
Payments of deferred financing costs		(47)		(47)
Taxes paid related to net share settlement of equity awards		(351)		—
Proceeds from employee stock purchase plan		714		—
Payments of initial public offering costs		—		(840)
Net cash provided by financing activities		6,862		178
Net increase (decrease) in cash and cash equivalents		5,012		(2,387)
Cash and cash equivalents at beginning of period		67,868		36,073
Cash and cash equivalents at end of period	$	72,880	$	33,686

Supplemental disclosure of non-cash investing and financing activities:
Accretion of preferred stock to redemption value	$	—	$	40,039
Additions to property and equipment included in accounts payable at period end	$	189	$	353
Deferred offering costs included in accounts payable at period end	$	—	$	546

~~Overview~~See accompanying condensed notes to the consolidated financial statements.

Carbon Black, Inc. (the “Company”) is a leading provider of next-generation endpoint security solutions. The Company’s solutions enable customers to predict, prevent, detect, respond to and remediate cyber attacks before they cause a damaging incident or data breach. The Company was incorporated under the laws of the State of Delaware in December 2002 as Bit 9, Inc. and in April 2005 changed its name to Bit9, Inc. In January 2016, the Company amended its certificate of incorporation to change its name to Carbon Black, Inc.

On April 20, 2018, the Company effected a 1-for-2 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios of Company’s Series B, Series C, Series D, Series E, Series E-1 and Series F preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying unaudited consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

On May 8, 2018, the Company closed its initial public offering (“IPO”), in which it issued and sold 9,200,000 shares of common stock inclusive of the underwriters’ option to purchase additional shares that was exercised in full. The price to the public was $19 per share. The Company received aggregate proceeds of $162.6 million from the IPO, net of underwriters’ discounts and commissions, and before deducting offering costs of approximately $4.9 million. Upon closing of the IPO, all shares of the Company’s outstanding redeemable convertible and convertible preferred stock automatically converted into 46,079,623 shares of common stock. Additionally, an outstanding warrant which became exercisable upon the closing of the IPO was exercised to purchase 485,985 shares of common stock.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting standards (“GAAP”) for interim financial information and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The Company’s condensed consolidated financial statements are unaudited, but include all adjustments of a normal recurring nature necessary for a fair presentation of the quarterly results. The Company has made estimates and judgments affecting the amounts reported in the condensed consolidated financial statements and the accompanying notes. The actual results that the Company experiences may differ materially from the Company’s estimates.

The Company’s condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s final prospectus for its IPO dated as of May 4, 2018 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.

Effective January 1, 2018, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) on a full retrospective basis as discussed in detail in Note 2. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q have been updated to comply with ASC 606.

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as the Company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. The Company has irrevocably elected to “opt out” of this provision and, as a result, the Company will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

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2.CARBON ~~NEW ACCOUNTING PRONOUNCEMENTS~~BLACK

~~Recently~~CONDENSED ~~issued~~NOTES ~~accounting~~TO ~~pronouncements:~~THE CONSOLIDATED FINANCIAL STATEMENTS

~~Internal-Use Software~~(UNAUDITED)

InTABLE ~~August~~OF 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) (“ASU 2018-15”). ASU 2018-15 was issued in order to address a customer's accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is considered a service contract. Under this guidance, implementation costs for a CCA should be evaluated for capitalization using the same approach as implementation costs associated with internal-use software. The capitalized implementation costs should be expensed over the term of the hosting arrangement, which includes any reasonably certain renewal periods. The pronouncement is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of this pronouncement on its consolidated financial statements.CONTENTS

Stock Compensation



Note 1	Overview and Basis of Presentation	9
Note 2	New Accounting Pronouncements	10
Note 3	Cash Equivalents and Short-Term Investments	13
Note 4	Fair Value of Financial Instruments	14
Note 5	Property and Equipment, Net	16
Note 6	Goodwill and Intangible Assets	16
Note 7	Leases	17
Note 8	Stockholders’ Equity	18
Note 9	Equity Award Plans	18
Note 10	Commitments and Contingencies	20
Note 11	Income Taxes	21
Note 12	Revenue	21
Note 13	Net Loss per Share	22

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) (“ASU 2018-07”). ASU 2018-07 was issued in order to expand the guidance for stock-based compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of the new accounting standard to have a material impact on its consolidated financial statements.

Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (“ASU 2018-02”), which provides for the reclassification of the effect of remeasuring deferred tax balances related to items within accumulated other comprehensive income to retained earnings resulting from the Tax Cuts and Jobs Act, or Tax Act. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company does not expect the adoption of the new accounting standard to have a material impact on its consolidated financial statements.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard will be effective for the Company on January 1, 2019. Companies are required to use a modified retrospective approach, with the option of applying the requirements of the standard either (1) retrospectively to each prior comparative reporting period presented, or (2) retrospectively at the beginning of the period of adoption. The Company plans to adopt this standard in the first quarter of 2019 by applying the requirements to the beginning of the period of adoption through a cumulative-effect adjustment. The Company is in the process of identifying the population of potential lease arrangements and evaluating these arrangements in the context of the new guidance. While the Company continues to evaluate the effect of adoption on its consolidated financial statements, the Company expects the adoption will result in the recognition of right-of-use assets and lease liabilities that were not previously recognized, which will increase total assets and liabilities on the Company’s consolidated balance sheet.

Recently adopted accounting pronouncement:

Revenue

In May 2014, the FASB issued ASC 606, which supersedes existing revenue recognition guidance under GAAP. The Company adopted ASC 606 effective January 1, 2018 using the full retrospective method, which required the Company to restate each prior reporting period presented for the impact of adoption of the standard.

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~~The~~CARBON Company’s recognition of total revenue related to subscription (i.e., term-based) licenses, cloud-based subscriptions, access to the threat intelligence capabilities of the Cb Predictive Security Cloud, maintenance services and customer support, and stand-alone professional services remain substantially unchanged under the new standard. However, as further discussed herein, the timing of recognition related to certain aspects of subscription (i.e. term-based) licenses, perpetual licenses and associated professional services is different under the new standard.BLACK

~~For~~CONDENSED ~~subscription~~NOTES ~~license~~TO ~~sales~~THE ofCONSOLIDATED CbFINANCIAL Protection and Cb Response, under the new standard, the Company considers the software license and the access to the threat intelligence capabilities of the Cb Predictive Security Cloud, which provides continuous updates of real-time threat intelligence, to be a single performance obligation. As a result, the arrangement consideration allocated to the software license is deferred on the Company’s balance sheet and recognized ratably over the term of the subscription as the performance obligation is satisfied. However, under the new standard, the Company is no longer required to delay the commencement of revenue recognition of subscription licenses until the commencement of any professional services and training sold with the subscription license due to the lack of vendor - specific objective evidence ("VSOE") of its longest delivered service elements, maintenance and support. While under the new standard, maintenance services and customer support related to subscription licenses are a stand-alone performance obligation, the related revenue continues to be recognized ratably over the term of the maintenance and support arrangement as the performance obligation is satisfied.STATEMENTS

For its infrequent sales of perpetual licenses of Cb Protection and Cb Response, prior to the adoption of ASC 606, the Company recognized revenue ratably over the longest service period of any deliverable in the arrangement, which was generally the maintenance and support term, due to the lack of VSOE of fair value for its maintenance and support offerings. Under the new standard, the Company is no longer required to delay revenue recognition of perpetual licenses until the commencement of any bundled professional services and training sold with the perpetual license. Further, the Company recognizes the revenue related to the sale of perpetual software licenses ratably over the customer’s estimated economic life, which the Company has estimated to be five years, rather than over the initially committed period of maintenance and support.(UNAUDITED)

InNOTE addition, under the new standard, for subscription and perpetual licenses that are sold with professional services in a combined arrangement, the professional services represent a separate performance obligation and the Company recognizes revenue associated with the professional services as such services are performed1. ~~Revenue~~OVERVIEW ~~associated~~AND ~~with~~BASIS ~~professional~~OF services sold in a combined arrangement with subscription and perpetual licenses was previously recognized ratably over the longest service period of any deliverable in the arrangement, which was generally the maintenance and support term, due to the lack of VSOE of fair value for the Company’s maintenance and support offerings.PRESENTATION

Another significant provision of the new standard requires the capitalization and amortization of costs associated with obtaining a contract, such as sales commissions. Under the new standard, all incremental costs to acquire a contract are capitalized and amortized using a systematic basis over the pattern of transfer of the goods and services to which the asset relates. Under the previous standard, the Company capitalized commission costs that were incremental and directly related to the acquisition of a customer arrangement. The commission costs were capitalized when earned and were amortized as expense over the period that the revenue was recognized for the related non-cancelable customer arrangement in proportion to the recognition of revenue, without regard to anticipated customer renewals. Under the new standard, the Company continues to capitalize all incremental commission costs to obtain a customer arrangement, but now amortizes the capitalized costs on a straight-line basis over the estimated customer relationship period, which includes anticipated customer renewals, because the Company anticipates that a majority of customers will renew their license and cloud-based subscriptions and the commissions paid by the Company for such renewals are not commensurate with the commissions paid for new sales. Accordingly, this has resulted in the Company’s capitalized commission costs being amortized to expense over a longer period under the new standard than under the prior guidance. The Company has estimated the customer relationship period to be five years.Overview

~~For~~Carbon ~~additional~~Black, ~~information~~Inc. on (the “Company,” ”we,” “us,” “our”) is a leader in cloud endpoint protection. The Company’s ~~accounting~~solutions ~~policies~~enable ascustomers to predict, prevent, detect, respond to and remediate cyber attacks before they cause a ~~result~~damaging incident or data breach. The Company was incorporated under the laws of the ~~adoption~~State of ~~ASC~~Delaware ~~606~~in ~~see~~December ~~Note~~2002 13as ~~“Revenue”~~Bit 9, Inc. and in April 2005 changed its name to Bit9, Inc. In January 2016, the Company amended its certificate of incorporation to change its name to Carbon Black, Inc.

The company is headquartered in Waltham, Massachusetts. The Company has wholly owned subsidiaries in the United States, the United Kingdom, Singapore, Australia, Canada, Malaysia and Japan.

