

☐			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 0-27275

______________________________________________

Akamai Technologies, ~~Inc~~.Inc.

(Exact name of registrant as specified in its charter)



Delaware						04-3432319
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

145 Broadway

Cambridge,, MA02142

(~~617~~) (617) 444-3000

(Address, Including Zip Code, and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

______________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock - par value $0.01 per share	AKAM	Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) 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 x 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 x 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

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares outstanding of the registrant’s common stock as of ~~November 5, 2019: 161,601,210~~August 4, 2020: 162,704,861

Table of Contents

AKAMAI TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2019~~2020

TABLE OF CONTENTS


				Page
PART I. FINANCIAL INFORMATION

			~~Page~~
~~PART I. FINANCIAL INFORMATION~~

Item 1.	Financial Statements (Unaudited)		3
		Consolidated Balance Sheets at ~~September 30, 2019~~June 3 0 , 2020 and December 31, ~~2018~~2019		3
		Consolidated Statements of Income for the three and ~~nine~~ six months ended ~~September 30,~~June 3 0 , 2020 and 2019 ~~and 2018~~		5
		Consolidated Statements of Comprehensive Income for the three and ~~nine~~ s ix months ended ~~September 30,~~June 3 0 , 2020 and 2019 ~~and 2018~~		6
		Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~ June 30 ~~2019~~, 2020 and ~~2018~~2019		7
		Consolidated Statements of Stockholders' Equity for the three and ~~nine~~ six months ended ~~September 30,~~June 3 0 , 2020 and 2019 ~~and 2018~~		9
		Notes to Unaudited Consolidated Financial Statements		13
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		3026
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		4742
Item 4.		Controls and Procedures		4843

PART II. OTHER INFORMATION

Item 1.		Legal Proceedings		4843
Item 1A.		Risk Factors		4843
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		6055
Item 6.		Exhibits		6156

SIGNATURES					6257

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS


(in thousands, except share data)	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	572,288	$	393,745
Marketable securities	800,321		1,143,249
Accounts receivable, net of reserves of $6,225 and $1,880 at June 30, 2020, and December 31, 2019, respectively	644,659		551,943
Prepaid expenses and other current assets	175,731		142,676
Total current assets	2,192,999		2,231,613
Marketable securities	1,018,835		835,384
Property and equipment, net	1,281,392		1,152,153
Operating lease right-of-use assets	736,465		758,450
Acquired intangible assets, net	194,951		179,431
Goodwill	1,595,304		1,600,265
Deferred income tax assets	61,310		76,528
Other assets	143,542		173,062
Total assets	$	7,224,798	$	7,006,886

(in thousands, except share data) September 30,
2019 December 31,
2018
ASSETS
Current assets:
Cash and cash equivalents $ 738,462
$ 1,036,455
Marketable securities 831,749
855,650
Accounts receivable, net of reserves of $1,745 and $1,534 at September 30, 2019, and December 31, 2018, respectively 516,657
479,889
Prepaid expenses and other current assets 167,040
163,360
Total current assets 2,253,908
2,535,354
Marketable securities 734,116
209,066
Property and equipment, net 1,079,914
910,618
Operating lease right-of-use assets 349,155
—
Acquired intangible assets, net 166,407
168,348
Goodwill 1,583,479
1,487,404
Deferred income tax assets 39,321
34,913
Other assets 151,134
116,067
Total assets $ 6,357,434
$ 5,461,770

Table of Contents

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS, continued


(in thousands, except share data)	June 30, 2020		December 31, 2019















LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	153,958	$	138,946
Accrued expenses	263,646		334,861
Deferred revenue	93,648		71,223

Operating lease liabilities	138,478		139,463
Other current liabilities	7,692		8,843
Total current liabilities	657,422		693,336
Deferred revenue	4,536		4,368
Deferred income tax liabilities	29,556		29,187
Convertible senior notes	1,872,937		1,839,791
Operating lease liabilities	673,678		692,181
Other liabilities	82,374		90,065
Total liabilities	3,320,503		3,348,928
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 700,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued or outstanding	—		—
Common stock, $0.01 par value; 700,000,000 shares authorized; 163,773,348 shares issued and 162,630,477 shares outstanding at June 30, 2020, and 162,000,843 shares issued and outstanding at December 31, 2019	1,638		1,620
Additional paid-in capital	3,734,787		3,653,486
Accumulated other comprehensive loss	(57,307)		(45,144)
Treasury stock, at cost, 1,142,871 shares at June 30, 2020, and no shares at December 31, 2019	(107,880)		—
Retained earnings	333,057		47,996
Total stockholders’ equity	3,904,295		3,657,958
Total liabilities and stockholders’ equity	$	7,224,798	$	7,006,886

(in thousands, except share data) September 30,
2019 December 31,
2018
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 108,187
$ 99,089
Accrued expenses 304,333
328,304
Deferred revenue 98,842
69,083
Convertible senior notes —
686,552
Operating lease liabilities 86,959
—
Other current liabilities 4,202
27,681
Total current liabilities 602,523
1,210,709
Deferred revenue 4,526
4,557
Deferred income tax liabilities 21,797
19,624
Convertible senior notes 1,823,448
874,080
Operating lease liabilities 296,750
—
Other liabilities 106,790
160,940
Total liabilities 2,855,834
2,269,910
Commitments and contingencies (Note 8)

Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 700,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued or outstanding —
—
Common stock, $0.01 par value; 700,000,000 shares authorized; 165,211,770 shares issued and 161,659,502 shares outstanding at September 30, 2019, and 162,904,550 shares issued and outstanding at December 31, 2018 1,652
1,629
Additional paid-in capital 3,919,264
3,670,033
Accumulated other comprehensive loss (56,424 ) (48,912 )
Treasury stock, at cost, 3,552,268 shares at September 30, 2019, and no shares at December 31, 2018 (291,788 ) —
Accumulated deficit (71,104 ) (430,890 )
Total stockholders’ equity 3,501,600
3,191,860
Total liabilities and stockholders’ equity $ 6,357,434
$ 5,461,770

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

Table of Contents

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,							For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands, except per share data)	2019			2018			2019			2018			(in thousands, except per share data)	2020		2019		2020		2019
Revenue	$	709,912		$	669,628		$	2,121,494		$	2,001,111		Revenue	$	794,715	$	705,074	$	1,559,017	$	1,411,582
Costs and operating expenses:													Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)	246,938			239,246			729,874			709,558			Cost of revenue (exclusive of amortization of acquired intangible assets shown below)	276,804		242,193		545,386		482,936
Research and development	64,887			61,049			192,467			185,823			Research and development	64,090		61,439		135,314		127,580
Sales and marketing	122,258			125,323			383,640			379,556			Sales and marketing	123,469		135,106		247,255		261,382
General and administrative	123,216			119,911			366,167			444,502			General and administrative	129,709		120,116		257,070		242,951
Amortization of acquired intangible assets	9,624			8,294			28,871			25,019			Amortization of acquired intangible assets	10,381		9,648		20,815		19,247
Restructuring (benefit) charges	(300		)	(732		)	6,879			14,442
Restructuring (benefit) charge													Restructuring (benefit) charge	(167)		790		10,418		7,179
Total costs and operating expenses	566,623			553,091			1,707,898			1,758,900			Total costs and operating expenses	604,286		569,292		1,216,258		1,141,275
Income from operations	143,289			116,537			413,596			242,211			Income from operations	190,429		135,782		342,759		270,307
Interest income	7,908			9,258			22,953			19,632			Interest income	9,502		6,410		16,545		15,045
Interest expense	(12,127		)	(14,566		)	(32,689		)	(28,620		)	Interest expense	(17,249)		(8,446)		(34,454)		(20,562)
Other expense, net	(752		)	(459		)	(819		)	(3,207		)	Other expense, net	(1,603)		(578)		(5,711)		(67)
Income before provision for income taxes	138,318			110,770			403,041			230,016			Income before provision for income taxes	181,079		133,168		319,139		264,723
Benefit (provision) for income taxes	960			(3,187		)	(42,718		)	(25,658		)
Provision for income taxes													Provision for income taxes	(18,671)		(19,253)		(32,963)		(43,678)
Loss from equity method investment	(1,388		)	—			(1,388		)	—			Loss from equity method investment	(493)		—		(1,115)		—
Net income	$	137,890		$	107,583		$	358,935		$	204,358		Net income	$	161,915	$	113,915	$	285,061	$	221,045
Net income per share:													Net income per share:
Basic	$	0.85		$	0.65		$	2.20		$	1.21		Basic	$	1.00	$	0.70	$	1.76	$	1.35
Diluted	$	0.84		$	0.64		$	2.18		$	1.20		Diluted	$	0.98	$	0.69	$	1.74	$	1.34
Shares used in per share calculations:													Shares used in per share calculations:
Basic	162,445			165,924			163,029			168,763			Basic	162,413		163,407		162,203		163,322
Diluted	164,558			167,900			164,788			170,732			Diluted	164,768		165,019		164,226		164,903

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

Table of Contents

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Net income	$	161,915	$	113,915	$	285,061	$	221,045
Other comprehensive income (loss):
Foreign currency translation adjustments	5,808		2,849		(20,469)		3,351
Change in unrealized gain on investments, net of income tax provision of $5,144, $547, $3,679 and $1,101 for the three and six months ended June 30, 2020 and 2019, respectively	15,880		1,646		8,306		3,077
Other comprehensive income (loss)	21,688		4,495		(12,163)		6,428
Comprehensive income	$	183,603	$	118,410	$	272,898	$	227,473

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
(in thousands) 2019 2018 2019 2018
Net income $ 137,890
$ 107,583
$ 358,935
$ 204,358
Other comprehensive loss:
Foreign currency translation adjustments (14,095 ) (7,771 ) (10,744 ) (26,046 )
Change in unrealized gain (loss) on investments, net of income tax (provision) benefit of $(52), $(494), $(1,153) and $78 for the three and nine months ended September 30, 2019 and 2018, respectively 155
1,524
3,232
(242 )
Other comprehensive loss (13,940 ) (6,247 ) (7,512 ) (26,288 )
Comprehensive income $ 123,950
$ 101,336
$ 351,423
$ 178,070

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

Table of Contents

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Six Months Ended June 30,
(in thousands)	2020		2019
Cash flows from operating activities:
Net income	$	285,061	$	221,045
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	231,788		214,270
Stock-based compensation	96,684		93,447
Provision for deferred income taxes	11,394		24,608
Amortization of debt discount and issuance costs	31,310		19,628

Other non-cash reconciling items, net	14,804		1,180
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(105,546)		(38,127)
Prepaid expenses and other current assets	(9,979)		(23,287)
Accounts payable and accrued expenses	(47,402)		(52,789)
Deferred revenue	21,342		27,973
Other current liabilities	(1,115)		(18,739)
Other non-current assets and liabilities	(6,407)		9,570
Net cash provided by operating activities	521,934		478,779
Cash flows from investing activities:
Cash received (paid) for business acquisitions, net of cash acquired	106		(121,409)
Cash paid for asset acquisition	(36,376)		—
Cash paid for equity method investment	—		(36,008)
Purchases of property and equipment	(214,952)		(158,158)
Capitalization of internal-use software development costs	(120,716)		(117,620)
Purchases of short- and long-term marketable securities	(842,516)		(391,758)
Proceeds from sales of short- and long-term marketable securities	29,667		268
Proceeds from maturities of short- and long-term marketable securities	984,333		649,262
Other non-current assets and liabilities	79		2,237
Net cash used in investing activities	(200,375)		(173,186)
Cash flows from financing activities:



Repayment of convertible senior notes	—		(690,000)
Proceeds related to the issuance of common stock under stock plans	29,805		28,772
Employee taxes paid related to net share settlement of stock-based awards	(63,930)		(49,956)
Repurchases of common stock	(107,880)		(116,247)
Other non-current assets and liabilities	—		(1,558)
Net cash used in financing activities	(142,005)		(828,989)
Effects of exchange rate changes on cash, cash equivalents and restricted cash	(828)		2,678
Net increase (decrease) in cash, cash equivalents and restricted cash	178,726		(520,718)
Cash, cash equivalents and restricted cash at beginning of period	394,146		1,036,987
Cash, cash equivalents and restricted cash at end of period	$	572,872	$	516,269

For the Nine Months
Ended September 30,
(in thousands) 2019 2018
Cash flows from operating activities:
Net income $ 358,935
$ 204,358
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 324,874
318,226
Stock-based compensation 140,262
138,815
Provision for deferred income taxes 24,581
12,906
Amortization of debt discount and issuance costs 30,761
27,844
Restructuring-related software charges —
2,818
Other non-cash reconciling items, net 3,778
9,360
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (38,144 ) (13,611 )
Prepaid expenses and other current assets (11,663 ) (2,084 )
Accounts payable and accrued expenses (29,441 ) 7,921
Deferred revenue 16,714
23,927
Other current liabilities (21,850 ) 2,030
Other non-current assets and liabilities (22,643 ) (10,338 )
Net cash provided by operating activities 776,164
722,172
Cash flows from investing activities:
Cash paid for acquired businesses, net of cash acquired (121,409 ) (79 )
Cash paid for equity method investment (36,008 ) —
Purchases of property and equipment (268,766 ) (143,285 )
Capitalization of internal-use software development costs (159,645 ) (145,122 )
Purchases of short- and long-term marketable securities (1,373,563 ) (782,086 )
Proceeds from sales of short- and long-term marketable securities 547
16,308
Proceeds from maturities of short- and long-term marketable securities 878,779
378,708
Other non-current assets and liabilities 1,895
(2,678 )
Net cash used in investing activities (1,078,170 ) (678,234 )
Cash flows from financing activities:
Proceeds from the issuance of convertible senior notes 1,135,629
1,132,185
Proceeds from the issuance of warrants 185,150
119,945
Purchase of note hedge related to convertible senior notes (312,225 ) (261,740 )
Repayment of convertible senior notes (690,000 ) —
Proceeds related to the issuance of common stock under stock plans 43,204
52,497
Employee taxes paid related to net share settlement of stock-based awards (61,116 ) (52,145 )
Repurchases of common stock (291,788 ) (625,925 )
Other non-current assets and liabilities (1,558 ) (5,085 )
Net cash provided by financing activities 7,296
359,732
Effects of exchange rate changes on cash, cash equivalents and restricted cash (2,650 ) (11,528 )
Net (decrease) increase in cash, cash equivalents and restricted cash (297,360 ) 392,142
Cash, cash equivalents and restricted cash at beginning of period 1,036,987
314,429
Cash, cash equivalents and restricted cash at end of period $ 739,627
$ 706,571

Table of Contents

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS, continued


	For the Six Months Ended June 30,
(in thousands)	2020		2019






































Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received of $6,711 and $2,216 for the six months ended June 30, 2020 and 2019, respectively	$	26,409	$	54,271
Cash paid for interest expense	3,079		719
Cash paid for operating lease liabilities	94,157		69,317
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	65,832		63,709
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses	98,235		71,066
Capitalization of stock-based compensation	18,856		18,760

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	572,288	$	515,896
Restricted cash	584		373
Cash, cash equivalents and restricted cash	$	572,872	$	516,269

For the Nine Months
Ended September 30,
(in thousands) 2019 2018
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received of $2,746 and $17,286 for the nine months ended September 30, 2019 and 2018, respectively $ 65,896
$ 32,485
Cash paid for operating lease liabilities 107,478

Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities 87,207

Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses 64,982
54,414
Capitalization of stock-based compensation 27,352
25,676

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents $ 738,462
$ 705,407
Restricted cash 1,165
1,164
Cash, cash equivalents and restricted cash $ 739,627
$ 706,571

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

Table of Contents

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


	Three Months Ended June 30, 2020
(in thousands, except share data)	Common Stock							Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders' Equity
		Shares			Amount
Balance at April 1, 2020	162,176,589		$	1,631		$	3,658,990	$	(78,995)	$	(80,550)	$	171,142	$	3,672,218

Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes	331,544		3			(12,595)								(12,592)
Issuance of common stock under employee stock purchase plan	393,921		4			29,166								29,170
Stock-based compensation						59,226								59,226



Repurchases of common stock	(271,577)									(27,330)				(27,330)

Net income												161,915		161,915
Foreign currency translation adjustment								5,808						5,808
Change in unrealized loss on investments, net of tax								15,880						15,880
Balance at June 30, 2020	162,630,477		$	1,638		$	3,734,787	$	(57,307)	$	(107,880)	$	333,057	$	3,904,295

Table of Contents


	Three Months Ended September 30, 2019																				Three Months Ended June 30, 2019
(in thousands, except share data)	Common Stock				Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity			(in thousands, except share data)	Common Stock							Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Accumulated Deficit		Total Stockholders' Equity
	Shares		Amount																			Shares			Amount
Balance at July 1, 2019	163,359,091		$	1,649	$	3,760,840		$	(116,247	)	$	(42,484	)	$	(208,994	)	$	3,394,764
Balance at April 1, 2019																				Balance at April 1, 2019	163,503,258		$	1,640		$	3,686,337	$	(46,979)	$	(34,872)	$	(322,909)	$	3,283,217

Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes	305,367		3		(10,727		)										(10,724		)	Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes	437,733		4			(11,151)								(11,147)
Issuance of common stock under employee stock purchase plan																				Issuance of common stock under employee stock purchase plan	473,462		5			27,664								27,669
Stock-based compensation					55,406												55,406			Stock-based compensation						57,990								57,990
Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880					240,820												240,820
Issuance of warrants related to convertible senior notes					185,150												185,150
Purchase of note hedge related to convertible senior notes					(312,225		)										(312,225		)

Repurchases of common stock	(2,004,956	)						(175,541		)							(175,541		)	Repurchases of common stock	(1,055,362)									(81,375)				(81,375)

Net income														137,890			137,890			Net income												113,915		113,915
Foreign currency translation adjustment											(14,095		)				(14,095		)	Foreign currency translation adjustment								2,849						2,849
Change in unrealized gain on investments, net of tax											155						155			Change in unrealized gain on investments, net of tax								1,646						1,646
Balance at September 30, 2019	161,659,502		$	1,652	$	3,919,264		$	(291,788	)	$	(56,424	)	$	(71,104	)	$	3,501,600
Balance at June 30, 2019																				Balance at June 30, 2019	163,359,091		$	1,649		$	3,760,840	$	(42,484)	$	(116,247)	$	(208,994)	$	3,394,764

AKAMAI TECHNOLOGIES, INC.

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued


	Six Months Ended June 30, 2020
(in thousands, except share data)	Common Stock							Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders' Equity
		Shares			Amount
Balance as of January 1, 2020	162,000,843		$	1,620		$	3,653,486	$	(45,144)	$	—	$	47,996	$	3,657,958

Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes	1,378,584		14			(63,306)								(63,292)
Issuance of common stock under employee stock purchase plan	393,921		4			29,166								29,170
Stock-based compensation						115,441								115,441



Repurchases of common stock	(1,142,871)									(107,880)				(107,880)

Net income												285,061		285,061
Foreign currency translation adjustment								(20,469)						(20,469)
Change in unrealized loss on investments, net of tax								8,306						8,306
Balance as of June 30, 2020	162,630,477		$	1,638		$	3,734,787	$	(57,307)	$	(107,880)	$	333,057	$	3,904,295

Table of Contents

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued


	Six Months Ended June 30, 2019
(in thousands, except share data)	Common Stock							Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders' Equity
		Shares			Amount
Balance as of January 1, 2019	162,904,550		$	1,629		$	3,670,033	$	(48,912)	$	—	$	(430,890)	$	3,191,860
Cumulative-effect adjustment to accumulated deficit related to adoption of new accounting pronouncement												851		851
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes	1,528,391		15			(48,926)								(48,911)
Issuance of common stock under employee stock purchase plan	473,462		5			27,664								27,669
Stock-based compensation						112,069								112,069



Repurchases of common stock	(1,547,312)									(116,247)				(116,247)

Net income												221,045		221,045
Foreign currency translation adjustment								3,351						3,351
Change in unrealized gain on investments, net of tax								3,077						3,077
Balance as of June 30, 2019	163,359,091		$	1,649		$	3,760,840	$	(42,484)	$	(116,247)	$	(208,994)	$	3,394,764

Three Months Ended September 30, 2018
(in thousands, except share data) Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Loss
Accumulated
Deficit
Total Stockholders' Equity
Shares Amount
Balance at July 1, 2018 169,311,093
$ 1,718
$ 4,303,531
$ (185,512 ) $ (41,971 ) $ (632,488 ) $ 3,445,278
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes 470,224
4
(6,091 ) (6,087 )
Stock-based compensation 55,417
55,417
Repurchases of common stock (5,894,598 ) (440,413 ) (440,413 )
Net income 107,583
107,583
Foreign currency translation adjustment (7,771 ) (7,771 )
Change in unrealized gain on investments, net of tax 1,524
1,524
Balance at September 30, 2018 163,886,719
$ 1,722
$ 4,352,857
$ (625,925 ) $ (48,218 ) $ (524,905 ) $ 3,155,531

~~AKAMAI TECHNOLOGIES, INC.~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued~~

Nine Months Ended September 30, 2019
(in thousands, except share data) Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Loss
Accumulated
Deficit
Total Stockholders' Equity
Shares Amount
Balance at January 1, 2019 162,904,550
$ 1,629
$ 3,670,033
$ —
$ (48,912 ) $ (430,890 ) $ 3,191,860
Cumulative-effect adjustment to accumulated deficit related to adoption of new accounting pronouncement 851
851
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes 1,833,758
18
(59,653 ) (59,635 )
Issuance of common stock under employee stock purchase plan 473,462
5
27,664
27,669
Stock-based compensation 167,475
167,475
Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880 240,820
240,820
Issuance of warrants related to convertible senior notes 185,150
185,150
Purchase of note hedge related to convertible senior notes (312,225 ) (312,225 )
Repurchases of common stock (3,552,268 ) (291,788 ) (291,788 )
Net income 358,935
358,935
Foreign currency translation adjustment (10,744 ) (10,744 )
Change in unrealized gain on investments, net of tax 3,232
3,232
Balance at September 30, 2019 161,659,502
$ 1,652
$ 3,919,264
$ (291,788 ) $ (56,424 ) $ (71,104 ) $ 3,501,600

~~AKAMAI TECHNOLOGIES, INC.~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued~~

Nine Months Ended September 30, 2018
(in thousands, except share data) Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Loss
Accumulated
Deficit
Total Stockholders' Equity
Shares Amount
Balance at January 1, 2018 169,893,324
$ 1,699
$ 4,073,362
$ —
$ (21,930 ) $ (690,662 ) $ 3,362,469
Cumulative-effect adjustment to accumulated deficit related to adoption of new accounting pronouncement (38,601 ) (38,601 )
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes 1,797,241
18
(44,619 ) (44,601 )
Issuance of common stock under employee stock purchase plan 543,520
5
25,763
25,768
Stock-based compensation 164,310
164,310
Equity component of convertible senior notes, net of deferred tax of $4,971 and issuance costs of $4,418 275,836
275,836
Issuance of warrants related to convertible senior notes 119,945
119,945
Purchase of note hedge related to convertible senior notes (261,740 ) (261,740 )
Repurchases of common stock (8,347,366 ) (625,925 ) (625,925 )
Net income 204,358
204,358
Foreign currency translation adjustment (26,047 ) (26,047 )
Change in unrealized gain on investments, net of tax (241 ) (241 )
Balance at September 30, 2018 163,886,719
$ 1,722
$ 4,352,857
$ (625,925 ) $ (48,218 ) $ (524,905 ) $ 3,155,531

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

Table of Contents

AKAMAI TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

Akamai Technologies, Inc. (the “Company”) provides solutions for delivering, optimizing and securing content and business applications over the Internet. Its globally-distributed platform comprises ~~more than 200,000~~approximately 300,000 servers across more than 130 countries. The Company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company currently operates in 1 industry segment: providing cloud services for delivering, optimizing and securing content and business applications over the Internet.

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying financial statements.