Reverse Stock Split

On April 20, 2018, the Company effected a 1-for-2 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios of Company’s Series B, Series C, Series D, Series E, Series E-1 and Series F preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

Initial Public Offering

On May 8, 2018, the Company closed its initial public offering (“IPO”), in which it issued and sold 9,200,000 shares of common stock inclusive of the underwriters’ option to purchase additional shares that was exercised in full. The price to the public was $19.00 per share. The Company received aggregate proceeds of $162.6 million from the IPO, net of underwriters’ discounts and commissions, and before deducting offering costs of approximately $4.9 million. Upon the closing of the IPO, all shares of the Company’s outstanding redeemable convertible and convertible preferred stock automatically converted into 46,079,623 shares of common stock. Additionally, an outstanding warrant which became exercisable upon the closing of the IPO was exercised to purchase 485,985 shares of common stock.

Basis of Presentation

The accompanying consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States (“GAAP”), as well as pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), regarding interim financial reporting. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the financial information included in our Annual Report on Form 10-K for 2018 filed with the SEC on March 8, 2019 (“2018 Form 10-K”).

The consolidated financial statements include our results of operations and those of our wholly-owned subsidiaries and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation.

Certain previously reported amounts presented in this Quarterly Report on Form 10-Q (“Form 10-Q”) may be reclassified to conform to current-period presentation. Events occurring subsequent to the date of our consolidated balance sheet were evaluated for potential recognition or disclosure in our consolidated financial statements through the date we filed this Form 10-Q with the SEC.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that may materially affect the reported amounts of assets, liabilities, equity, revenue and expenses. As a result of unanticipated events or circumstances, actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. For additional information about our use of estimates refer to “Critical Accounting Policies” included under management’s discussion and analysis in our 2018 Form 10-K.

Significant Accounting Policies

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~~The~~CARBON ~~Company adjusted its consolidated financial statements due to the adoption of ASC 606. Select unaudited consolidated financial statements, which reflect the adoption of ASC 606 are as follows:~~BLACK

	As of December 31, 2017
			Adjustments for
	As Previously		ASC 606
	Reported		Adoption		As Adjusted
Consolidated Balance Sheet
Assets:
Deferred commissions, current portion	$	15,195	$	(5,644)	$	9,551
Deferred commissions, net of current portion		3,811		16,593		20,404
Liabilities, redeemable convertible and convertible preferred stock and stockholders' equity (deficit):
Deferred revenue, current portion		132,278		(2,113)		130,165
Deferred revenue, net of current portion		31,902		6,633		38,535
Accumulated deficit		(279,942)		6,429		(273,513)

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
	As Prepared under ASC 605		Adjustments for ASC 606 Adoption		As Adjusted		As Prepared under ASC 605		Adjustments for ASC 606 Adoption		As Adjusted
Consolidated Statement of Operations
Subscription, license and support	$	38,216	$	165	$	38,381	$	107,783	$	(648)	$	107,135
Services		3,163		(35)		3,128		9,417		(407)		9,010
Total revenue		41,379		130		41,509		117,200		(1,055)		116,145
Gross profit		31,594		130		31,724		91,423		(1,055)		90,368
Sales and marketing		26,905		(917)		25,988		77,929		(2,851)		75,078
Total operating expenses		46,297		(917)		45,380		131,783		(2,851)		128,932
Loss from operations		(14,703)		1,047		(13,656)		(40,360)		1,796		(38,564)
Loss before income taxes		(14,624)		1,047		(13,577)		(40,061)		1,796		(38,265)
Net loss and comprehensive loss		(14,646)		1,047		(13,599)		(40,169)		1,796		(38,373)
Net loss attributable to common stockholders		(22,073)		1,047		(21,026)		(55,920)		1,796		(54,124)
Net loss per share attributable to common stockholders—basic and diluted	$	(2.08)	$	0.09	$	(1.99)	$	(5.45)	$	0.17	$	(5.27)

(UNAUDITED)

	Nine Months Ended September 30, 2017
			Adjustments for
	As Prepared		ASC 606
	under ASC 605		Adoption		As Adjusted
Consolidated Statement of Cash Flows
Cash flows from operating activities:
Net loss	$	(40,169)	$	1,796	$	(38,373)
Changes in operating assets and liabilities, excluding the impact of acquisition of businesses:
Deferred commissions		(1,272)		(2,850)		(4,122)
Deferred revenue	$	22,657	$	1,054	$	23,711

Effective January 1, 2019, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”) on a modified retrospective transition approach as discussed in detail in Note 2. All amounts and disclosures set forth in this Form 10-Q have been updated to comply with ASC 842.

3The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits an “emerging growth company” such as the Company, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. ~~CASH~~The ~~EQUIVALENTS~~Company ~~AND~~has ~~SHORT~~irrevocably elected to “opt out” of this provision and, as a result, the Company will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies. For a complete discussion of our significant accounting policies refer to Note 2 to the consolidated financial statements in our 2018 Form 10-~~TERM~~K. ~~INVESTMENTS~~

~~The~~NOTE ~~Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents~~2. ~~The~~NEW ~~Company’s~~ACCOUNTING ~~cash equivalents consist of highly liquid investments in money market funds.~~PRONOUNCEMENTS

~~The~~Recently ~~Company~~issued ~~considers~~accounting ~~all~~pronouncements: high quality investments purchased with original maturities at the date of purchase greater than three months to be short-term investments. Investments are available to be used for current operations and are, therefore, classified as current assets even though maturities may extend beyond one year. Short-term investments are classified as available for sale and are,

Standard	Description	Date of Adoption	Effects on the financial statements or other significant matters
ASU 2018-15, Intangibles-Goodwill and Other (Topic 350): Internal-Use Software	The standard was issued in order to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is considered a service contract. Under this guidance, implementation costs for a CCA should be evaluated for capitalization using the same approach as implementation costs associated with internal-use software. Generally costs incurred to configure/customize the hosted software are capitalizable, however, data conversion and training costs are expensed as incurred consistent with internal-use software guidance. The amortization period is over the non-cancelable term and any reasonable certain renewals are expensed to the same line item in which fees paid to the vendor are recognized (i.e., not included in amortization expense).	January 1, 2020, early adoption permitted	We are currently assessing the impact of the standard on our consolidated financial statements.
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The standard requires immediate recognition of expected credit losses for financial assets carried at amortized cost, including trade and other receivables, loans and commitments, held-to-maturity debt securities and other financial assets, held at the reporting date to be measured based on historical experience, current conditions and reasonable supportable forecasts. Credit losses on available-for-sale securities will be recorded as an allowance versus a write-down of the amortized cost basis of the security and will allow for a reversal of impairment loss when the credit of the issuer improves.	January 1, 2020, early adoption permitted	We are currently assessing the impact of the standard on our consolidated financial statements.

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~~therefore,~~ CARBON recorded at fair value on the consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity in the Company’s consolidated balance sheets, until realized. The Company uses the specific identification method to compute gains and losses on the investments. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included as a component of interest income, net in the consolidated statement of operations. Cash equivalents and short-term investments consist of the following:BLACK

	September 30, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Cash equivalents:
Money market funds	$	56,647	$	—	$	—	$	56,647
Total cash equivalents		56,647		—		—		56,647
Short-term investments:
Commercial paper	$	46,710	$	—	$	—	$	46,710
U.S. treasury securities		21,382		—		(13)		21,369
Corporate bonds		13,778		—		(6)		13,772
Asset-backed securities		12,826		—		(11)		12,815
Total short-term investments	$	94,696	$	—	$	(30)	$	94,666

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~4. FAIR VALUE OF FINANCIAL INSTRUMENTS~~(UNAUDITED)

The Company categorizes assets and liabilities recorded or disclosed at fair value on our condensed consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:

ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

The standard simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The ASU requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss.

January 1, 2020, early adoption permitted

We are currently evaluating the impacts of early adoption and will apply this standard prospectively, as applicable.

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

The standard eliminates, amends and adds disclosure requirements for fair value measurements. Eliminated disclosures include: amount of and reasons for transfers between levels 1 and 2, policy on timing of transfers, valuation processes for level 3. Removal of the requirement to disclose future changes in FV inputs. Relevant amended disclosures include no longer requiring full level 3 rollforward but rather disclosure of transfers in/out and purchases/ issuances. New disclosures include changes in OCI on level 3 assets/ liabilities and disclosure of range and weighted average of significant unobservable inputs for level 3.

January 1, 2020, early adoption permitted

We are in the process of evaluating the changes required by the new provisions. We expect this to be minimal as we do not have any level 3 inputs.

• Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly.

• Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

The following tables present information about the Company's financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

	September 30, 2018
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	56,647	$	—	$	—	$	56,647
Total cash equivalents	$	56,647	$	—	$	—	$	56,647
Short-term investments:
Commercial paper	$	—	$	46,710	$	—	$	46,710
U.S. treasury securities		21,369		—		—		21,369
Corporate bonds		—		13,772		—		13,772
Asset-backed securities		—		12,815		—		12,815
Total short-term investments	$	21,369	$	73,297	$	—	$	94,666

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	December 31, 2017
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	21,597	$	—	$	—	$	21,597
Total cash equivalents	$	21,597	$	—	$	—	$	21,597
Liabilities:
Series D preferred stock warrant liability	$	—	$	—	$	992	$	992
Common stock warrant liability		—		—		1,774		1,774
	$	—	$	—	$	2,766	$	2,766

CARBON BLACK

AsCONDENSED ofNOTES ~~September~~TO ~~30,~~THE ~~2018~~CONSOLIDATED ~~and~~FINANCIAL ~~December 31, 2017, the Company's cash equivalents, which were invested in money market funds, were valued based on Level 1 inputs.~~ STATEMENTS

~~Changes in the fair values of the Company's preferred stock warrant liabilities and common stock warrant liability for the nine months ended September 30, 2018 were as follows:~~(UNAUDITED)

	Series D
	Preferred Stock		Common Stock
	Warrant Liability		Warrant Liability
Fair value at December 31, 2017		992		1,774
Change in fair value		1,378		7,460
Exercise of common stock warrant		—		(9,234)
Conversion to common stock warrant		(2,370)		—
Fair value at September 30, 2018	$	—	$	—

Recently adopted accounting pronouncements:

Upon the closing of the IPO, the warrants for the purchase of Series D preferred stock became warrants to purchase common stock. The Company valued the Series D preferred stock liability as of the IPO closing date using the Black-Scholes option pricing-model and recorded a change in the fair value of the preferred stock warrants through that date. The Series D preferred stock warrant liability was then reclassified to additional paid-in capital. Additionally, the warrants for the purchase of common stock were exercised to purchase 485,985 shares of common stock upon the closing of the IPO. The Company valued the common stock warrant liability as of the IPO date using the $19 per share offering price and recorded a change in the fair value of the common stock warrants through that date. The common stock warrant liability was then reclassified to common stock and additional paid-in capital.Leases

5In February 2016, the FASB issued ASC No. ~~PROPERTY~~2016-02, ~~AND~~Leases ~~EQUIPMENT~~(Topic 842) (“ASC 842”), ~~NET~~to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. We adopted ASC 842 effective January 1, 2019 and elected the modified retrospective approach, whereby periods prior to 2019 were not adjusted for the new standard.