Certain information and footnote disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes have been condensed in, or omitted from, these interim financial statements. Accordingly, the unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2018~~,2019, filed with the Securities and Exchange Commission on February 28, ~~2019.~~2020.

The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair statement of the results of all interim periods reported herein.

Newly-Adopted Accounting Pronouncements

~~Leases~~

In ~~February~~June 2016, the Financial Accounting Standards Board ("FASB") issued guidance that requires companies to present assets and liabilities arising from leases on the consolidated balance sheet. The updated standard aims to increase transparency and comparability among organizations by requiring lessees to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The Company adopted this standard on January 1, 2019 on a modified retrospective basis by applying the new standard to its lease portfolio as of January 1, 2019, while continuing to apply legacy guidance~~in the comparative periods.~~

The Company elected to use the package of practical expedients available under the transition provisions of the guidance, which allows companies to not reassess prior conclusions related to contracts containing leases, lease classification and capitalization of initial direct costs. The Company also elected not to apply the hindsight practical expedient related to its lease transactions.

Adoption of the standard required the Company to record ROU assets and lease liabilities for its operating leases related to real estate and co-location arrangements. The operating leases resulted in the recognition of ROU assets and lease liabilities of $362.2 million and $394.1 million, respectively, as of January 1, 2019. The adoption of the standard also resulted in elimination of deferred rent liabilities of $31.7 million, as of January 1, 2019, that are now recorded as a reduction of the ROU asset. The standard did not have an impact on the Company’s results of operations or cash flows.

~~Stranded Tax Effects Resulting from U.S. Tax Cuts and Jobs Act~~

In February 2018, the FASB issued guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act ("TCJA") that was enacted in 2017. This guidance was effective for the Company on January 1, 2019. The adoption of this new accounting guidance resulted in the reclassification of $0.9 million of income tax benefits resulting from the TCJA from accumulated other comprehensive loss to accumulated deficit. The adoption of this new accounting guidance did not have an impact on the Company's results of operations or cash flows.

~~2. Significant Accounting Policies Update~~

The Company's significant accounting policies are detailed in Note 2 of its annual report on Form 10-K for the year ended December 31, 2018. However, the following policies have been updated as of January 1, 2019.

~~Property and Equipment~~

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property and equipment generally includes purchases of items with a per-unit value greater than $1,000 and a useful life greater than one year. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. The Company periodically reviews the estimated useful lives of property and equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income from operations.

The Company has implemented software and hardware initiatives to manage its global network more efficiently and, as a result, the expected average useful life of its network assets, primarily servers, increased from four years to five years, effective January 1, 2019. These changes decreased depreciation expense by $7.8 million and $24.5 million for the three and nine months ended September 30, 2019, respectively, and increased net income by $6.4 million and $20.3 million for the three and nine months ended September 30, 2019, respectively, or $0.04 and $0.12 per share, for the three and nine months ended September 30, 2019, respectively.

~~Operating Leases~~

The Company enters into operating leases for real estate assets related to office space and co-location assets related to space or racks at co-location facilities and related equipment for its servers and other networking equipment. The Company determines if an arrangement contains a lease at the inception of a contract by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration and the right to obtain the economic benefits from the use of the identified asset.

Upon commencement of a lease, the Company records an ROU asset that represents the Company’s right to use the underlying asset for the lease term and a lease liability that represents an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Lease payments are discounted at the lease commencement date using the rate implicit in the lease unless that rate is not readily determinable. As most of the Company’s leases do not provide an implicit rate, an incremental borrowing rate has been applied based on the Company's credit-adjusted risk-free rate. The incremental borrowing rate at January 1, 2019 (the date the new lease standard was adopted) was used to calculate the present value of the Company’s lease portfolio as of that date.

The Company often enters into contracts that contain both lease and non-lease components. Real estate non-lease components include real estate taxes, insurance, maintenance, parking and other operating costs. Co-location non-lease components include utilities and other operating costs. As of January 1, 2019, the Company includes both lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such as utilities based on actual usage, are not included in the measurement of ROU assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs.

The Company’s lease terms often include renewal options and, particularly in the case of co-location arrangements, may include evergreen provisions. The Company’s ROU assets and lease liabilities generally do not include the options to extend, or terminate, unless it is reasonably certain that the Company will exercise these options. The Company has elected to exclude leases for certain networking equipment with terms of 12 months or less from its ROU assets and lease liabilities on its consolidated balance sheet.

~~Lease expense is recognized on a straight-line basis over the lease term.~~

~~Equity Method Investments~~

The Company accounts for equity investments in which it has significant influence, but not a controlling financial interest, using the equity method of accounting. Under the equity method of accounting, investments are initially recorded at cost, less impairment, and subsequently adjusted to recognize the Company’s share of earnings or losses.

In February 2019, the Company and Mitsubishi UFJ Financial Group ("MUFG") announced the establishment of a joint venture, the Global Open Network, Inc. ("GO-NET"), and their plans to offer a new blockchain-based online payment network. The Company's 20% stake in GO-NET is accounted for using the equity method. As of September 30, 2019, the Company's $36.0 million investment is included in other assets on the consolidated balance sheet. The Company recorded a loss of $1.4 million during the three months ended September 30, 2019 which reflects its share of the losses incurred by GO-NET during the period.

~~Recent Accounting Pronouncements~~

~~In June 2016, the FASB~~ issued guidance that introduces a new methodology for accounting for credit losses on financial ~~instruments, including available-for-sale debt securities.~~instruments. The guidance establishes a new "expected credit loss model" that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as ~~allowances rather than reductions in the amortized cost of available-for-sale debt securities. This guidance will be effective for the~~allowances. The Company prospectively adopted this standard on January 1, 2020. ~~The Company does~~Adoption of the standard did not ~~expect application of this guidance to~~ have a material impact on ~~its~~the Company's consolidated financial statements.

In August 2018, the FASB issued guidance that changes fair value measurement disclosure requirements. This guidance will be effective for the Company on January 1, 2020. The Company is evaluating the impact the update will have on its disclosures.

In August 2018, the FASB issued guidance that addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance for capitalizing costs associated with developing or obtaining internal-use software. The Company prospectively adopted this standard on January 1, 2020. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements

In August 2020, the FASB issued guidance that is expected to reduce complexity and improve comparability of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. This guidance will be effective for the Company on January 1, ~~2020.~~2022. The Company is evaluating the potential impact of adopting this new accounting guidance on its consolidated financial statements.

Table of Contents

3.2. Fair Value Measurements

The following is a summary of available-for-sale marketable securities held as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

Gross Unrealized Classification on Balance Sheet
Amortized Cost Gains Losses
Aggregate
Fair Value

Short-Term
Marketable
Securities

Long-Term
Marketable
Securities
As of September 30, 2019
Commercial paper $ 78,454
$ 20
$ (38 ) $ 78,436
$ 78,436
$ —
Corporate bonds 1,286,133
1,491
(878 ) 1,286,746
638,604
648,142
U.S. government agency obligations 186,836
16
(196 ) 186,656
114,468
72,188
$ 1,551,423
$ 1,527
$ (1,112 ) $ 1,551,838
$ 831,508
$ 720,330

As of December 31, 2018
Certificates of deposit $ 40,000
$ —
$ (7 ) $ 39,993
$ 39,993
$ —
Commercial paper 282,996
—
(50 ) 282,946
282,946
—
Corporate bonds 685,653
1
(4,309 ) 681,345
482,088
199,257
U.S. government agency obligations 50,876
—
(404 ) 50,472
50,472
—
$ 1,059,525
$ 1
$ (4,770 ) $ 1,054,756
$ 855,499
$ 199,257


			Gross Unrealized								Classification on Balance Sheet
	Amortized Cost		Gains		Losses		Aggregate Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
As of June 30, 2020

Commercial paper	$	26,897	$	77	$	(1)	$	26,973	$	26,973	$	—
Corporate bonds	1,399,255		12,877		(339)		1,411,793		692,231		719,562
U.S. government agency obligations	362,188		866		(47)		363,007		80,851		282,156
	$	1,788,340	$	13,820	$	(387)	$	1,801,773	$	800,055	$	1,001,718

As of December 31, 2019
Certificates of deposit	$	150,000	$	—	$	—	$	150,000	$	150,000	$	—
Commercial paper	73,829		23		(7)		73,845		73,845		—
Corporate bonds	1,368,668		1,840		(378)		1,370,130		753,538		616,592
U.S. government agency obligations	369,475		80		(74)		369,481		165,623		203,858
	$	1,961,972	$	1,943	$	(459)	$	1,963,456	$	1,143,006	$	820,450

The Company offers certain eligible employees the ability to participate in a non-qualified deferred compensation plan. The mutual funds held by the Company that are associated with this plan are classified as restricted trading securities. These securities are not included in the available-for-sale securities table above but are included in marketable securities in the consolidated balance sheets.

Unrealized gains and unrealized temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive loss in the consolidated balance sheets. Upon realization, those amounts are reclassified from

accumulated other comprehensive loss to interest income in the consolidated statements of income. As of ~~September~~June 30, ~~2019,~~2020, the Company held for investment a corporate ~~and government bonds~~bond with a fair value of ~~$125.4~~$1.6 million, which ~~are~~was classified as an available-for-sale marketable ~~securities and have~~security that had been in a continuous unrealized loss position for more than 12 months. The immaterial unrealized ~~losses of $0.1 million~~loss related to ~~these~~this corporate ~~and government bonds are~~bond is included in accumulated other comprehensive ~~income as~~loss.

Table of September 30, 2019. The unrealized losses are attributable to changes in interest rates. Based on the evaluation of available evidence, the Company does not believe any unrealized losses represent other than temporary impairments.Contents

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets ~~and liabilities~~ as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

Total Fair Value Fair Value Measurements at Reporting Date Using
Level 1 Level 2 Level 3
As of September 30, 2019
Cash Equivalents and Marketable Securities:
Money market funds $ 4,000
$ 4,000
$ —
$ —
Commercial paper 78,436
—
78,436
—
Corporate bonds 1,286,746
—
1,286,746
—
U.S. government agency obligations 186,656
—
186,656
—
Mutual funds 14,027
14,027
—
—
$ 1,569,865
$ 18,027
$ 1,551,838
$ —

As of December 31, 2018
Cash Equivalents and Marketable Securities:
Money market funds $ 380,260
$ 380,260
$ —
$ —
Certificates of deposit 39,993
39,993
—
—
Commercial paper 282,946
—
282,946
—
Corporate bonds 681,345
—
681,345
—
U.S. government agency obligations 50,472
—
50,472
—
Mutual funds 10,016
10,016
—
—
$ 1,445,032

$ 430,269

$ 1,014,763

$ —

Liabilities:
Contingent consideration related to a completed acquisition $ (6,300 ) $ —
$ —
$ (6,300 )


	Total Fair Value		Fair Value Measurements at Reporting Date Using
					Level 1			Level 2
As of June 30, 2020
Money market funds	$	104,131	$	104,131		$	—

Commercial paper	26,973		—			26,973
Corporate bonds	1,411,793		—			1,411,793
U.S. government agency obligations	363,007		—			363,007
Mutual funds	17,383		17,383			—
	$	1,923,287	$	121,514		$	1,801,773




As of December 31, 2019
Money market funds	$	50,779	$	50,779		$	—
Certificates of deposit	150,000		—			150,000
Commercial paper	73,845		—			73,845
Corporate bonds	1,370,130		—			1,370,130
U.S. government agency obligations	369,481		—			369,481
Mutual funds	15,177		15,177			—
	$	2,029,412	$	65,956		$	1,963,456

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company grouped ~~certificates of deposit,~~ money market funds and mutual funds using a Level 1 valuation because market prices for such investments are readily available in active markets. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company grouped commercial paper, corporate bonds and U.S. government agency obligations using a Level 2 valuation because quoted prices for ~~identical or~~ similar assets in active markets (or identical assets in an inactive market) are ~~available~~available. As of December 31, 2019, the Company also included bank certificates of deposit using Level 2 valuation because quoted prices for similar assets in active markets ~~that~~(or identical assets in an inactive market) are ~~inactive.~~available. The Company did not have any transfers of assets between Level 1, Level 2 or Level 3 of the fair value measurement hierarchy during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

When developing fair value estimates, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. When available, the Company uses quoted market prices to measure fair value. The valuation technique used to measure fair value for the Company's Level 1 and Level 2 assets is a market approach, using prices and other relevant information generated by market transactions involving identical or comparable assets. If market prices are not available, the fair value measurement is based on models that primarily use market-based parameters including yield curves, volatilities, credit ratings and currency rates. In certain cases where market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.

The valuation technique used to measure fair value of the Company's Level 3 liabilities, which consist of contingent consideration related to the acquisition of Cyberfend, Inc. in 2016, was primarily an income-based approach. The significant

~~unobservable input used in the fair value measurement of the contingent consideration was the likelihood of achieving certain post-closing financial results.~~

Contractual maturities of the Company’s available-for-sale marketable securities held as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows (in thousands):

September 30,
2019 December 31,
2018
Due in 1 year or less $ 831,508
$ 855,499
Due after 1 year through 3 years 720,330
199,257
$ 1,551,838
$ 1,054,756


	June 30, 2020		December 31, 2019
Due in 1 year or less	$	800,055	$	1,143,006
Due after 1 year through 3 years	1,001,718		820,450
	$	1,801,773	$	1,963,456

~~The following table reflects the activity for the Company’s liabilities measured at fair value using Level 3 inputs during the nine months ended September 30, 2019 (in thousands):~~

Other Liabilities:
Contingent Consideration Obligation
Balance as of January 1, 2019 $ (6,300 )
Cash paid upon achievement of milestone 6,300
Balance as of September 30, 2019 $ —

Table of Contents

4.3. Accounts Receivable

Net accounts receivable consisted of the following as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020		December 31, 2019
Trade accounts receivable	$	482,451	$	396,204
Unbilled accounts receivable	168,433		157,619
Gross accounts receivable	650,884		553,823
Allowances for current expected credit losses and other reserves	(6,225)		(1,880)
Accounts receivable, net	$	644,659	$	551,943

September 30,
2019 December 31,
2018
Trade accounts receivable $ 357,050
$ 337,445
Unbilled accounts receivable 161,352
143,978
Gross accounts receivable 518,402
481,423
Allowance for doubtful accounts and other reserves (1,745 ) (1,534 )
Accounts receivable, net $ 516,657
$ 479,889

The following table summarizes the activity of the Company's allowance for current expected credit losses and other reserves during the six months ended June 30, 2020 (in thousands):


Balance as of January 1, 2020	$	1,880
Charges to income from operations	7,523
Collections from customers previously reserved and other	(3,178)
Balance as of June 30, 2020	$	6,225

The allowance for current expected credit losses has been developed using historical loss rates for the previous twelve months as well as expectations about the future where the Company has been able to develop forecasts to support its estimates.

4. Incremental Costs to Obtain a Contract with a Customer

The following table summarizes the deferred costs associated with obtaining customer contracts, specifically commission and incentive payments, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

September 30,
2019 December 31,
2018
Deferred costs included in prepaid and other current assets $ 41,085
$ 41,955
Deferred costs included in other assets 21,625
26,338
Total deferred costs $ 62,710
$ 68,293


	June 30, 2020		December 31, 2019
Deferred costs included in prepaid and other current assets	$	43,220	$	45,009
Deferred costs included in other assets	19,816		25,698
Total deferred costs	$	63,036	$	70,707

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the Company recognized ~~$10.9~~$16.1 million and ~~$32.5~~$30.2 million, respectively, of amortization expense related to deferred ~~commissions.~~costs. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company recognized ~~$11.2~~$10.8 million and ~~$32.9~~$21.6 million, respectively, of amortization expense related to deferred ~~commissions.~~costs. Amortization expense related to deferred ~~commissions~~costs is primarily included in sales and marketing expense in the consolidated statements of income.

5. Goodwill and Acquired Intangible Assets

The change in the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was as follows (in thousands):

Balance as of January 1, 2019 $ 1,487,404
Acquisition of Janrain, Inc. 99,685
Foreign currency translation (3,610 )
Balance as of September 30, 2019 $ 1,583,479


Balance as of January 1, 2020	$	1,600,265

Measurement period adjustments related to acquisitions completed in prior years	(1,056)
Foreign currency translation	(3,905)
Balance as of June 30, 2020	$	1,595,304

The Company tests goodwill for impairment at least annually. Through the date the consolidated financial statements were issued, no triggering events had occurred that would indicate a potential impairment exists.

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Acquired intangible assets that are subject to amortization consisted of the following as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

September 30, 2019 December 31, 2018

Gross
Carrying
Amount
Accumulated Amortization
Net
Carrying
Amount
Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount
Completed technology $ 154,091
$ (95,861 ) $ 58,230
$ 145,091
$ (81,587 ) $ 63,504
Customer-related intangible assets 263,410
(158,562 ) 104,848
245,710
(144,786 ) 100,924
Non-compete agreements 730
(467 ) 263
700
(306 ) 394
Trademarks and trade names 7,400
(4,334 ) 3,066
7,200
(3,674 ) 3,526
Acquired license rights 490
(490 ) —
490
(490 ) —
Total $ 426,121
$ (259,714 ) $ 166,407
$ 399,191
$ (230,843 ) $ 168,348


	June 30, 2020										December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Completed technology	$	154,170	$	(102,539)	$	51,631	$	153,722	$	(94,088)	$	59,634
Customer-related intangible assets	315,465		(174,845)		140,620		279,684		(163,155)		116,529
Non-compete agreements	819		(657)		162		830		(529)		301
Trademarks and trade names	7,548		(5,010)		2,538		7,600		(4,633)		2,967
Acquired license rights	490		(490)		—		490		(490)		—
Total	$	478,492	$	(283,541)	$	194,951	$	442,326	$	(262,895)	$	179,431

Aggregate expense related to amortization of acquired intangible assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$9.6~~$10.4 million and ~~$28.9~~$20.8 million, respectively. Aggregate expense related to amortization of acquired intangible assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$8.3~~$9.6 million and ~~$25.0~~$19.2 million, respectively. Based on the Company’s acquired intangible assets as of ~~September~~June 30, ~~2019~~,2020, aggregate expense related to amortization of acquired intangible assets is expected to be ~~$9.6~~$21.1 million for the remainder of ~~2019~~,2020, and ~~$36.9~~$43.0 million,, ~~$31.9~~ $37.3 million,, ~~$26.2 million~~ ~~and~~ ~~$20.3 million~~ ~~for~~ ~~2020~~, ~~2021~~, ~~2022~~ ~~and~~ ~~2023, respectively.~~

~~7. Business Combinations~~

~~Acquisition-related costs during the nine months ended September 30, 2019 were $1.2~~ $28.9 million and ~~are included in general~~$20.5 million for 2021, 2022, 2023 and administrative expense in the consolidated statements of income. Pro forma results of operations for the acquisition completed during the nine months ended September 30, 2019 have not been presented because the effects of the acquisition were not material to the Company's consolidated financial results. Revenue and earnings of the acquired company since the date of the acquisition that are included in the Company's consolidated statements of income are also not presented separately because they are not material.2024, respectively.

~~ChameleonX~~

6. Acquisitions

In ~~October 2019,~~February 2020, the Company ~~agreed to acquire ChameleonX Ltd.~~acquired certain assets from Instart Logic, Inc. ("Instart"), ~~an Israel-based company with~~ a ~~solution designed to detect when a website contains or links to malware that causes end user data to be compromised,~~provider of cloud solutions for ~~approximately $15.0~~improving web and mobile application performance, for $36.4 million in cash. The ~~acquisition is expected to further strengthen the Company's industry leading security portfolio. The acquisition is expected to close in the fourth quarter of 2019.~~

~~Exceda~~

In November 2019, the Company acquired Exceda, a leading provider of CDN and web security services, and the Company's largest channel partner in Latin America, for approximately $33.0 million in cash. The acquisition is expected to enable the Company to expand its Latin America business more quickly, better enable existing and new partners and improve experiences for more customers.

~~Janrain~~

~~In January 2019, the Company acquired Janrain, Inc. ("Janrain"), a provider of customer identity and access management solutions, for $123.6 million in cash. The allocation of the~~ purchase price ~~has not been finalized as of the date of the filing of these financial statements.~~was primarily allocated to a customer-related intangible asset that will be amortized over 17 years in a pattern that matches expense with expected economic benefits. The Company ~~plans~~is transitioning the acquired customers to ~~incorporate the Janrain technology into Akamai's~~its Intelligent Edge Platform.

~~The following table presents the preliminary allocation of the purchase price for Janrain (in thousands):~~

Total purchase consideration $ 123,632

Allocation of the purchase consideration:
Cash $ 2,223
Accounts receivable 7,318
Prepaid expenses and other current assets 838
Identifiable intangible assets 26,930
Goodwill 99,685
Deferred tax assets 5,124
Other assets 87
Total assets acquired 142,205
Accounts payable (1,641 )
Accrued expenses (2,596 )
Deferred revenue (14,336 )
Total liabilities assumed (18,573 )
Net assets acquired $ 123,632

The value of the goodwill can be attributed to a number of business factors, including a trained technical and sales workforce and cost synergies expected to be realized. The total amount of goodwill related to the acquisition of Janrain expected to be deductible for tax purposes is $42.5 million.7. Debt

~~The following were the identifiable intangible assets acquired and their respective weighted average useful lives (in thousands, except years):~~

Gross Carrying Amount Weighted Average Useful Life (in years)
Completed technologies $ 9,000
3.0
Customer-related intangible assets 17,700
6.0
Trademarks 200
0.8
Non-compete agreements 30
1.0
Total $ 26,930

The total weighted average amortization period for the intangible assets acquired from Janrain is 5.0 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

~~8. Commitments and Contingencies~~

~~Legal Matters~~

In April 2018, as part of the resolution of multiple existing lawsuits between Limelight Networks, Inc. ("Limelight") and the Company, including in the U.S. District Court for the Eastern District of Virginia and in the U.S. District Court for the District of Massachusetts, the Company and Limelight entered into an agreement to settle the cases and request that the U.S. Patent Trial and Appeal Board terminate certain proceedings related to patents at issue in the litigation. The Company recorded a $14.9 million charge in the third quarter of 2018, which is included in general and administrative expenses in the consolidated statement of income for the nine months ended September 30, 2018, related to this settlement.

~~9. Debt~~

Convertible Notes – Due 2027

In August 2019, the Company issued $1,150.0 million in par value of convertible senior notes due 2027 (the "2027 Notes"). The 2027 Notes are senior unsecured obligations of the Company, bear regular interest of 0.375%, payable semi-annually in arrears on March 1 and September 1 of each year ~~beginning on March 1, 2020,~~ and mature on September 1, 2027, unless repurchased or converted in accordance with their terms prior to maturity.

At their option, holders may convert their 2027 Notes prior to the close of business on the business day immediately preceding May 1, 2027, only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ended December 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2027 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or

•upon the occurrence of specified corporate events.

On or after May 1, 2027, holders may convert all or any portion of their 2027 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date.

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Upon conversion, the Company, at its election, may pay or deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The initial conversion rate is 8.6073 shares of the Company's common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $116.18 per share, subject to adjustments in certain events, and represents a potential conversion into 9.9 million shares.

In accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and equity components. The carrying cost of the liability component was calculated by measuring the fair value of a similar debt obligation that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes. The difference between the principal amount of the 2027 Notes and the proceeds allocated to the liability component (“debt discount”) is amortized to interest expense using the effective interest method over the term of the 2027 Notes. The equity component is recorded in additional paid-in capital in the consolidated balance sheet and will not be remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the 2027 Notes, the Company allocated the total transaction costs incurred to the liability and equity components based on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the term of the 2027 Notes, and transaction costs attributable to the equity component are netted against the equity component of the 2027 Notes in stockholders’ equity.