	September 30,		December 31,
	2018		2017
Computer equipment	$	14,928	$	12,349
Computer software		3,693		3,048
Leasehold improvements		6,870		6,327
Furniture and fixtures		3,751		2,870
Office equipment		20		99
Internal-use software		3,880		1,979
		33,142		26,672
Less: Accumulated depreciation and amortization		(18,350)		(14,213)
	$	14,792	$	12,459

We elected the hindsight practical expedient to determine the lease term for existing leases, and we did not elect to apply the recognition requirements in the leases standard to leases that at commencement date have a lease term of 12 months or less.

~~For~~We have elected the ~~three~~available ~~months~~package ~~ended~~of ~~September~~practical ~~30,~~expedients ~~2018~~permitted ~~and~~under ~~2017,~~the ~~depreciation~~transition ~~and~~guidance ~~amortization~~within ~~expense~~the ~~related~~new standard which does not require us to ~~property~~reassess ~~and~~the ~~equipment~~prior conclusions about lease identification, ~~including~~lease ~~internal~~classification and initial direct costs. The adoption of ASC 842 resulted in the recognition of operating right-of-use ~~software,~~assets ~~was~~of approximately $~~1,615~~16.0 million and operating lease liabilities of approximately $~~1,417,~~19.9 ~~respectively~~million. ~~During~~Included within our operating lease assets are the ~~three~~previously ~~months~~recorded ~~ended~~net ~~September~~deferred ~~30,~~rent ~~2018~~balances ~~and~~which ~~2017,~~were reclassified into our operating lease assets upon the ~~Company~~adoption ~~disposed~~of ASC 842. The standard did not have a material effect on our consolidated statement of ~~fully~~operations, ~~depreciated~~consolidated ~~assets~~statement ~~with~~of ancomprehensive ~~original~~loss ~~cost~~or consolidated statement of ~~$571~~cash flows. Expanded disclosures about the nature and ~~$0,~~terms ~~respectively.~~of our lease agreements are included in Note 7 in this Form 10-Q.

~~For~~Stock ~~the~~Compensation nine months ended September 30, 2018 and 2017, depreciation and amortization expense related to property and equipment, including internal-use software, was $4,708 and $4,031, respectively. During the nine months ended September 30, 2018 and 2017, the Company disposed of fully depreciated assets with an original cost of $571 and $0, respectively.

We adopted ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) (“ASC 718”), effective January 1, 2019. The standard provides expanded guidance for stock-based compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The overall effect from the adoption of ASC 718 had an immaterial impact to our consolidated financial statements.

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~~During~~CARBON the three month ended September 30, 2018 and 2017, the Company capitalized $910 and $237 of costs related to the development of internal-use software and recorded amortization expense of capitalized internal-use software of $115 and $117, respectively. BLACK

~~During~~CONDENSED ~~the~~NOTES ~~nine~~TO ~~months~~THE ~~ended~~CONSOLIDATED ~~September~~FINANCIAL 30, 2018 and 2017, the Company capitalized $1,901 and $714 of costs related to the development of internal-use software and recorded amortization expense of capitalized internal-use software of $405 and $302, respectively. STATEMENTS

~~6. GOODWILL AND INTANGIBLE ASSETS~~(UNAUDITED)

~~Goodwill~~NOTE ~~was~~3. ~~$119,656~~CASH asEQUIVALENTS ofAND ~~September~~SHORT-TERM ~~30, 2018 and December 31, 2017.~~INVESTMENTS

~~Identifiable~~The ~~intangible~~Company ~~assets~~considers ~~consisted~~all highly liquid investments with a maturity of ~~the~~three ~~following:~~months or less when purchased to be cash equivalents. The Company’s cash equivalents consist of highly liquid investments in money market funds.

	September 30, 2018						December 31, 2017
	Gross		Accumulated		Carrying		Gross		Accumulated		Carrying
	Amount		Amortization		Value		Amount		Amortization		Value
License agreement	$	150	$	(124)	$	26	$	150	$	(113)	$	37
Developed technology		7,301		(4,440)		2,861		7,301		(3,344)		3,957
Trade name		440		(408)		32		440		(342)		98
Customer relationships		2,950		(2,950)		—		2,950		(2,950)		—
	$	10,841	$	(7,922)	$	2,919	$	10,841	$	(6,749)	$	4,092

The Company considers all high quality investments purchased with original maturities at the date of purchase greater than three months to be short-term investments. Investments are available to be used for current operations and are, therefore, classified as current assets even though maturities may extend beyond one year. Short-term investments are classified as available-for-sale and are, therefore, recorded at fair value on the consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity in the Company’s consolidated balance sheets, until realized. The Company uses the specific identification method to compute gains and losses on the investments. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included as a component of interest income in the consolidated statement of operations.

~~For~~The ~~both~~following ~~three~~tables ~~months~~present ~~ended~~the ~~September~~amortized 30cost, ~~2018~~fair value and ~~2017,~~associated ~~amortization~~unrealized ~~expense~~gains ~~related~~and tolosses ~~intangible~~of ~~assets~~cash ~~was~~equivalents ~~$391.~~and short-term investments as of the periods presented:

For both nine months ended September 30, 2018 and 2017, amortization expense related to intangible assets was $1,173.


	March 31, 2019
(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash equivalents:
Money market funds	$	55,798	$	—	$	—	$		55,798
Total cash equivalents	$	55,798	$	—	$	—	$		55,798

Short-term investments:
Commercial paper	$	37,606	$	—	$	—	$		37,606
U.S. treasury securities		14,375		—		—			14,375
Corporate bonds		17,852		—		—			17,852
Asset-backed securities		10,566		—		—			10,566
Total short-term investments	$	80,399	$	—	$	—	$		80,399

Estimated future amortization expense of the identifiable intangible assets as of September 30, 2018 is as follows:

Year Ending December 31,
2018 (remaining three months)	$	390
2019		1,130
2020		1,015
2021		384
	$	2,919

7. DEBT

As of September 30, 2018 and December 31, 2017, the Company had $0 of outstanding borrowings under its line of credit with a financial institution (the “Line of Credit”).

8. PREFERRED STOCK

Upon the closing of the IPO, all outstanding shares of redeemable convertible and convertible preferred stock automatically converted into shares of common stock and all outstanding warrants to purchase shares of redeemable convertible preferred stock became warrants to purchase shares of common stock.

Also, on the date of the IPO, the Company filed a restated certificate of incorporation, which authorized the issuance of preferred stock with rights and preferences designated from time to time by the board of directors. As of September 30, 2018, there were 25,000,000 shares of preferred stock authorized with a par value of $0.001 per share, and no shares of preferred stock issued or outstanding.

Prior to the closing of the IPO, certain employees exercised options to purchase 360,385 of Series A preferred stock in exchange for cash proceeds of $211 and the Company adjusted the carrying value of each series of redeemable convertible preferred stock by $199,492. This adjustment resulted in an increase to the net loss attributable to common stockholders for the period.

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AsCARBON ~~of December 31, 2017, the liquidation preference of the redeemable convertible preferred stock was $272,506.~~BLACK

~~Immediately~~CONDENSED ~~prior~~NOTES toTO ~~the~~THE ~~automatic~~CONSOLIDATED ~~conversion~~FINANCIAL ~~into common stock upon the closing of the IPO, preferred stock consisted of the following:~~STATEMENTS

	Preferred	Preferred						Common Stock
	Shares	Shares Issued	Carrying		Liquidation			Issuable Upon
	Authorized	and Outstanding	Value		Preference			Conversion
Series A preferred stock	8,800,000	4,212,191	$	1,721	$		(1)	1,709,063
Series B preferred stock	24,673,917	24,665,856		10,442		22,534		12,332,924
Series C preferred stock	13,283,366	10,105,400		9,540		11,447		5,052,697
Series D preferred stock	11,876,688	11,541,688		109,646		34,500		5,770,841
Series E preferred stock	12,219,202	12,219,202		116,082		48,999		6,109,588
Series E-1 preferred stock	6,415,146	4,739,463		45,025		3,991		2,369,729
Series F preferred stock	25,632,888	25,469,585		241,961		151,035		12,734,781
	94,101,207	88,741,194	$	532,696	$	272,506		44,370,560

(UNAUDITED)

(1) The liquidation preference of the Series A preferred stock was calculated based on a percentage of the proceeds received by the Company in the event of a Deemed Liquidation Event. The holders of the Series A preferred stock did not have redemption rights other than in the event of a Deemed Liquidation Event.