The 2027 Notes consisted of the following components as of ~~September~~June 30, 2020 and December 31, 2019 (in thousands):

September 30,
2019
Liability component:
Principal $ 1,150,000
Less: debt discount and issuance costs, net of amortization (229,454 )
Net carrying amount $ 920,546

Equity component: $ 220,529


	June 30, 2020		December 31, 2019
Liability component:
Principal	$	1,150,000	$	1,150,000
Less: debt discount and issuance costs, net of amortization	(209,737)		(222,928)
Net carrying amount	$	940,263	$	927,072

Equity component:	$	220,529	$	220,529

The estimated fair value of the 2027 Notes at ~~September~~June 30, 2020 and December 31, 2019 was ~~$1,172.8 million.~~$1,251.8 million and $1,133.8 million, respectively. The fair value was determined based on the quoted price of the 2027 Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. Based on the closing price of the Company's common stock of ~~$91.38~~$107.09 on ~~September~~June 30, ~~2019,~~2020, the value of the 2027 Notes if converted to common stock was ~~less~~more than the principal amount of $1,150.0 million.

The Company used $100.0 million of the proceeds from the offering to repurchase shares of its common stock, concurrent with the issuance of the 2027 Notes. The repurchase was made in accordance with a share repurchase program previously approved by the Board of Directors. Additionally, $127.1 million of the proceeds was used for the net cost of convertible note hedge and warrant transactions. The net proceeds are intended to be used for working capital, share repurchases, potential acquisitions and strategic transactions and other corporate purposes.

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Note Hedge

To minimize the impact of potential dilution upon conversion of the 2027 Notes, the Company entered into convertible note hedge transactions with respect to its common stock in August 2019. The Company paid $312.2 million for the note hedge transactions. The note hedge transactions cover approximately 9.9 million shares of the Company’s common stock at a strike price that corresponds to the initial conversion price of the 2027 Notes, also subject to adjustment, and are exercisable upon conversion of the 2027 Notes. The note hedge transactions are intended to reduce dilution in the event of conversion of the 2027 Notes.

Warrants

Separately, in August 2019, the Company entered into warrant transactions, whereby the Company sold warrants to acquire, subject to anti-dilution adjustments, up to 9.9 million shares of the Company’s common stock at a strike price of approximately $178.74 per share. The Company received aggregate proceeds of $185.2 million from the sale of the warrants. The convertible note hedge and warrant transactions will generally have the effect of increasing the conversion price of the 2027 Notes to approximately $178.74 per share.

Convertible Notes – Due 2025

In May 2018, the Company issued $1,150.0 million in par value of convertible senior notes due 2025 (the "2025 Notes"). The 2025 Notes are senior unsecured obligations of the Company, bear regular interest of 0.125%, payable semi-annually on May 1 and November 1 of each year, and mature on May 1, 2025, unless repurchased or converted prior to maturity.

At their option, holders may convert their 2025 Notes prior to the close of business on the business day immediately preceding January 1, 2025, only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ended June 30, 2018 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or

•upon the occurrence of specified corporate events.

On or after January 1, 2025, holders may convert all or any portion of their 2025 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity ~~date.~~date, regardless of the foregoing circumstances.

Upon conversion, the Company, at its election, may pay or deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The initial conversion rate is 10.5150 shares of the Company's common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $95.10 per share, subject to adjustments in certain events, and represents a potential conversion into 12.1 million shares.

In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components. The carrying cost of the liability component was calculated by measuring the fair value of a similar debt obligation that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2025 Notes. The difference between the principal amount of the 2025 Notes and the proceeds allocated to the liability component (“debt discount”) is amortized to interest expense using the effective interest method over the term of the 2025 Notes. The equity component is recorded in additional paid-in capital in the consolidated balance sheet and will not be remeasured as long as it continues to meet the conditions for equity classification.

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In accounting for the transaction costs related to the issuance of the 2025 Notes, the Company allocated the total transaction costs incurred to the liability and equity components based on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the term of the 2025 Notes, and transaction costs attributable to the equity component are netted against the equity component of the 2025 Notes in stockholders’ equity.

The 2025 Notes consisted of the following components as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

September 30,
2019 December 31,
2018
Liability component:
Principal $ 1,150,000
$ 1,150,000
Less: debt discount and issuance costs, net of amortization (247,098 ) (275,920 )
Net carrying amount $ 902,902
$ 874,080

Equity component: $ 285,225
$ 285,225


	June 30, 2020		December 31, 2019
Liability component:
Principal	$	1,150,000	$	1,150,000
Less: debt discount and issuance costs, net of amortization	(217,326)		(237,281)
Net carrying amount	$	932,674	$	912,719

Equity component:	$	285,225	$	285,225

The estimated fair value of the 2025 Notes at ~~September~~June 30, 2020 and December 31, 2019 was ~~$1,319.6 million.~~$1,427.2 million and $1,270.7 million, respectively. The fair value was determined based on the quoted price of the 2025 Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. Based on the closing price of the Company's common stock of ~~$91.38~~$107.09 on ~~September~~June 30, ~~2019,~~2020, the value of the 2025 Notes if converted to common stock was ~~less~~more than the principal amount of $1,150.0 million.

The Company used $46.2 million of the proceeds from the offering to repurchase shares of its common stock, concurrent with the issuance of the 2025 Notes. The repurchase was made in accordance with a share repurchase program previously approved by the Board of Directors. Additionally, $141.8 million of the proceeds was used for the net cost of convertible note hedge and warrant transactions. The Company also used a portion of the net proceeds to repay at maturity the $690.0 million in par value of convertible senior notes due in 2019.

Note Hedge

To minimize the impact of potential dilution upon conversion of the 2025 Notes, the Company entered into convertible note hedge transactions with respect to its common stock in May 2018. The Company paid $261.7 million for the note hedge transactions. The note hedge transactions cover approximately 12.1 million shares of the Company’s common stock at a strike price that corresponds to the initial conversion price of the 2025 Notes, also subject to adjustment, and are exercisable upon conversion of the 2025 Notes. The note hedge transactions are intended to reduce dilution in the event of conversion of the 2025 Notes.

Warrants

Separately, in May 2018, the Company entered into warrant transactions, whereby the Company sold warrants to acquire, subject to anti-dilution adjustments, up to 12.1 million shares of the Company’s common stock at a strike price of approximately $149.18 per share. The Company received aggregate proceeds of $119.9 million from the sale of the warrants. The convertible note hedge and warrant transactions will generally have the effect of increasing the conversion price of the 2025 Notes to approximately $149.18 per share.

Convertible Notes – Due 2019

In February 2014, the Company issued $690.0 million in par value of convertible senior notes due 2019 (the "2019 Notes"). The 2019 Notes were senior unsecured obligations of the Company and did not bear regular interest. The 2019 Notes matured and were repaid in full on February 15, 2019 as no repurchases or conversions occurred prior to maturity. ~~For further information, see Note 11 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2018.~~

Revolving Credit Facility

In May 2018, the Company entered into a $500.0 million ~~five-year,~~five-year, revolving credit agreement (the “Credit Agreement”). Borrowings under the Credit Agreement may be used to finance working capital needs and for general corporate purposes. The Credit Agreement provides for an initial $500.0 million in revolving loans. Under specified circumstances, the facility can be increased to up to $1.0 billion in aggregate principal amount. The Credit Agreement expires in May 2023.

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Borrowings under the Credit Agreement bear interest, at the Company's option, at a base rate plus a spread of 0.00% to 0.25% or an adjusted LIBOR rate plus a spread of 0.875% to 1.25%, in each case with such spread being determined based on the Company's consolidated leverage ratio specified in the Credit Agreement. Regardless of what amounts, if any, are outstanding under the Credit Agreement, the Company is also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.075% to 0.15%, with such rate being based on the Company's consolidated leverage ratio specified in the Credit Agreement.

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. Principal covenants include a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. There were 0 outstanding borrowings under the Credit Agreement as of ~~September~~June 30, ~~2019.~~2020.

Interest Expense

The 2027 Notes bear interest at a fixed rate of 0.375%. The interest is payable semi-annually on March 1 and September 1 of each ~~year, commencing in March 2020.~~year. The 2027 Notes have an effective interest rate of 3.1% attributable to the conversion feature. The 2025 Notes bear interest at a fixed rate of 0.125%. The interest is payable semi-annually on May 1 and November 1 of each year, commencing in November 2018. The 2025 Notes have an effective interest rate of 4.26% attributable to the conversion feature. The 2019 Notes did not bear regular interest, but had an effective interest rate of 3.2% attributable to the conversion feature. The Company is also obligated to pay ongoing commitment fees under the terms of the Credit Agreement. The following table sets forth total interest expense included in the consolidated statements of income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018 (in thousands):~~

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
Amortization of debt discount and issuance costs $ 12,982
$ 15,295
$ 35,657
$ 31,045
Coupon interest payable on 2025 Notes 359
359
1,077
514
Coupon interest payable on 2027 Notes 479
—
479
—
Revolving credit facility contractual interest expense 156
122
372
261
Capitalization of interest expense (1,849 ) (1,210 ) (4,896 ) (3,200 )
Total interest expense $ 12,127
$ 14,566
$ 32,689
$ 28,620

~~10. Leases~~

~~The following table is a summary of the Company’s operating lease costs for the three and nine months ended September 30,~~ 2019 (in thousands):

For the Three Months
Ended September 30, 2019 For the Nine Months
Ended September 30, 2019
Real Estate Arrangements Co-location Arrangements Total Real Estate Arrangements Co-location Arrangements Total
Operating lease cost $ 14,517
$ 23,142
$ 37,659
$ 43,506
$ 70,082
$ 113,588
Short-term lease cost 26
3,509
3,535
231
10,697
10,928
Variable lease cost 3,617
7,053
10,670
10,655
16,769
27,424
Sublease income (839 ) —
(839 ) (2,791 ) —
(2,791 )
Total operating lease costs $ 17,321
$ 33,704
$ 51,025
$ 51,601
$ 97,548
$ 149,149


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
Amortization of debt discount and issuance costs	$	16,709	$	9,666	$	33,264	$	22,675
Coupon interest payable on 2025 Notes	359		359		718		718
Coupon interest payable on 2027 Notes	1,078		—		2,156		—
Revolving credit facility contractual interest expense	135		77		270		216
Capitalization of interest expense	(1,032)		(1,656)		(1,954)		(3,047)
Total interest expense	$	17,249	$	8,446	$	34,454	$	20,562

~~Lease costs~~

8. Restructuring

During the fourth quarter of 2019, management committed to an action to restructure certain parts of the Company to focus on investments with the potential to accelerate revenue growth. As a result, certain headcount reductions were necessary and certain capitalized internal-use software charges were realized for ~~real estate arrangements are included in general~~software not yet placed into service that will not be completed and ~~administrative expenses~~implemented due to this action. The Company has incurred restructuring charges of $20.6 million as part of this action, of which $10.4 million was recognized during the six months ended June 30, 2020. Included in the ~~consolidated statements~~charge is $6.2 million related to impairment of ~~income. Lease costs for co-location arrangements are primarily included in cost~~a right-of-use asset related to the exit of ~~revenue.~~a leased facility. The Company does not expect to incur material additional restructuring charges related to this action.

At September 30, 2019, the real estate arrangements weighted average remaining lease term and weighted average discount rate for operating leases were 10.0 years and 4.1%, respectively. At September 30, 2019, the co-location arrangements weighted average remaining lease term and weighted average discount rate for operating leases were 3.3 years and 2.3%, respectively.

~~Maturities of operating lease liabilities as of September 30, 2019 were as follows (in thousands):~~

Real Estate Arrangements Co-location Arrangements
Remainder of 2019 $ 10,975
$ 27,688
2020 49,206
29,454
2021 45,094
9,789
2022 41,090
5,767
2023 39,245
3,944
Thereafter 200,317
10,158
Total lease payments 385,927
86,800
Less: imputed interest 84,087
4,931
Total lease liabilities $ 301,840
$ 81,869

As of September 30, 2019, the Company has additional operating leases, primarily for real estate facilities, that have not yet commenced of $553.0 million. The majority of these operating leases will commence in late 2019 and have a term of 15 years.

The minimum aggregate future obligations under non-cancelable operating leases, including real estate and co-location arrangements, and bandwidth commitments as of December 31, 2018 were as follows (in thousands):

Real Estate Arrangements Bandwidth and Co-location Arrangements
2019 $ 54,561
$ 138,777
2020 78,683
24,420
2021 75,991
8,463
2022 72,579
5,233
2023 70,101
2,156
Thereafter 599,339
3,709
Total $ 951,254
$ 182,758

~~11. Restructuring~~

During the fourth quarter of 2018, management committed to an action to restructure certain parts of the Company ~~to re-balance investments~~ with the ~~goal~~intent of ~~improving~~re-balancing investments to ensure long-term growth and scale. As a result, certain headcount reductions were necessary and certain capitalized internal-use software charges were realized for software not yet placed into service that will not be completed and implemented due to this action. The Company has incurred restructuring charges of $19.0 million as part of this action, of which ~~$6.7~~$0.8 million and $7.0 million, respectively, was ~~recognized~~incurred during the ~~nine~~three and six months ended ~~September~~June 30, 2019. ~~The Company does not expect significant additional restructuring charges related to this action.~~

During the fourth quarter of 2017, management committed to an action to restructure certain parts of the Company with the intent of shifting focus to more critical areas of the business and away from products that have not seen expected commercial success. The restructuring was also intended to facilitate cost efficiencies and savings. As part of the cost efficiency and savings plans, certain headcount and facility reductions were made. The Company has incurred restructuring charges of $62.6 million as part of this action. There were ~~insignificant~~0 charges related to these actions during the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, and no additional charges are expected.

~~The Company also recognized restructuring charges for redundant employees, facilities and contracts associated with the Janrain acquisition completed in 2019.~~

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The following table summarizes the activity of the Company's restructuring accrual during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 (in thousands):

Employee Severance and Related Benefits Software Charges Excess Facilities, Contract Terminations and Other Total
Balance as of January 1, 2019 $ 10,508
$ 198
$ 275
$ 10,981
Costs incurred 6,825
—
54
6,879
Cash disbursements (16,839 ) (99 ) (262 ) (17,200 )
Balance as of September 30, 2019 $ 494
$ 99
$ 67
$ 660


	Employee Severance and Related Benefits		Software Charges		Other		Total
Balance as of January 1, 2020	$	5,707	$	99	$	151	$	5,957
Costs incurred	4,168		—		49		4,217
Cash disbursements	(9,398)		(99)		(175)		(9,672)
Non-cash charges	—		—		(11)		(11)

Balance as of June 30, 2020	$	477	$	—	$	14	$	491

~~12.~~

9. Stockholders’ Equity

Share Repurchase Program

Effective November 2018, the Board of Directors of the Company authorized a $1.1 billion share repurchase program through December 2021. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the Company repurchased ~~2.0~~0.3 million and ~~3.6~~1.1 million shares of its common stock, respectively, for ~~$175.5~~$27.3 million and ~~$291.8~~$107.9 million, respectively. The Company's goals for the share repurchase ~~programs~~program are to offset the dilution created by its employee equity compensation programs over time and provide the flexibility to return capital to shareholders as business and market conditions warrant.

Stock-Based Compensation

The following table summarizes stock-based compensation included in the Company’s consolidated statements of income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
Cost of revenue	$	6,254	$	5,793	$	11,990	$	11,362
Research and development	11,549		12,044		23,614		24,101
Sales and marketing	16,011		15,740		31,746		30,791
General and administrative	15,377		14,565		29,334		27,193
Total stock-based compensation	49,191		48,142		96,684		93,447
Provision for income taxes	(16,823)		(13,798)		(29,459)		(26,791)
Total stock-based compensation, net of income taxes	$	32,368	$	34,344	$	67,225	$	66,656

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
Cost of revenue $ 5,555
$ 5,494
$ 16,917
$ 16,343
Research and development 12,842
11,249
36,943
32,684
Sales and marketing 15,593
16,835
46,384
49,543
General and administrative 12,825
13,054
40,018
40,245
Total stock-based compensation 46,815
46,632
140,262
138,815
Provision for income taxes (14,867 ) (7,802 ) (41,658 ) (37,692 )
Total stock-based compensation, net of income taxes $ 31,948
$ 38,830
$ 98,604
$ 101,123

In addition to the amounts of stock-based compensation reported in the table above, the Company’s consolidated statements of income for the three and ~~nine~~six months ended ~~September~~June 30, 2020 include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $7.2 million and $14.8 million, respectively, before taxes, and for the three and six months ended June 30, 2019, include stock-based compensation reflected as a component of amortization of capitalized internal-use software of ~~$7.5~~$7.3 million and $22.9 million, respectively, before taxes, and for the three and nine months ended September 30, 2018 include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $6.6 million and $18.1$15.4 million, respectively, before taxes.

~~13.~~

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10. Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, net of tax, which is reported as a component of stockholders' equity, for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 (in thousands):

Foreign Currency Translation Net Unrealized Gains on Investments Total
Balance as of January 1, 2019 $ (51,904 ) $ 2,992
$ (48,912 )
Other comprehensive (loss) income (10,744 ) 3,232
(7,512 )
Balance as of September 30, 2019 $ (62,648 ) $ 6,224
$ (56,424 )


	Foreign Currency Translation		Net Unrealized Gains on Investments		Total
Balance as of January 1, 2020	$	(52,924)	$	7,780	$	(45,144)
Other comprehensive (loss) income	(20,469)		8,306		(12,163)
Balance as of June 30, 2020	$	(73,393)	$	16,086	$	(57,307)

~~Amounts~~

There were no amounts reclassified from accumulated other comprehensive loss to net income ~~were insignificant~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020.

~~14.~~11. Revenue from Contracts with Customers

The Company sells its solutions through a sales force located both domestically and abroad. Revenue derived from operations outside of the U.S. is determined based on the country in which the sale originated. Other than the U.S., no single country accounted for 10% or more of the Company’s total revenue for any reported period. The following table summarizes revenue by geography included in the Company’s consolidated statements of income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
U.S. $ 413,116
$ 412,573
$ 1,248,175
$ 1,249,041
International 296,796
257,055
873,319
752,070
Total revenue $ 709,912
$ 669,628
$ 2,121,494
$ 2,001,111


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
U.S.	$	443,668	$	416,859	$	872,598	$	835,059
International	351,047		288,215		686,419		576,523
Total revenue	$	794,715	$	705,074	$	1,559,017	$	1,411,582

While the Company sells its solutions through a geographically dispersed sales force, it manages its customer relationships in 2 divisions: the Web Division and the Media and Carrier Division. Customers are assigned to a division for relationship management purposes according to their predominant purchasing activity; however, customers may purchase solutions managed by the other division as well. As of January 1, ~~2019,~~2020, the Company reassigned some of its customers ~~from~~between the Media and Carrier Division toand the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented. As the purchasing patterns and required account expertise of customers change over time, the Company may reassign a customer's division from one to another. The following table summarizes revenue by division included in the Company’s consolidated statements of income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
Web Division $ 390,223
$ 357,255
$ 1,146,872
$ 1,062,376
Media and Carrier Division 319,689
312,373
974,622
938,735
Total revenue $ 709,912
$ 669,628
$ 2,121,494
$ 2,001,111


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
Web Division	$	404,342	$	377,558	$	810,337	$	751,760
Media and Carrier Division	390,373		327,516		748,680		659,822
Total revenue	$	794,715	$	705,074	$	1,559,017	$	1,411,582

Most content delivery and security services sold by the Company represent obligations that are satisfied over time as the customer simultaneously receives and consumes the services provided. Accordingly, the majority of the Company's revenue is recognized over time, generally ratably over the term of the arrangement due to consistent monthly traffic commitments that expire each period. A small percentage of the Company's services are satisfied at a point in time, such as one-time professional services contracts, integration services and most license sales where the primary obligation is delivery of the license at the start of the term. In these cases, revenue is recognized at a point in time of delivery or satisfaction of the performance obligation.

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During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized ~~$51.0~~$59.7 million and ~~$64.3~~$52.8 million of revenue that was included in deferred revenue as of December 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

As of ~~September~~June 30, ~~2019,~~2020, the aggregate amount of remaining performance obligations from contracts with customers was ~~$2.3~~$2.5 billion. The Company expects to recognize ~~more than~~approximately 70% of its remaining performance obligations as revenue over the next 12 months, with the remaining recognized thereafter. Remaining performance obligations represent the amount of the transaction price under contracts with customers that are attributable to performance obligations that are unsatisfied or partially satisfied at the reporting date. This consists of future committed revenue for monthly, quarterly or annual periods within current contracts with customers, as well as deferred revenue arising from consideration invoiced in prior periods for which the related performance obligations have not been satisfied. It excludes estimates of variable consideration such as usage-based contracts with no committed contract as well as anticipated renewed contracts.

~~15.~~12. Income Taxes

The Company's effective income tax rate is based on estimated income for the year, the estimated composition of the income in different jurisdictions and discrete adjustments, if any, in the applicable quarterly periods. Potential discrete adjustments include tax charges or benefits related to stock-based compensation, changes in tax legislation, settlements of tax audits or assessments, uncertain tax positions and acquisitions, among other items.

~~The Company is currently under audit in multiple jurisdictions and, in certain cases, is involved in litigation related to adverse audit determinations.~~ In the second quarter of 2018, the Company filed an appeal with the Massachusetts Appellate Tax Board (“MATB”) contesting ~~the~~ adverse audit findings related to certain tax benefits and exemptions. In July 2020, the MATB ruled in the Company’s favor; however, the decision is eligible for appeal by the Massachusetts Department of Revenue. The Company has determined that it is more-likely-than-not that it will ultimately prevail ~~and~~in the event of any such appeal. Accordingly, no reserve has been recorded related to these controversies. Over the next 12 months, the Company’s current assumptions and positions could change based on audit determinations and other events impacting its analysis. Such events, if resolved unfavorably, could significantly impact the Company’s effective income tax rate and results of operations. The Company has, however, estimated that an adverse ruling ~~related to its Massachusetts controversy~~ could ~~ultimately~~ result in ana gross income tax charge of approximately ~~$15.0 million.~~$37.0 million, which may be partially offset by certain state tax credits of $27.0 million, which are not currently benefited as a result of the Company's valuation allowance assessment.

The Company’s effective income tax rate was ~~10.6%~~10.3% and ~~11.2%~~16.5% for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The lower effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, is primarily due to an increase in foreign income taxed at lower rates, an increase in the ~~release of certain~~excess tax ~~reserves~~benefit related to ~~the expiration~~stock-based compensation, a decrease in intercompany sales of ~~local statutes of limitations, which was partially offset by an increase~~intellectual property and a decrease in the valuation allowance recorded against deferred tax assets related to state tax ~~credits~~credits. These amounts were partially offset by a decrease in ~~which it is more likely than not that such credits will expire prior to utilization.~~the benefit of U.S. federal, state and foreign research and development credits.

For the ~~nine~~six months ended ~~September~~June 30, 2020, the effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates, the excess tax benefit related to stock-based compensation and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by the valuation allowance recorded against deferred tax assets related to state tax credits, non-deductible stock-based compensation and state taxes.

For the six months ended June 30, 2019, the effective income tax rate was lower than the federal statutory tax rate due to ~~the release of certain tax reserves related to the expiration of local statutes of limitations,~~ foreign income taxed at lower rates, the excess tax benefit related to stock-based compensation and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by the valuation allowance recorded against deferred tax assets related to state tax credits, non-deductible executive compensation, state taxes and an intercompany sale of intellectual property.

~~For~~In response to the ~~nine months ended September 30, 2018,~~novel coronavirus, or COVID-19, pandemic, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020. The CARES Act did not have a material impact on the effective ~~income~~ tax rate ~~was lower than~~for the ~~federal statutory tax rate due~~period ended June 30, 2020. The Company will continue to foreign income taxed at lower rates, the excess tax benefit related to stock-based compensation, a decrease in the provisional amount of the one-time transition tax that was recorded in the fourth quarter of 2017, the release of certain tax reserves relatedmonitor further changes to the ~~expiration~~global legislative and regulatory developments enacted as a result of local statutes of limitations and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by the U.S. federal taxes on Global Intangible Low-Taxed Income and an intercompany sale of intellectual property.COVID-19.