	December 31, 2018
(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Cash equivalents:
Money market funds	$	52,047	$	—	$	—	$	52,047
Total cash equivalents	$	52,047	$	—	$	—	$	52,047

Short-term investments:
Commercial paper	$	42,706	$	—	$	—	$	42,706
U.S. treasury securities		21,486		—		(9)		21,477
Corporate bonds		13,790		—		(23)		13,767
Asset-backed securities		14,837		—		(17)		14,820
Total short-term investments	$	92,819	$	—	$	(49)	$	92,770

9.The ~~PREFERRED~~following ~~STOCK~~table ~~WARRANTS~~summarizes ~~AND~~the ~~COMMON~~contractual ~~STOCK~~maturities ~~WARRANTS~~of our short-term investments as of the period presented:

Immediately prior to the IPO, warrants outstanding consisted of the following:


	March 31, 2019
(In thousands)	Amortized Cost		Fair Value
Due within one year	$	80,399	$	80,399
Due after one year		—		—
Total short-term investments	$	80,399	$	80,399

Issuance Date	Underlying Security	ExercisePrice	Number ofShares IssuableUpon Exercise	WarrantContractualTerm	Classification
July 1, 2012	Common stock	$0.002	485,985(1)	(1)	Liability
August 22, 2013	Series D preferred stock	$2.9891	167,500	10 years	Liability
June 27, 2014	Series D preferred stock	$2.9891	167,500	9.2 years	Liability
July 31, 2014	Common stock	$3.02	106,250	10 years	Equity

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

~~(1)~~The ~~number~~Company ofcategorizes ~~shares~~assets ofand ~~common~~liabilities ~~stock~~recorded ~~issuable~~or ~~upon~~disclosed ~~the~~at ~~exercise~~fair ofvalue ~~the~~on ~~Company’s~~our ~~liability‑classified~~condensed ~~warrant~~consolidated tobalance ~~purchase~~sheets ~~common stock is calculated~~ based onupon the ~~number~~level of ~~shares~~judgment ofassociated ~~common~~with ~~stock~~inputs ~~equal~~used to ~~12.5%~~measure oftheir ~~the~~fair sum of (a) the number of shares of common stock into which the outstanding shares of Series A preferred stock, including shares issuable upon the exercise of outstanding options to purchase shares of Series A preferred stock, convert upon an IPO and (b) the number of shares of common stock underlying the warrantvalue. ~~Such warrant is only exercisable upon the closing of an IPO of shares of the Company’s common stock.~~ The ~~warrant~~categories ~~will~~are ~~expire,~~as ~~if not exercised, on the day immediately following the closing of an IPO of shares of the Company’s common stock.~~follows:

~~Upon~~• ~~closing~~Level ~~of the IPO, the common stock warrant with an issuance date of July~~ 1,—Inputs ~~2012,~~are ~~became~~unadjusted ~~exercisable~~quoted ~~and~~prices ~~was~~in ~~net~~active ~~exercised~~markets atfor anidentical ~~exercise~~assets ~~price~~or ~~of $0~~liabilities.~~002 per share to purchase 485,985 shares of common stock.~~

~~Upon~~• ~~the~~Level ~~closing~~2—Inputs ofare ~~the~~quoted ~~IPO,~~prices ~~the~~for ~~warrants~~similar toassets ~~purchase~~and ~~the~~liabilities ~~Series~~in Dactive ~~preferred~~markets ~~stock~~or ~~became~~inputs ~~warrants~~that toare ~~purchase~~observable ~~common~~for ~~stock. Subsequent to~~ the ~~IPO~~assets ~~and~~or ~~during the three months ended June 30~~liabilities, ~~2018,~~either ~~these~~directly ~~common~~or ~~stock warrants were net exercised at an exercise price of $2~~indirectly.~~9891 per share to purchase 130,965 shares of common stock.~~

~~Subsequent~~• toLevel ~~the~~3—Inputs ~~IPO~~are ~~and~~unobservable ~~during~~inputs ~~the~~based ~~three~~on ~~months~~our ~~ended~~own ~~June~~assumptions ~~30,~~used ~~2018,~~to ~~the~~measure ~~common~~assets ~~stock~~and ~~warrant~~liabilities ~~with an issuance date of July 31, 2014, was net exercised~~ at anfair ~~exercise price of $3~~value.02 ~~per~~The ~~share~~inputs torequire ~~purchase~~significant ~~95,113~~management ~~shares~~judgment ofor ~~common stock~~estimation.

AsThe offollowing ~~September~~tables ~~30,~~present ~~2018,~~information ~~there~~about ~~were~~the noCompany's ~~preferred~~financial ~~stock~~assets ~~warrants~~and orliabilities ~~common~~measured ~~stock~~at ~~warrants~~fair ~~outstanding.~~value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:


	March 31, 2019
(In thousands)	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	55,798	$	—	$	—	$	55,798
Total cash equivalents	$	55,798	$	—	$	—	$	55,798

Short-term investments:
Commercial paper	$	—	$	37,606	$	—	$	37,606
U.S. treasury securities		14,375		—		—		14,375
Corporate bonds		—		17,852		—		17,852
Asset-backed securities		—		10,566		—		10,566
Total short-term investments	$	14,375	$	66,024	$	—	$	80,399

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~~10.~~CARBON ~~EQUITY AWARD PLANS~~BLACK

~~Options~~CONDENSED toNOTES ~~Purchase~~TO ~~Series A~~THE ~~Preferred~~CONSOLIDATED ~~Stock~~FINANCIAL STATEMENTS

Upon the closing of the IPO, all outstanding shares of Series A preferred stock options converted into common stock options at the Series A preferred stock conversion rate. The following table summarizes the Company’s Series A preferred stock option activity since December 31, 2017:(UNAUDITED)

						Weighted-
	December 31, 2018
			Weighted-			Average Remaining		Aggregate
(In thousands)	Level 1			Level 2			Level 3			Total
	Number of		Average			Contractual Term		Intrinsic
Cash equivalents:
	Shares		Exercise Price			(in years)		Value
Money market funds	$	52,047		$	—		$	—		$	52,047
Outstanding at December 31, 2017	4,689,576		$	0.98		5.18		$	10,539
Total cash equivalents	$	52,047		$	—		$	—		$	52,047
Granted	195,312			3.60
Short-term investments:
Exercised	(360,385)			0.59
Commercial paper	$	—		$	42,706		$	—		$	42,706
Forfeited	(351,562)			0.52
U.S. treasury securities		21,477			—			—			21,477
Converted to common stock options upon IPO	(4,172,941)			1.18
Corporate bonds		—			13,767			—			13,767
Outstanding at September 30, 2018	—
Asset-backed securities		—			14,820			—			14,820
Total short-term investments	$	21,477		$	71,293		$	—		$	92,770

~~The~~Changes ~~assumptions~~in ~~that~~ the ~~Company~~fair ~~used~~values toof ~~determine~~ the ~~fair~~Company's ~~value~~preferred ofstock ~~the~~warrant ~~Series A~~liabilities ~~preferred~~and common stock ~~options~~warrant ~~granted~~liability tofor ~~employees~~the ~~and~~periods ~~directors~~presented were as follows:

		Nine Months Ended September 30,
(In thousands)	Series DPreferred StockWarrant Liability			Common StockWarrant Liability
		2018			2017
Fair value at December 31, 2017	$	992		$	1,774
Risk-free interest rate		2.74	%		2.17	%
Change in fair value		1,378			7,460
Expected term (in years)		6.25			6.25
Exercise of common stock warrant		—			(9,234)
Expected volatility		43.85	%		47.42	%
Conversion to common stock warrant		(2,370)			—
Expected dividend yield		—	%		—	%
Fair value at December 31, 2018	$	—		$	—

~~Options~~(1) toUpon ~~Purchase~~the ~~Common~~closing ~~Stock~~of our IPO in May 2018, we no longer had any outstanding warrant liabilities.

~~The~~Upon ~~following~~the ~~table~~closing ~~summarizes~~of the ~~Company’s~~IPO, the warrants for the purchase of Series D preferred stock became warrants to purchase common stock. The Company valued the Series D preferred stock liability as of the IPO closing date using the Black-Scholes option ~~activity~~pricing-model ~~since~~and ~~December~~recorded 31a change in the fair value of the preferred stock warrants through that date. The Series D preferred stock warrant liability was then reclassified to additional paid-in capital. Additionally, ~~2017~~the ~~under~~warrants ~~all~~for the purchase of common stock ~~option~~were ~~plans:~~exercised to purchase 485,985 shares of common stock upon the closing of the IPO. The Company valued the common stock warrant liability as of the IPO date using the $19 per share offering price and recorded a change in the fair value of the common stock warrants through that date. The common stock warrant liability was then reclassified to common stock and additional paid-in capital.

				Weighted-
		Weighted-		Average Remaining	Aggregate
	Number of	Average		Contractual Term	Intrinsic
	Shares	Exercise Price		(in years)	Value
Outstanding at December 31, 2017	14,183,221	$	4.89	7.16	$	17,626
Granted	3,267,775		13.54
Exercised	(765,998)		4.10
Forfeited	(707,256)		6.42
Series A options converted to common stock options upon IPO	1,693,197		2.90
Series E-1 options converted to common stock options upon IPO	837,835		0.86
Outstanding at September 30, 2018	18,508,774	$	6.02	6.82	$	282,233
Vested and expected to vest at September 30, 2018	17,895,791	$	5.87	6.75	$	275,452
Options exercisable at September 30, 2018	11,323,339	$	3.96	5.63	$	194,951

Upon the closing of the IPO, options to purchase 837,835 shares of the Company’s Series E-1 Preferred Stock options converted to options to purchase 837,835 shares of common stock.

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~~The~~CARBON ~~assumptions that the Company used to determine the fair value of the common stock options granted to employees and directors were as follows:~~BLACK

	Nine Months Ended September 30,
	2018		2017
Risk-free interest rate	2.74-2.98	%	1.96-2.17	%
Expected term (in years)	6.25		6.25
Expected volatility	43.29-43.85	%	45.85-47.42	%
Expected dividend yield	—	%	—	%

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~Restricted Stock Unit~~ (~~“RSU”~~UNAUDITED) ~~Activity~~

~~The~~5. ~~following~~PROPERTY ~~table~~AND ~~summarizes the Company’s RSU activity since December 31~~EQUIPMENT, ~~2017 under all common stock option plans:~~NET

			Weighted‑		Weighted‑
	March 31,		December 31,
			Average		Average Remaining	Aggregate
(In thousands)	2019		2018
		Number of	Grant Date Fair		Contractual Term	Intrinsic
Computer equipment	$	15,776	$	15,519
		Shares	Value Per Share		(in years)	Value
Leasehold improvements		6,987		6,921
Outstanding at December 31, 2017		—	$	—	—	$	—
Internal-use software		4,458		4,298
Granted		502,221		10.99
Computer software		3,885		3,850
Vested		—
Furniture and fixtures		3,790		3,773
Forfeited		—
Office equipment		20		20
Outstanding at September 30, 2018		502,221			1.47	$	10,637
Total property and equipment		34,916		34,381
RSUs vested and expected to vest at September 30, 2018		452,399			1.38	$	9,582
Less: Accumulated depreciation and amortization		(21,663)		(20,011)
RSUs vested and exercisable at September 30, 2018		—					—
Total property and equipment, net	$	13,253	$	14,370

~~Stock~~Depreciation and amortization expense related to property and equipment, including internal-~~Based~~use ~~Compensation~~software, was approximately $1.8 million and $1.5 million for the three months ended March 31, 2019 and 2018, respectively. During the three months ended March 31, 2019, we disposed of fully depreciated assets with an original cost of $149 thousand. During the three months ended March 31, 2018, we had no disposals of fully depreciated assets.

~~Stock-based~~During ~~compensation~~the ~~expense~~three ~~was~~months ~~classified~~ended inMarch 31, 2019 and 2018, the ~~unaudited~~Company ~~consolidated~~capitalized ~~statements~~$160 thousand and $293 thousand, respectively, of ~~operations~~costs related to the development of internal-use software and ~~comprehensive~~recorded ~~loss~~amortization asexpense ~~follows:~~of capitalized internal-use software of $304 thousand and $157 thousand, respectively.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cost of subscription, license and support revenue	$	156	$	113	$	429	$	272
Cost of services revenue		82		56		212		167
Sales and marketing expense		1,541		805		3,705		2,422
Research and development expense		748		656		2,206		1,926
General and administrative expense		1,067		652		2,918		1,862
	$	3,594	$	2,282	$	9,470	$	6,649

6. GOODWILL AND INTANGIBLE ASSETS

AsGoodwill ~~of September 30, 2018, total unrecognized compensation cost related to the unvested common stock-based awards~~ was $~~32,344,~~119.7 ~~which~~million isas ~~expected~~of toboth beMarch ~~recognized~~31, ~~over~~2019 ~~weighted-average~~and ~~periods~~December of31, 22018.~~54 years.~~

AsThe offollowing ~~September~~table ~~30,~~represents ~~2018,~~the ~~total~~gross ~~unrecognized~~carrying ~~compensation~~amount, ~~cost~~accumulated ~~related~~amortization toand ~~these~~net ~~performance-based~~carrying ~~RSUs~~amount ~~was~~of ~~$4,427~~other tointangible beassets ~~amortized~~by ~~over~~type, aas ~~weighted-average period~~ of ~~approximately~~the ~~2.96~~dates ~~years.~~ indicated:

2018 Stock Option and Incentive Plan


	March 31, 2019						December 31, 2018
	Gross		Accumulated		Carrying		Gross		Accumulated		Carrying
(In thousands)	Amount		Amortization		Value		Amount		Amortization		Value
Intangible assets:
License agreement	$	150	$	(131)	$	19	$	150	$	(128)	$	22
Developed technology		7,301		(5,116)		2,185		7,301		(4,804)		2,497
Trade name		440		(440)		—		440		(430)		10
Customer relationships		2,950		(2,950)		—		2,950		(2,950)		—
Total intangible assets	$	10,841	$	(8,637)	$	2,204	$	10,841	$	(8,312)	$	2,529

OnAmortization ~~April~~expense ~~17,~~related ~~2018,~~to ~~the~~intangible ~~Company’s~~assets ~~board~~was of$325 ~~directors~~thousand ~~adopted,~~ and on$391 ~~April~~thousand 19, 2018, the Company’s stockholders approved, the 2018 Stock Option and Incentive Plan (the “2018 Plan”), which became effective on May 2, 2018, the date immediately preceding the effectiveness of the registration statement for the ~~Company’s~~three ~~IPO.~~months ~~The~~ended ~~2018~~March ~~Plan provides for the grant of incentive stock options~~31, ~~nonqualified~~2019 ~~stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards~~ and ~~dividend equivalent rights. The number of shares initially reserved for issuance under the~~ 2018 ~~Plan is 6~~,~~075,051,~~ ~~plus the shares of~~ respectively.

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~~common~~ CARBON stock remaining available for issuance under the Company’s 2012 Stock Option and Grant Plan (the “2012 Plan”), which will be automatically increased on January 1, 2019 and each January 1 thereafter by 5% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or a lesser number of shares determined by the Company’s board of directors or the compensation committee of the board of directors. The shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without any issuance of stock, expire or are otherwise terminated by the Company under the 2018 Plan, the 2012 Plan and the Company’s Amended and Restated Equity Incentive Plan will be added back to the shares of common stock available for issuance under the 2018 Plan.BLACK

~~2018~~CONDENSED ~~Employee~~NOTES ~~Stock~~TO ~~Purchase~~THE ~~Plan~~CONSOLIDATED FINANCIAL STATEMENTS

~~On April 17, 2018, the Company’s board of directors adopted, and on April 19, 2018, the Company’s stockholders approved, the 2018 Employee Stock Purchase Plan~~ (~~the “ESPP”~~UNAUDITED), which became effective on May 2, 2018, the date immediately preceding the effectiveness of the registration statement for the Company’s IPO. A total of 1,735,729 shares of common stock were reserved for issuance under this plan. In addition, the number of shares of common stock that may be issued under the ESPP will be cumulatively increased on January 1, 2019 and each January 1 thereafter through January 1, 2028, by the lesser of (i) 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, (ii) 1,735,729 shares of common stock or (iii) such lesser number of shares as determined by the compensation committee of the board of directors.

11 7. ~~COMMITMENTS AND CONTINGENCIES~~LEASES

~~Operating~~We ~~Leases~~lease various office space and data centers under non-cancellable operating leases. Our leases have remaining lease terms ranging from 1 year to 5 years, some of which include extension options of up to 5 years and termination options within 3 years. The exercise of these lease extension and termination options are at our sole discretion.

~~The~~Right-of-use ~~Company~~(“ROU”) ~~leases~~assets ~~office~~represent ~~facilities~~the ~~under~~Company’s ~~various~~right ~~non‑cancelable~~to ~~operating~~use ~~leases~~leased ~~that~~assets ~~expire~~over atthe ~~various~~term ~~dates~~of ~~through~~the ~~June 2027~~lease. ~~Rent~~Lease ~~expense~~liabilities ~~for~~represent ~~non‑cancelable~~the ~~operating~~Company’s ~~leases~~contractual ~~with~~obligation ~~free~~to ~~rental~~make ~~periods~~lease orpayments ~~scheduled~~over ~~rent~~the ~~increases~~lease isterm. ~~recognized~~We ~~using~~determine ~~the~~if ~~straight‑line~~an ~~method~~arrangement ~~over~~is ~~the~~a ~~term~~lease at inception. Right-of-use ~~the~~assets and lease. ~~Improvement~~liabilities ~~reimbursements~~are ~~from~~initially ~~landlords~~measured ~~are~~at ~~amortized~~the lease commencement date based on athe ~~straight‑line~~present ~~basis~~value ~~into~~of ~~rent~~the ~~expense~~lease payments over the ~~terms~~lease ofterm, discounted using the ~~leases.~~interest ~~The~~rate ~~difference~~implicit ~~between~~in ~~required~~the lease ~~payments~~or, ~~and~~if ~~straight‑lined~~that ~~rent~~rate ~~expense~~cannot isbe ~~recorded~~readily asdetermined, ~~deferred~~our ~~rent~~incremental borrowing rate. ~~Rent~~We ~~expense~~determine ~~related~~our toincremental borrowing rate based on the ~~Company's~~rate ~~leased~~of ~~office~~interest ~~space~~that ~~was~~we ~~$3,353~~would ~~and~~have $2to pay to borrow on a collateralized basis over a similar term,~~615~~ ~~for~~an amount equal to the ~~nine~~ ~~months~~lease ~~ended~~payments ~~September~~in ~~30,~~a ~~2018~~similar ~~and~~economic ~~2017,~~environment. ~~respectively~~Our lease right-of-use assets also include any unamortized initial direct costs plus any prepayments less any unamortized lease incentives received.

~~The~~Leases ~~following~~with ~~table~~an ~~summarizes~~initial term of 12 months or less are classified as short-term leases and are not recorded on the ~~future~~balance ~~minimum~~sheet. ~~lease~~Lease ~~payments~~expenses ~~due~~relating ~~under~~to ~~operating~~our short-term leases asare recognized on a straight-line basis over the lease term. For lease agreements we entered into or reassessed after the adoption of ~~September~~Topic 30842, ~~2018:~~we combine lease and non-lease components as a single lease component. Non-lease components primarily consist of payments for maintenance and utilities.

Year Ending December 31,
2018 (remaining three months)	$	1,275
2019		5,263
2020		5,107
2021		4,945
2022		2,164
Thereafter		1,843
	$	20,597

Our lease agreements do not contain any material residual value guarantees, material restrictive covenants or variable lease payments based on an index or rate. We currently sublease one of our office spaces to a third party.

~~Hosting~~The ~~Services~~following ~~Agreement~~table presents the components of lease expense and supplemental information for the three months ended March 31, 2019.

In September 2017, the Company entered a non‑cancelable contractual agreement related to the hosting of its data processing, storage and other computing services. The agreement, as amended, expires in November 2020. The following table summarizes the future minimum payments committed under the hosting agreement as of September 30, 2018:


(Dollars in thousands, except where otherwise noted)	March 31, 2019
Lease cost:
Operating lease cost	$	1,202
Short-term lease cost		16
Sublease income		(52)
Total lease cost	$	1,166

Other information:
Cash paid for amounts included in the measurement of lease liabilities	$	1,460

Weighted-average:
Remaining lease term - operating leases		3.5 years
Discount rate - operating leases		5.5%

Year Ending December 31,
2018 (remaining three months)	$	5,611
2019		15,333
2020		10,667
	$	31,611

Future minimum payments under non-cancellable leases as of March 31, 2019 were the following:


(In thousands)	March 31, 2019
2019 (remaining nine months)	$	4,701
2020		5,900
2021		5,675
2022		2,709
2023		1,303
Thereafter		244
Total lease payments		20,532
Less: Imputed interest		(1,849)
Present value of lease payments	$	18,683

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~~Indemnifications~~CARBON BLACK

~~Under~~CONDENSED ~~the~~NOTES ~~indemnification~~TO ~~provisions~~THE ofCONSOLIDATED ~~the~~FINANCIAL Company's standard sales‑related contracts, the Company agreed to defend end‑customers against third‑party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets, and to pay judgments entered on such claims. The Company's exposure under these indemnification provisions is generally limited to the total amount paid by the end‑customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose the Company to losses in excess of the amount received under the agreement. In addition, the Company indemnifies its officers, directors and certain key employees while they are serving in good faith in their capacities. Through September 30, 2018, there have been no claims under any indemnification provisions. STATEMENTS