Valuation allowances will be recognized on deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be utilized. In measuring deferred tax assets, the Company considers all available evidence, both positive and negative, to determine whether a valuation allowance is needed. In the third quarter of 2019, the Company recorded an additional $11.2 million valuation allowance against deferred tax assets related to state tax credits in which it is more likely than not that such credits will expire prior to utilization.

~~16.~~13. Net Income per Share

Basic net income per share is computed using the weighted average number of common shares outstanding during the applicable period. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common stock. Potential common stock consists of shares issuable pursuant to stock options, restricted stock units ("RSUs"), deferred stock units ("DSUs"), convertible senior notes and warrants issued by the Company. The dilutive effect of outstanding awards and convertible securities is reflected in diluted earnings per share by application of the treasury stock method.

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The following table sets forth the components used in the computation of basic and diluted net income per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands, except per share data):


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
Numerator:
Net income	$	161,915	$	113,915	$	285,061	$	221,045
Denominator:
Shares used for basic net income per share	162,413		163,407		162,203		163,322
Effect of dilutive securities:
Stock options	62		92		37		71
RSUs and DSUs	1,640		1,520		1,659		1,510
Convertible senior notes	653		—		327		—
Warrants related to issuance of convertible senior notes	—		—		—		—
Shares used for diluted net income per share	164,768		165,019		164,226		164,903
Basic net income per share	$	1.00	$	0.70	$	1.76	$	1.35
Diluted net income per share	$	0.98	$	0.69	$	1.74	$	1.34

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
Numerator:
Net income $ 137,890
$ 107,583
$ 358,935
$ 204,358
Denominator:
Shares used for basic net income per share 162,445
165,924
163,029
168,763
Effect of dilutive securities:

Stock options 36
80
59
158
RSUs and DSUs 2,077
1,896
1,700
1,811
Convertible senior notes —
—
—
—
Warrants related to issuance of convertible senior notes —
—
—
—
Shares used for diluted net income per share 164,558
167,900
164,788
170,732
Basic net income per share $ 0.85
$ 0.65
$ 2.20
$ 1.21
Diluted net income per share $ 0.84
$ 0.64
$ 2.18
$ 1.20

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, certain potential outstanding common shares ~~from~~issuable in respect of stock options, service-based RSUs, convertible notes and warrants were excluded from the computation of diluted net income per share because the effect of including these items was anti-dilutive. Additionally, certain performance-based RSUs were excluded from the computation of diluted net income per share because the underlying performance conditions for such RSUs had not been met as of these dates. The number of potentially outstanding common shares excluded from the computation of diluted net income per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 are as follows (in thousands):

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
Service-based RSUs 139
185
959
1,068
Performance-based RSUs 1,484
1,515
1,484
1,520
Convertible senior notes 21,991
19,797
21,991
19,797
Warrants related to issuance of convertible senior notes 21,991
19,797
21,991
19,797
Total shares excluded from computation 45,605
41,294
46,425
42,182


	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2020	2019	2020	2019

Service-based RSUs	115	174	1,069	1,370
Market-and performance-based RSUs	1,383	1,484	1,435	1,484
Convertible senior notes	9,898	12,093	15,945	12,093
Warrants related to issuance of convertible senior notes	21,991	12,093	21,991	12,093
Total shares excluded from computation	33,387	25,844	40,440	27,040

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q, particularly Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below, and notes to our unaudited consolidated financial statements included herein contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management as of the date hereof based on information currently available to our management. Use of words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “forecasts,” “if,” “continues,” “goal,” “likely” or similar expressions indicates a forward-looking statement. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions. Actual results may differ materially from the forward-looking statements we make. See “Risk Factors” elsewhere in this quarterly report on Form 10-Q for a discussion of certain risks associated with our business. We disclaim any obligation to update forward-looking statements as a result of new information, future events or otherwise.

Our management’s discussion and analysis of our financial condition and results of operations is based upon our unaudited consolidated financial statements included elsewhere in this quarterly report on Form 10-Q, which we have prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim periods and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The preparation of these unaudited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related items, including, but not limited to, revenue recognition, accounts receivable and related reserves, valuation and impairment of marketable securities, goodwill and acquired intangible assets, capitalized internal-use software development costs, impairment and useful lives of long-lived assets, income taxes and stock-based compensation. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time they are made. Actual results may differ from our estimates. See the section entitled ~~“Application~~"Application of Critical Accounting Policies and ~~Estimates”~~Estimates" in our annual report on Form 10-K for the ~~year ended~~year-ended December 31, ~~2018 and the section entitled "Significant Accounting Policies Update" in the notes to our unaudited consolidated financial statements included herein~~2019 for further discussion of our critical accounting policies and estimates.

Overview

We provide solutions for securing, delivering ~~optimizing~~ and ~~securing~~optimizing content and business applications over the Internet. The key factors that influence our financial success are our ability to build on recurring revenue commitments for our ~~performance~~security and ~~security~~performance offerings, increase media traffic on our network, effectively manage the prices we charge for our solutions, develop new products and carefully manage our capital spending and other expenses.

Revenue

For most of our solutions, our customers commit to contracts having terms of a year or longer, which allows us to have a ~~reasonably~~ consistent and predictable base level of revenue. In addition to a base level of revenue, we are also dependent on media customers where usage of our solutions is more variable. As a result, our revenue is impacted by the amount of media and software download traffic we serve on our network, the rate of adoption of gaming, social media and video platform offerings, the timing and variability of customer-specific one-time events and ~~the~~geopolitical, economic and other developments that impact ~~of seasonal~~our customers' businesses. Seasonal variations that impact traffic on our ~~business. The~~network, such as holiday shopping, can cause unpredictable revenue swings from quarter to quarter. Over the longer term, our ability to expand our product portfolio and to effectively manage the prices we charge for our solutions are ~~also~~ key factors impacting our revenue growth.

We have observed the following trends related to our revenue in recent years:

•Increased sales of our security solutions have made a significant contribution to revenue growth. We plan to continue to invest in this area with a focus on further enhancing our product portfolio and extending our go-to-market capabilities.

•We have experienced increases in the amount of traffic delivered for customers that use our solutions for video, gaming downloads and ~~software downloads,~~social media, contributing to an increase in our revenue in the first ~~three quarters~~half of ~~2019~~2020 as compared to the same period in ~~2018.~~2019. In addition, as a result of the novel coronavirus, or COVID-19, outbreak, and resultant shelter-in-place requirements in various locations around the world, the rate of increase in traffic in the first and second quarters of 2020, as compared to prior quarters, accelerated significantly. This increased year-over-year growth could continue in 2020 if the various shelter-in-place restrictions are extended or moderate if they are broadly lifted.

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•While we have ~~experienced higher~~increased committed recurring ~~revenues~~revenue from our solutions by ~~increasing sales of~~upselling incremental solutions to our existing customers and adding new ~~customers; however,~~customers, we have also ~~seen~~experienced slower revenue growth in recent quarters in our web performance solutions. We expect the trend of slower revenue growth in our web division to continue in 2020 as our customers, particularly in ~~our Web Performance~~the commerce and ~~content delivery solutions. Revenue growth~~travel and hospitality industries, continue to experience financial pressure, especially in light of the ~~fourth quarter~~negative impacts of ~~2019 is less predictable given~~ the ~~uncertain impact of holiday season traffic for our commerce, gaming and other customers.~~COVID-19 pandemic on these customers' operations.

•The prices paid by some of our customers have declined, particularly in the context of contract renewals and large media consolidations, reflecting the impact of competition and volume discounts. Our revenue would have been higher absent these price declines.

~~In recent years, revenue~~•Revenue from our international operations has been growing at a faster pace than from our U.S. operations, particularly in terms of new customer acquisition and cross-selling of incremental solutions. Because we publicly report in U.S. dollars, ifthe strong dollar has negatively impacted our results in recent quarters. If the dollar continues to strengthen, our reported revenue results will be negatively impacted. Conversely, a weaker dollar would benefit our reported results.

•We have experienced variations in certain types of revenue from quarter to quarter. In particular, we typically experience higher revenue in the fourth quarter of each year for some of our solutions as a result of holiday season activity. In addition, we experience quarterly variations in revenue attributable to, among other things, the nature and timing of software and gaming releases by our customers; whether there are large live sporting or other events or situations (like the COVID-19 pandemic) that ~~increase~~impact the amount of media traffic on our network; and the frequency and timing of purchases of custom ~~solutions.~~solutions or licensed software.

Expenses

Our level of profitability is also impacted by our expenses, including direct costs to support our revenue such as bandwidth and co-location costs. ~~Payroll and related costs also represent a significant portion of our expenses.~~ We have observed the following trends related to our profitability in recent years:

•Our profitability improved in the first ~~three quarters~~half of ~~2019~~2020 as compared to the same period in ~~2018~~2019 due to higher revenue as well as the effects of cost savings and efficiency initiatives we have ~~undertaken.~~undertaken and lower travel and marketing expenses resulting from pandemic-related shutdowns. We expect to continue to undertake efforts intended to improve the efficiency of operations. We anticipate increased expenses in certain areas of the business that did not impact us in the first three quarters of 2019, particularly those associated with moving to our new headquarters in the fourth quarter of 2019. If we are able to continue our efficiency efforts such that our rate of revenue growth exceeds our expense growth rate and our business is not impacted more severely than currently anticipated by repercussions of the COVID-19 pandemic, we anticipate overall profitability improvement in ~~2019 as compared to 2018 and in~~ 2020 as compared to ~~this year.~~2019.

•Network bandwidth costs represent a significant portion of our cost of revenue. Historically, we have been able to mitigate increases in these costs by reducing our network bandwidth costs per unit and investing in internal-use software development to improve the performance and efficiency of our network. Our total bandwidth costs may increase in the future as a result of expected higher traffic levels and serving more traffic from higher cost regions. We will need to continue to effectively manage our bandwidth costs to maintain current levels of profitability.

•Co-location costs are also a significant portion of our cost of revenue. By improving our internal-use software and managing our hardware deployments to enable us to use servers more efficiently, we have been able to manage the growth of co-location costs. We expect to continue to scale our network in the future and will need to continue to effectively manage our co-location costs to maintain current levels of ~~profitability~~profitability.

~~Payroll and related costs have stabilized in 2019 as compared to prior years.~~ •We expect to continue to manage our headcount and payroll costs in the future to ~~ensure we are making~~focus investments inon certain areas of the business while maintaining efficient operations in others. We expect to continue to hire employees in support of our strategic initiatives, but do not expect overall headcount to increase significantly in 2020. Our ability to hire new employees could be negatively impacted by the COVID-19 pandemic.

•Depreciation ~~and amortization~~ expense related to our network equipment ~~decreased~~also contributes to our overall expense levels. During the second quarter of 2020, we accelerated our purchases of servers and other equipment used in our network to help meet the increased traffic demands arising during the COVID-19 pandemic and to make up for supply chain issues we experienced in the first ~~nine months of 2019 as compared~~quarter. We expect to continue to invest in our network in 2020, which will further increase our capital expenditures and resulting depreciation expense. Due to the ~~same period in 2018. We implemented software~~negative effects the COVID-19 pandemic had on

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our supply chain and ~~hardware initiatives to manage our global network more efficiently, and as a result, the expected average useful life~~some of our network ~~assets, primarily servers, increased from four years~~deployment operations, there may be continued limitations on our ability to ~~five years, effective January 1, 2019. This change is expected to decrease depreciation expense related to~~scale our network in the shorter term and network equipment ~~during 2019 as compared~~costs can rise due to ~~2018.~~limited supply from manufacturing delays.

We report our revenue by division, which is a customer-focused reporting view that reflects revenue from customers that are managed by the division. We report our revenue in two divisions: the Web Division and the Media and Carrier Division. As the purchasing patterns and required account expertise of customers change over time, we may reassign a customer from one division to another. In ~~2019,~~2020, we reassigned some of our customers ~~from~~between the Media and Carrier Division toand the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented.