~~Litigation~~(UNAUDITED)

OnAs ~~March 21,~~previously ~~2018,~~disclosed ~~Finjan, Inc. (“Finjan”) filed a complaint~~ in ~~the~~our ~~U.S.~~2018 ~~District~~Form ~~Court~~10-K ~~for the Northern District of California alleging that the Company's products~~ and ~~services~~under ~~infringe at least four U.S. patents purportedly owned by Finjan, seeking, among other things, a judgment holding that~~ the ~~Company~~previous ~~has~~lease ~~infringed~~accounting ~~four asserted patents~~standard, aASC ~~preliminary and permanent injunction preventing alleged continued infringement of one of the asserted patents~~840, ~~past damages not less than a reasonable royalty~~Leases, ~~enhanced damages for alleged willful infringement, costs and reasonable attorneys' fees, and pre‑ and post‑judgment interest. While~~ the ~~Company~~following ~~does~~table ~~not~~summarizes ~~believe~~ the ~~complaint~~future ~~has~~minimum ~~merit,~~lease onpayments ~~April 6,~~due ~~2018,~~under ~~the~~operating ~~Company~~leases ~~entered into a settlement agreement with Finjan, resolving all claims made pursuant to the complaint. In connection with the settlement agreement, the Company accrued a liability of $3,900~~ as of ~~March~~December 31, 2018,. ~~which~~In isdetermining ~~reflected in general and administrative expenses on~~ the ~~Company’s~~future ~~unaudited~~minimum ~~consolidated~~lease ~~statements of operations and comprehensive loss and accrued expenses on the Company’s unaudited consolidated balance sheet, reflecting the aggregate amount of~~ payments ~~to be made to Finjan pursuant to the settlement~~, ~~all of which will be paid in 2018. In April 2018,~~ the ~~complaint was dismissed and the~~ Company ~~made~~included ~~the~~lease ~~first~~payments ~~payment~~due offor ~~$1,300.~~an ~~The~~optional ~~second~~renewal ~~payment~~period ofunder ~~$1,300~~an ~~was~~existing ~~made in September 2018~~lease.

From time to time the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact because of defense and settlement costs, diversion of management resources and other factors.


(In thousands)	December 31, 2018
2019	$	5,492
2020		5,343
2021		5,118
2022		2,343
2023		1,070
Thereafter		986
Total lease payments	$	20,352

128. ~~INCOME~~STOCKHOLDERS’ ~~TAXES~~EQUITY

~~During~~Preferred ~~the nine months ended September 30, 2018 and 2017, the Company recorded an income tax provision of $241 and $108, respectively, primarily due to foreign income taxes.~~Stock

InUpon ~~connection with~~ the ~~Tax~~completion ~~Cuts~~of ~~and~~our ~~Jobs Act (the “Act”) enacted in December 2017~~IPO, ~~the~~all ~~Company~~outstanding ~~made~~shares ~~provisional estimates~~ of ~~the~~redeemable ~~effects~~convertible ofand ~~the~~convertible ~~Act~~preferred onstock, ~~its~~totaling ~~existing~~46.1 ~~deferred~~million ~~tax~~shares, ~~balances~~were ~~and~~automatically ~~the~~converted ~~one-time~~into ~~transition~~shares ~~tax~~of ~~for~~common ~~the year end December 31, 2017~~stock. The ~~Act~~carrying ~~did~~amount ~~not~~of ~~have significant impact on~~ the ~~Company’s~~redeemable ~~consolidated~~convertible ~~financial~~and ~~statements~~convertible ~~for~~preferred ~~the~~stock ~~year~~was ~~ended~~approximately ~~December 31, 2017 as a result of the valuation allowance maintained against the Company’s U~~$532.S.7 ~~deferred~~million ~~tax~~and ~~assets~~$1.7 ~~However~~million, ~~the~~respectively, ~~Company’s~~and ~~provisional~~was ~~estimate~~reclassified ~~associated~~to ~~with~~stockholders’ ~~the~~equity ~~reduction in the U~~(deficit).S. ~~federal~~Also ~~corporate~~upon ~~tax rate from 35% to 21% impacted~~ the ~~change~~completion inof ~~valuation~~our ~~allowance~~IPO, ~~and~~all ~~tax~~outstanding ~~rate~~warrants ~~change~~to ~~components~~purchase shares of ~~the~~redeemable ~~Company’s~~convertible ~~effective~~preferred ~~tax~~stock ~~rate~~became ~~reconciliation~~warrants asexercisable ~~well~~for as130,965 ~~its~~shares ~~ending~~of ~~deferred~~common ~~tax assets~~stock, ~~deferred~~which ~~tax~~were ~~liabilities~~subsequently ~~and~~exercised ~~valuation~~at ~~allowance. The Company has an accumulated deficit from its foreign operations and does not have~~ a ~~transition~~price ~~tax~~of ~~associated~~$2.9891 ~~with~~per ~~deferred foreign earnings related to the Act~~share. ~~The~~For ~~income~~additional ~~tax~~information ~~provision~~regarding ~~for~~ the ~~nine months ended September 30, 2018 did not reflect any adjustment to the provisional amounts previously recorded. The ultimate~~ impact of ~~the~~our ~~Act~~IPO ~~may~~on ~~differ~~our ~~from~~preferred ~~these~~stockholders’ ~~provisional~~equity, ~~amounts~~refer ~~due~~ to, ~~among~~Notes ~~other~~11 ~~things, additional analysis, changes in interpretations~~ and ~~assumptions~~13 to the ~~Company~~consolidated ~~has~~financial ~~made~~statements, ~~and additional regulatory guidance that may be issued. The Company’s accounting treatment is expected to be complete~~ in ~~the~~our ~~fourth~~2018 ~~quarter~~Form ~~of 2018~~10-K.

13On the date of our IPO, we filed a restated certificate of incorporation, which authorized the issuance of 25.0 ~~REVENUE~~million shares of preferred stock with a par value of $0.001 per share, with rights and preferences designated from time to time by the board of directors. As of March 31, 2019, no shares of preferred stock were issued or outstanding.

~~The~~Common Company generates revenue through relationships with channel partners and through its direct sales force primarily from three sources: (i) the sale of subscription (i.e., term-based) and perpetual licenses for the Company’s Cb Protection and Cb Response software products along with access to and the right to utilize the threat intelligence capabilities of the Cb Predictive Security Cloud, as well as maintenance services and customer support (collectively, “support”), (ii) cloud-based software-as-a-service (“SaaS”) subscriptions for Stock

Upon the completion of our IPO, a common stock warrant with an issuance date of July 1, 2012, became exercisable and was net exercised at an exercise price of $0.002 per share to purchase 485,985 shares of common stock. Subsequent to the completion of our IPO, a common stock warrant with an issuance date of July 31, 2014, was net exercised at an exercise price of $3.02 per share to purchase 95,113 shares of common stock. For additional information regarding the impact of our IPO on our common stockholders’ equity, refer to Notes 12 and 13 to the consolidated financial statements, in our 2018 Form 10-K.

On the date of our IPO, we filed a restated certificate of incorporation, which authorized the issuance of 500.0 million shares of common stock with a par value of $0.001 per share, with rights and preferences designated from time to time by the board of directors. As of March 31, 2019, 71.4 million shares were issued and 71.3 million shares were outstanding.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of the preferred stockholders. No dividends have been declared through March 31, 2019.

9. EQUITY AWARD PLANS

2018 Stock Option and Incentive Plan

We have only issued new incentive equity awards under our 2018 Stock Option and Incentive Plan (the “2018 Plan”) since our IPO in May 2018. Our 2018 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards and dividend equivalent rights.

The shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without any issuance of stock, expire or

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~~access~~ CARBON ~~to the Company’s Cb Response and Cb Defense software products, and (iii) professional services and training (collectively, “services”).~~BLACK

InCONDENSED ~~accordance~~NOTES ~~with~~TO ~~ASC~~THE ~~606,~~CONSOLIDATED ~~revenue~~FINANCIAL is recognized when a customer obtains control of promised products or services. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to receive in exchange for these products or services. The Company applies the following five steps to recognize revenue:STATEMENTS

1(UNAUDITED) ~~Identification of the contract, or contracts, with a customer~~

~~The~~are ~~Company~~otherwise ~~considers~~terminated ~~the~~by ~~terms and conditions of its contracts and its customary business practices to identify contracts under ASC 606. The Company considers that it has a contract with a customer when~~ the ~~contract is approved, the~~ Company ~~can~~under ~~identify each party’s rights regarding~~ the ~~products~~2018 orPlan ~~services~~will to be ~~transferred,~~added ~~the~~back ~~Company can identify the payment terms for the products or services~~ to ~~be transferred,~~ the ~~Company~~shares has determined that the customer has the ability and intent to pay, and the contract has commercial substance. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of ~~factors,~~common ~~including~~stock ~~the~~available ~~customer’s~~for ~~historical~~issuance ~~payment~~under ~~experience or, in~~ the ~~case~~2018 ~~of a new customer, credit and financial information pertaining to the customer~~Plan.

~~2) Identification~~As of ~~the~~March ~~performance~~31, ~~obligation(s)~~2019 inand December 31, 2018, there were approximately 9.3 million and 5.8 million shares, respectively, available for grant under the ~~contract~~2018 Plan.

~~Performance~~Options ~~obligations promised in a contract are identified based on the products or services that will be transferred~~ to ~~the~~Purchase ~~customer~~Common that are capable of being distinct, whereby the customer can benefit from the product or services either on their own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company applies judgment to determine whether promised products or services are capable of being distinct, and are distinct in the context of the contract. If these criteria are not met, the promised products or services are accounted for as a combined performance obligation. Stock

~~3) Determination~~The offollowing table summarizes our common stock option activity for the ~~transaction~~three ~~price~~months ended March 31, 2019:

The transaction price is determined based on the consideration that the Company will be entitled to in exchange for transferring products or services to the customer. Variable consideration is included in the transaction price, if, in the Company’s judgment, it is probable that no significant future reversal of cumulative revenue under the contract will occur.


				Weighted-
		Weighted-		Average Remaining	Aggregate
	Number of	Average		Contractual Term	Intrinsic
(Dollars in thousands, except per share amounts)	Shares	Exercise Price		(in years)	Value
Outstanding at December 31, 2018	16,217,066	$	6.26	6.56	$	126,901
Granted	32,000		15.27
Exercised	(1,535,993)		4.04
Forfeited	(371,322)		11.92
Outstanding at March 31, 2019	14,341,751	$	6.37	6.43	$	117,724
Vested and expected to vest at March 31, 2019	13,863,290		6.20	6.36		115,350
Options exercisable at March 31, 2019	9,631,348		4.46	5.51		91,899

InAs ~~instances where the timing~~ of ~~revenue~~March ~~recognition~~31, ~~differs from the timing of invoicing~~2019, the ~~Company~~total ~~has~~unrecognized ~~determined~~compensation ~~that~~expense ~~its~~related ~~contracts~~to ~~generally~~outstanding docommon ~~not~~stock ~~include~~options awas ~~significant~~approximately ~~financing component~~$26.0 ~~The~~million ~~primary~~and ~~purpose~~will ofbe ~~the~~recognized ~~Company’s~~over ~~invoicing~~an ~~terms~~estimated isweighted-average toamortization ~~provide~~period ~~customers with simplified and predictable ways~~ of ~~purchasing~~approximately ~~its products and services, not to receive financing from its customers or to provide customers with financing~~2.24 ~~An example is invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period~~years.

~~4) Allocation~~The assumptions we used to determine the fair value of the ~~transaction~~common ~~price~~stock options granted to ~~performance~~employees ~~obligations~~and indirectors ~~the~~were ~~contract~~as follows:

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on relative standalone selling price (“SSP”) basis. The Company determines SSP based on the price at which the performance obligation is sold separately. If the SSP is not observable through past transactions, the Company estimates the SSP taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligation.


	Three Months Ended March 31,
	2019		2018
Risk-free interest rate	2.53	%	2.74	%
Expected term (in years)	6.25		6.25
Expected volatility	42.63	%	43.85	%
Expected dividend yield	—		—

~~5) Recognition~~Restricted ofStock ~~revenue when, or as, a performance obligation is satisfied~~ Units

~~Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to a customer.~~ The ~~Company~~following ~~recognizes~~table ~~revenue~~summarizes ~~when~~our itunvested ~~transfers~~restricted ~~control~~stock ofunit ~~the~~(“RSU”) ~~products~~activity ~~or services to the customer~~ for ~~an amount that reflects~~ the ~~consideration~~three ~~that~~months ~~the~~ended ~~Company~~March ~~expects~~31, ~~to receive in exchange for those products or services.~~ 2019:


		Weighted‑		Weighted‑
		Average		Average Remaining	Aggregate
	Number of	Grant Date Fair		Contractual Term	Intrinsic
(Dollars in thousands, except share per share amounts)	Shares	Value Per Share		(in years)	Value
Unvested at December 31, 2018	1,116,675	$	14.31	1.56	$	14,986
Granted	371,925		15.30
Vested(1)	(148,670)		7.78
Forfeited	(40,057)		18.97
Unvested at March 31, 2019	1,299,873	$	15.19	1.67	$	18,133
RSUs vested and expected to vest at March 31, 2019	1,103,894		15.20	1.58		15,399
RSUs vested and exercisable at March 31, 2019	—		—	—		—

(1) The number of RSUs vested includes shares of common stock that we withheld on behalf of the employees to satisfy the minimum statutory tax withholding requirements.

As of March 31, 2019, the total unrecognized compensation expense related to unvested RSUs was approximately $18.4 million and will be recognized over an estimated weighted-average amortization period of approximately 3.20 years.

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~~Subscription,~~CARBON ~~License and Support Revenue~~BLACK

~~Substantially~~CONDENSED ~~all~~NOTES ofTO ~~the~~THE ~~Company’s~~CONSOLIDATED ~~software~~FINANCIAL ~~arrangements contain multiple performance obligations that include a combination of software licenses, cloud-based subscriptions, support, professional services and training.~~STATEMENTS

The Company’s Cb Protection and Cb Response products are offered through subscription or perpetual software licenses, with a substantial majority of its customers selecting a subscription license. Subscription licenses include access to and the right to utilize the threat intelligence capabilities of the Cb Predictive Security Cloud as well as ongoing support, which provides customers with telephone and web-based support, bug fixes and repairs and software updates on a when-and-if-available basis. The Cb Predictive Security Cloud automatically distributes real-time threat intelligence, such as detection algorithms, reputation scores and attack classifications, to the Company’s customers. Substantially all customers who purchase licenses on a perpetual basis also purchase an agreement for support and an agreement for access to and the right to utilize the threat intelligence capabilities of the Cb Predictive Security Cloud. For subscription or perpetual license sales of Cb Protection and Cb Response, the Company considers the software license and access to the threat intelligence capabilities of the Cb Predictive Security Cloud to be a single performance obligation.(UNAUDITED)

~~Subscription (i.e. term~~Stock-~~based)~~Based revenue is recognized on a ratable basis over the contract term beginning on the date the software is delivered to the customer. Revenue for cloud-based subscriptions is recognized on a ratable basis over the term of the subscription beginning on the date the customer is given access to the platform. Maintenance services and customer support revenue related to subscription licenses is recognized ratably over the term of the maintenance and support arrangement as this performance obligation is satisfied. Revenue from the infrequent sales of perpetual software licenses is recognized ratably over the customer’s estimated economic life, which the Company has estimated to be five years, beginning on the date the software is delivered to the customer. Maintenance services and customer support revenue related to perpetual licenses is recognized ratably over the term of the maintenance and support arrangement as this performance obligation is satisfied.Compensation

~~Services~~The ~~Revenue~~following table summarizes the total stock-based compensation expense recognized in our consolidated statements of operations for the periods indicated:

The Company provides professional services to customers, primarily in the form of deployment, and training services. Services are typically sold together with licenses of the Company’s software products and, to a lesser extent, on a stand-alone basis. Services are priced separately and are considered distinct from the Company’s software license. The professional services can be performed by a third party and have a history of consistent pricing by the Company. Professional services are sold as time-and-materials contracts based on the number of hours worked and at contractually agreed-upon hourly rates, and also on a fixed-fee basis. Revenue from professional services and training sold on a stand-alone basis or in a combined arrangement is recognized as those services are rendered as control of the services passes to the customer over time.


	Three Months Ended March 31,
(In thousands)	2019		2018
Cost of subscription, license and support revenue	$	167	$	136
Cost of services revenue		64		57
Sales and marketing expense		1,838		936
Research and development expense		1,044		564
General and administrative expense		1,091		696
	$	4,204	$	2,389

~~The~~Employee ~~Company’s~~Stock ~~employees~~Purchase may incur out-of-pocket expenses when providing services to customers that are reimbursable from the customer under the terms of the service contract. The Company bills any out-of-pocket expenses incurred in the performance of these services to the customer. The expenses are classified on a gross basis as revenue and costs of revenue in the unaudited consolidated statements of operations and comprehensive loss. The Company’s determination of a gross presentation is based on an assessment of the relevant facts and circumstances, including the fact that the Company’s customers, rather than the Company, benefit from the expenditures and the Company bears the credit risk of the reimbursement until it receives reimbursement from the customer.Plan

~~Variable~~In ~~Consideration~~April 2018, the Board of Directors adopted, and stockholders approved, the 2018 Employee Stock Purchase Plan (the “2018 ESPP”). A total of approximately 1.7 million shares of the Company’s common stock have been authorized for issuance under the 2018 ESPP. Subject to any plan limitations, the 2018 ESPP allows eligible employees to contribute through payroll deductions, up to 10% of their base compensation during the offering period, for the purchase of the Company’s common stock at a discounted price per share. Our current offering period began January 1, 2019 and is expected to end June 30, 2019.

~~Revenue~~Unless isthe ~~recorded~~participating atemployee ~~the~~has ~~net~~previously ~~sales~~withdrawn ~~price~~from the offering, ~~which~~their isaccumulated payroll deductions will be used to purchase shares of common stock on the ~~transaction~~last ~~price.~~business ~~The~~day ~~Company~~of ~~does~~the ~~not~~offering ~~offer~~period ~~refunds,~~at ~~rebates~~a orprice ~~credits~~equal to ~~customers~~85 inpercent of the ~~normal~~fair ~~course~~market value of the common stock on the first business. ~~The~~day ~~impact~~or the last business day of ~~variable~~the ~~consideration~~offering ~~has~~period, ~~not~~whichever ~~been~~is ~~material~~lower.

~~Contract~~10. ~~Costs~~COMMITMENTS AND CONTINGENCIES

~~The~~For ~~Company~~additional ~~capitalizes~~information ~~commission~~about ~~costs~~our ~~that~~commitments ~~are incremental~~ and ~~directly~~contingencies, ~~related~~refer to ~~the~~Note ~~acquisition~~15 ofto ~~customer agreements. Commissions are earned by~~ the ~~Company’s~~consolidated ~~sales~~financial ~~force~~statements, ~~and paid~~ in ~~full~~our ~~upon~~2018 ~~the~~Form ~~receipt of customer orders for new arrangements or renewals~~10-K. Commission costs are capitalized when earned and are amortized as expense over an estimated customer relationship period of 5 years. The Company determined the estimated customer relationship period by taking into consideration the contractual term and expected renewals of customer contracts, its technology and other factors, including the fact that commissions paid on renewals are not commensurate with commissions paid on new sales.

Hosting Services Agreement

In September 2017, the Company entered a non‑cancelable contractual agreement related to the hosting of its data processing, storage and other computing services. The agreement, as amended, expires in November 2020. As of March 31, 2019, our off-balance sheet commitment remaining under the hosting agreement totaled approximately $21.7 million.

Indemnifications

Under the indemnification provisions of the Company's standard sales‑related contracts, the Company agreed to defend end‑customers against third‑party claims asserting infringement of certain intellectual property rights by the Company’s solutions, which may include patents, copyrights, trademarks, or trade secrets and to pay judgments entered on such claims. The Company's exposure under these indemnification provisions is generally limited by certain defined remedies and exclusions under the agreement. However, certain agreements include indemnification provisions that could potentially expose the Company to losses in excess of the amount received under the agreement.

In addition, the Company indemnifies its officers, directors and certain key employees while they are serving in good faith in their capacities. Through March 31, 2019, there have been no claims under any indemnification provisions.

We do not believe that the outcome of any claims under indemnification arrangements will have a material effect on our financial position, results of operations or cash flows, and we have not accrued any liabilities related to such obligations in our consolidated financial statements as of March 31, 2019 or December 31, 2018.

Litigation

On March 21, 2018, Finjan, Inc. (“Finjan”) filed a complaint in the U.S. District Court for the Northern District of California alleging that certain of the Company's products and services infringe at least four U.S. patents purportedly owned by Finjan, seeking, among other things, a judgment holding that the Company has infringed four asserted patents, a preliminary and permanent injunction preventing alleged

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~~Commissions~~CARBON paid relating to contract renewals are deferred and amortized over the related renewal period. Costs to obtain a contract for service arrangements are expensed as incurred in accordance with the practical expedient as the contractual period for services is one year or less. BLACK

AsCONDENSED ofNOTES ~~September~~TO ~~30,~~THE ~~2018~~CONSOLIDATED ~~and~~FINANCIAL December 31, 2017, the Company recorded $34,972 and $29,955, respectively, of deferred commission costs in the consolidated balance sheet. As of September 30, 2017 and December 31, 2016, the Company recorded $25,815 and $21,693 of deferred commission costs in the consolidated balance sheet. Commission costs capitalized as deferred commissions during the nine months ended September 30, 2018 and 2017 totaled $14,253 and $11,230, respectively. Amortization of deferred commissions during the nine months ended September 30, 2018 and 2017 totaled $9,236 and $7,108, respectively, and is included in sales and marketing expense in the unaudited consolidated statements of operations and comprehensive loss. The Company periodically reviews these deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred sales commissions.STATEMENTS

~~The Company does not incur any material costs to fulfill customer contracts.~~(UNAUDITED)

continued infringement of one of the asserted patents, past damages not less than a reasonable royalty, enhanced damages for alleged willful infringement, costs and reasonable attorneys' fees, and pre‑ and post‑judgment interest. While the Company did not believe the complaint had merit, on April 6, 2018, the Company entered into a settlement agreement with Finjan, resolving all claims made pursuant to the complaint, which was dismissed later in April 2018. During the year ended December 31, 2018, we recognized and paid $3.9 million in settlement charges relating to this matter.

11. INCOME TAXES

During the three months ended March 31, 2019 and 2018, the Company recorded an income tax provision of $66 thousand and $71 thousand, respectively, due to foreign income taxes.

12. REVENUE

We generate revenue through relationships with channel partners and through our direct sales force, consisting of three primary sources:

(i)

Sale of subscription (i.e., term-based) and perpetual licenses for our CB Protection and CB Response software products along with access to and the right to utilize the threat intelligence capabilities of the CB Predictive Security Cloud, as well as maintenance services and customer support, collectively referred to as support;

(ii)

Cloud-based software-as-a-service, or SaaS, subscriptions for access to our CB Predictive Security Cloud software products and CB Response Cloud; and

(iii)

Professional services and training, collectively referred to as services.

For information about our revenue recognition methodology, refer to Note 2 to our consolidated financial statements in our 2018 Form 10-K.

Contract Costs

As of March 31, 2019 and December 31, 2018, the Company recorded approximately $39.1 million and $38.1 million, respectively, of deferred commission costs in the consolidated balance sheet. Commission costs capitalized as deferred commissions during the three months ended March 31, 2019 and 2018 totaled $4.9 million and $3.5 million, respectively. Amortization of deferred commissions during the three months ended March 31, 2019 and 2018 totaled $3.9 million and $3.0 million, respectively, and is included in sales and marketing expense in the consolidated statements of operations. The Company periodically reviews these deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred sales commissions. The Company does not incur any material costs to fulfill customer contracts.

Deferred Revenue

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period. During the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, ~~the~~we ~~Company~~ recognized revenue of $~~110,482~~54.5 million which was included in the deferred revenue balance as of December 31, ~~2017~~2018.

~~The~~We ~~Company~~receive ~~receives~~ payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. ~~The~~We ~~Company~~ generally ~~bills~~bill ~~its~~our customers in advance, and payment terms on invoiced amounts are typically 30 to 90 days. Contract costs include amounts related to our contractual right to consideration for completed and partially completed performance obligations that may not have been invoiced; such amounts have been insignificant to date.

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CARBON BLACK

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Major products and services

		Three Months Ended September 30,					Nine Months Ended September 30,
	Three Months Ended March 31,
		2018			2017		2018		2017
(In thousands)	2019			2018
Subscription and support revenue	$	$33,741	~~33,113~~	$	$32,095	~~29,567~~	$	~~97,855~~	$	~~85,567~~
Cloud-based subscription revenue		21,033	~~16,142~~		11,692	~~7,147~~		~~41,502~~		~~16,669~~
Perpetual license revenue		1,520	~~1,569~~		1,604	~~1,667~~		~~4,749~~		~~4,899~~
Services revenue		2,262	~~2,591~~		3,043	~~3,128~~		~~8,735~~		~~9,010~~
Total revenue	$	$58,556	~~53,415~~	$	$48,434	~~41,509~~	$	~~152,841~~	$	~~116,145~~

Geographic revenue

		Three Months Ended September 30,					Nine Months Ended September 30,
	Three Months Ended March 31,
		2018			2017		2018		2017
(In thousands)	2019			2018
United States	$	$47,609	~~44,206~~	$	$40,493	~~35,439~~	$	~~126,926~~	$	~~100,605~~
All other		10,947	~~9,209~~		7,941	~~6,070~~		~~25,915~~		~~15,540~~
Total revenue	$	$58,556	~~53,415~~	$	$48,434	~~41,509~~	$	~~152,841~~	$	~~116,145~~

Transaction price allocated to remaining performance obligations

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and backlog. The Company defines backlog as contractually committed orders for subscriptions and support services for which the associated revenue has not been recognized and the customer has not been invoiced. As of ~~September~~March 3031, ~~2018~~2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $~~176,831~~183.2 million in deferred revenue and $~~38,660~~40.0 million in backlog.

21The following table presents the remaining performance obligations we expect to recognize over the periods indicated (in percentages):

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			Less than				More than
	Total		1 year		1-2 Years		2 years
Deferred revenue	100	%	80	%	14	%	6	%
Backlog	100		38		43		19

The Company expects to recognize these remaining performance obligations as follows (in percentages):

							More than
	Total		Less than 1 year		1-2 Years		2 years
Deferred revenue	100	%	78	%	15	%	7	%
Backlog	100	%	42	%	40	%	18	%

Concentration Risk

As of ~~September~~March 3031, ~~2018~~2019, two channel partners accounted for ~~26.2%~~approximately ~~and 12.3~~28% ~~of outstanding accounts receivable, respectively. As of December 31, 2017, two channel partners accounted for 20.2%~~ and ~~16.2~~23% of outstanding accounts receivable, respectively~~. For the three and nine months ended September 30~~, ~~2018, two channel partners represented 19.9%~~ and ~~20.1%~~approximately ~~and~~ 21.2% and 18.5%, ~~respectively,~~ of total revenue., ~~During~~respectively, for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017, one channel partner represented 26~~2019.~~0% and 26.6% of total revenue, respectively.~~

14During the three months ended March 31, 2019 and 2018, revenue from customers located outside of the United States in the aggregate accounted for approximately 19% and 16%, respectively, of our total revenue. ~~NET~~Substantially ~~LOSS~~all ~~PER~~of ~~SHARE~~our long-lived tangible assets (consisting of property and equipment) were held within the United States as of March 31, 2019 and December 31, 2018.

~~Net~~13. ~~Loss~~NET ~~per~~LOSS ~~Share~~PER SHARE

Basic ~~and~~net ~~diluted~~loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders ~~was~~is ~~calculated~~computed asby ~~follows:~~dividing net loss attributable to common stockholders by diluted weighted-average shares outstanding, including potentially dilutive securities, unless anti-dilutive.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Numerator:
Net loss	$	(17,632)	$	(13,599)	$	(63,507)	$	(38,373)
Accretion of preferred stock to redemption value		—		(7,427)		(199,492)		(15,751)
Net loss attributable to common stockholders	$	(17,632)	$	(21,026)	$	(262,999)	$	(54,124)
Denominator:
Weighted-average number of common shares outstanding—basic and diluted		67,837,240		10,587,153		41,494,203		10,263,962
Net loss per share attributable to common stockholders—basic and diluted	$	(0.26)	$	(1.99)	$	(6.34)	$	(5.27)

As the company was in a loss for all periods presented, basic net loss per share is the same as dilutive net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. The following table presents the calculation for basic and diluted net loss per share attributable to common stockholders for the dates indicated:

The Company’s potentially dilutive securities, which include stock options, redeemable convertible and convertible preferred stock, and warrants to purchase common stock and preferred stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted‑average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti‑dilutive effect:


	Three Months Ended March 31,
(in thousands, except share and per share amounts)	2019		2018
Numerator:
Net loss	$	(19,687)	$	(20,594)
Accretion of preferred stock to redemption value		—		(40,039)

	As of September 30,
	2018	2017
Options to purchase common stock	18,508,774	14,541,159
Unvested restricted stock units	502,221	—
Options to purchase Series E-1 preferred stock (as converted to common stock)	—	837,835
Warrants to purchase common stock	—	106,250
Warrants to purchase redeemable convertible preferred stock (as converted to common stock)	—	167,500
Redeemable convertible preferred stock (as converted to common stock)	—	44,370,560
	19,010,995	60,023,304

The table above excludes shares of common stock issuable upon the conversion of Series A preferred stock and upon the exercise of options to purchase shares of Series A preferred stock as such shares are only convertible into common stock upon the closing of an IPO.

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~~The~~ CARBON ~~table also excludes shares of common stock issuable upon the exercise of the Company’s liability-classified common stock warrant as the warrant is only exercisable upon the closing of an IPO.~~BLACK

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Net loss attributable to common stockholders	$	(19,687)	$	(60,633)
Denominator:
Weighted-average number of common shares outstanding—basic and diluted		70,474,542		11,264,252
Net loss per share attributable to common stockholders—basic and diluted	$	(0.28)	$	(5.38)

The following table presents the potentially dilutive securities that were excluded from the computation of net loss per share for the periods presented because their inclusion would have an anti-dilutive effect:


	As of March 31,
	2019	2018
Options to purchase common stock	14,341,751	15,368,789
Unvested restricted stock units	1,299,873

Filing Compare · Carbon Black, Inc.