Nearly all of our employees are working remotely due to the COVID-19 pandemic. We have re-opened three smaller offices in Asia (one of which has re-closed) and are continuously evaluating whether to re-open additional offices or re-close others that have been re-opened. Our operations have not been significantly disrupted by the shift to remote working, and we are not requiring employees whose roles do not require in-person presence to perform their jobs to return to offices before July 1, 2021. While we expect to incur expenses associated with enabling remote work and reconfiguring work spaces to ensure the safety and well being of employees accessing our locations, we do not currently believe those costs will materially impact our financial condition or results of operations. In the near term, we expect to continue to rely on the use of online marketing events and one-on-one web conferencing with customers to promote and sell our solutions.

Results of Operations

The following table sets forth, as a percentage of revenue, consolidated statements of income data for the periods indicated:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)	34.8		34.4		35.0		34.2
Research and development	8.1		8.7		8.7		9.0
Sales and marketing	15.5		19.2		15.9		18.5
General and administrative	16.3		17.0		16.5		17.2
Amortization of acquired intangible assets	1.3		1.4		1.3		1.4
Restructuring (benefit) charge	—		0.1		0.7		0.5
Total costs and operating expenses	76.0		80.8		78.1		80.8
Income from operations	24.0		19.2		21.9		19.2
Interest income	1.2		0.9		1.1		1.1
Interest expense	(2.2)		(1.2)		(2.2)		(1.5)
Other expense, net	(0.2)		(0.1)		(0.4)		—
Income before provision for income taxes	22.8		18.8		20.4		18.8
Provision for income taxes	(2.3)		(2.7)		(2.1)		(3.1)
Loss from equity method investment	(0.1)		—		(0.1)		—
Net income	20.4	%	16.1	%	18.2	%	15.7	%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below) 34.8
35.7
34.4
35.5
Research and development 9.1
9.1
9.1
9.3
Sales and marketing 17.2
18.7
18.1
19.0
General and administrative 17.4
17.9
17.3
22.2
Amortization of acquired intangible assets 1.4
1.2
1.4
1.3
Restructuring (benefit) charges —
(0.1 ) 0.3
0.7
Total costs and operating expenses 79.9
82.5
80.6
88.0
Income from operations 20.1
17.5
19.4
12.0
Interest income 1.1
1.4
1.1
1.0
Interest expense (1.7 ) (2.2 ) (1.5 ) (1.4 )
Other expense, net (0.1 ) (0.1 ) —
(0.2 )
Income before provision for income taxes 19.4
16.6
19.0
11.4
Benefit (provision) for income taxes 0.1
(0.5 ) (2.0 ) (1.3 )
Loss from equity method investment (0.2 ) —
(0.1 ) —
Net income 19.3 % 16.1 % 16.9 % 10.1 %

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Revenue

Revenue by division during the periods presented was as follows (in thousands):


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
	2020		2019		% Change		% Change at Constant Currency		2020		2019		% Change		% Change at Constant Currency
Web Division	$	404,342	$	377,558	7.1	%	8.3	%	$	810,337	$	751,760	7.8	%	8.9	%
Media and Carrier Division	390,373		327,516		19.2		20.1		748,680		659,822		13.5		14.4
Total revenue	$	794,715	$	705,074	12.7	%	13.8	%	$	1,559,017	$	1,411,582	10.4	%	11.5	%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 % Change % Change at Constant Currency 2019 2018 % Change % Change at Constant Currency
Web Division $ 390,223
$ 357,255
9.2 % 10.1 % $ 1,146,872
$ 1,062,376
8.0 % 9.6 %
Media and Carrier Division 319,689
312,373
2.3
3.1
974,622
938,735
3.8
5.3
Total revenue $ 709,912
$ 669,628
6.0 % 6.8 % $ 2,121,494
$ 2,001,111
6.0 % 7.6 %

During the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019,~~2020, the increase in our revenue as compared to the same periods in ~~2018~~2019 was primarily the result of higher media traffic volumes ~~including from our large Internet platform customers,~~due in part to the impact of the outbreak of COVID-19 and continued strong growth in sales of our Cloud Security Solutions. During the three-month period ended ~~September~~June 30,

~~2019,~~ 2020, our Cloud Security Solutions revenue was ~~$215.9~~$259.3 million as compared to ~~$168.7~~$204.8 million during the three-month period ended ~~September~~June 30, ~~2018,~~2019, which represents a ~~28.0%~~26.6% increase. During the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019,~~2020, our Cloud Security Solutions revenue was ~~$610.8~~$499.6 million, as compared to ~~$474.0~~$394.9 million during the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2018,~~2019, which represents a ~~28.9%~~26.5% increase. Cloud Security Solutions revenue increased in both periods due to higher sales of ~~new products, particularly Bot Manager, and also sales of~~solutions across our ~~Enterprise Security Solutions.~~security portfolio.

The increase in Web Division revenue during the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, was primarily the result of increased sales of both new and existing Cloud Security Solutions to this customer ~~base,~~base. Customers that are experiencing financial difficulties as ~~described above.~~a result of the COVID-19 pandemic, specifically those in the commerce, retail and travel and hospitality verticals, are primarily customers of our Web Division. Web Division revenue was negatively impacted during the three- and six-month periods ended June 30, 2020 as a result of the pandemic, and we anticipate this trend to continue. It is, however, difficult to predict the length of time and amount by which the Web Division will be impacted due to the uncertain nature of the pandemic.

The increase in Media and Carrier Division revenue during the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, was primarily the result of increased customer traffic volumes from video delivery, gaming and ~~gaming customers~~social media usage due in part to the impact of the outbreak of COVID-19 and sales of Cloud Security Solutions to this customer base.

Revenue derived in the U.S. and internationally during the periods presented iswas as follows (in thousands):


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,									For the Three Months Ended June 30,														For the Six Months Ended June 30,
	2019		2018		% Change		% Change at Constant Currency		2019		2018		% Change		% Change at Constant Currency			2020		2019		% Change		% Change at Constant Currency		2020		2019		% Change		% Change at Constant Currency
U.S.	$	413,116	$	412,573	0.1	%	0.1	%	$	1,248,175	$	1,249,041	(0.1	)%	(0.1	)%	U.S.	$	443,668	$	416,859	6.4	%	6.4	%	$	872,598	$	835,059	4.5	%	4.5	%
International	296,796		257,055		15.5		17.6		873,319		752,070		16.1		20.3		International	351,047		288,215		21.8		24.5		686,419		576,523		19.1		21.6
Total revenue	$	709,912	$	669,628	6.0	%	6.8	%	$	2,121,494	$	2,001,111	6.0	%	7.6	%	Total revenue	$	794,715	$	705,074	12.7	%	13.8	%	$	1,559,017	$	1,411,582	10.4	%	11.5	%

For the three-month period ended ~~September~~June 30, ~~2019,~~2020, approximately ~~41.8%~~44.2% of our revenue was derived from our operations located outside the U.S., compared to ~~38.4%~~40.9% for the three-month period ended ~~September~~June 30, ~~2018.~~2019. For the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019,~~2020, approximately ~~41.2%~~44.0% of our revenue was derived from our operations located outside the U.S., compared to ~~37.6%~~40.8% for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2018.~~2019. No single country outside the U.S. accounted for ~~10.0%~~10% or more of revenue during either of these periods. During the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019,~~2020, we continued to see strong revenue growth from our operations in the Asia-Pacific region and steady revenue growth in our EMEA ~~region.~~and Latin America regions. Changes in foreign currency exchange rates impacted our revenue by an unfavorable ~~$5.6~~$7.6 million and ~~$31.2~~$14.3 million during the ~~three- and nine-month~~three-and six-month periods ended ~~September~~June 30, ~~2019,~~2020, respectively, as compared to the same periods in ~~2018.~~2019.

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Cost of Revenue

Cost of revenue consisted of the following for the periods presented (in thousands):


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Bandwidth fees	$	52,076		$	42,193		23.4	%	$	97,856		$	84,666		15.6	%
Co-location fees	37,013			31,421			17.8		72,402			60,913			18.9
Network build-out and supporting services	33,296			23,397			42.3		63,857			46,108			38.5
Payroll and related costs	63,620			61,751			3.0		129,427			122,014			6.1
Stock-based compensation, including amortization of prior capitalized amounts	13,055			12,684			2.9		26,049			25,993			0.2
Depreciation of network equipment	38,806			29,394			32.0		75,203			59,562			26.3
Amortization of internal-use software	38,938			41,353			(5.8)		80,592			83,680			(3.7)
Total cost of revenue	$	276,804		$	242,193		14.3	%	$	545,386		$	482,936		12.9	%
As a percentage of revenue	34.8		%	34.4		%			35.0		%	34.2		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 % Change 2019 2018 % Change
Bandwidth fees $ 38,373
$ 33,827
13.4 % $ 123,039
$ 116,050
6.0 %
Co-location fees 32,042
32,165
(0.4 ) 92,955
97,659
(4.8 )
Network build-out and supporting services 26,369
26,770
(1.5 ) 72,477
66,328
9.3
Payroll and related costs 62,888
60,097
4.6
184,902
179,712
2.9
Stock-based compensation, including amortization of prior capitalized amounts 12,695
11,817
7.4
38,688
33,439
15.7
Depreciation of network equipment 31,840
36,883
(13.7 ) 91,402
112,866
(19.0 )
Amortization of internal-use software 42,731
37,687
13.4
126,411
103,504
22.1
Total cost of revenue $ 246,938
$ 239,246
3.2 % $ 729,874
$ 709,558
2.9 %
As a percentage of revenue 34.8 % 35.7 % 34.4 % 35.5 %

The increase in total cost of revenue for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, was primarily due to investments in our network to support current and anticipated future traffic growth, which resulted in increases to amounts paid for network build-out and supporting services, higher depreciation costs of our network equipment and increases to expenses related to our co-location facilities. Bandwidth fees also increased during this period due to growth in ~~amortization~~the amount of ~~internal-use software as~~traffic served on our network.

During 2020, we ~~continued~~plan to ~~release internally-developed software onto~~continue to focus our ~~network related~~efforts on managing our operating margins, including continuing to ~~new product launches~~manage our bandwidth and ~~significant enhancements to our existing services throughout 2018 and the first nine months of 2019. These increases were partially offset by lower~~co-location costs. We anticipate depreciation ~~expense~~ of network equipment ~~of $6.4 million and $20.3 million for the three- and nine-month periods ended September 30, 2019, respectively,~~to increase in 2020 due to software and hardware initiatives we implemented to manage our global network more efficiently, resulting in an increase in the expected average useful life of our network assets, primarily servers, from four to five years effective January 1, 2019.

We have long-term purchase commitments for co-location services and bandwidth usage with various vendors and network and Internet service providers. Our minimum commitments related to bandwidth usage and co-location services may vary from period to period depending on the timing and length of contract renewals with our service providers. There have been no significant changes to these commitments as reported in our annual report on Form 10-K for the year ended December 31, 2018, other than normal period-to-period variations.

~~During 2019, we anticipate amortization of internal-use software development costs to increase as compared to 2018, along with~~ increased payroll and related costs associated with our professional services personnel and related expenses. However, we do not anticipate that cost of revenue will increase as a percentage of revenue during 2019 as compared to 2018. We plan to continue making investments in our network with the expectation that our customer base will continue to expand and that we will continue to deliver more traffic to existing customers.

Research and Development Expenses

Research and development expenses consisted of the following for the periods presented (in thousands):


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Payroll and related costs	$	98,655		$	94,492		4.4	%	$	201,476		$	189,436		6.4	%
Stock-based compensation	11,549			12,044			(4.1)		23,614			24,101			(2.0)
Capitalized salaries and related costs	(48,957)			(48,109)			1.8		(95,257)			(91,468)			4.1
Other expenses	2,843			3,012			(5.6)		5,481			5,511			(0.5)
Total research and development	$	64,090		$	61,439		4.3	%	$	135,314		$	127,580		6.1	%
As a percentage of revenue	8.1		%	8.7		%			8.7		%	9.0		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 % Change 2019 2018 % Change
Payroll and related costs $ 94,957
$ 90,421
5.0 % $ 284,393
$ 274,798
3.5 %
Stock-based compensation 12,842
11,249
14.2
36,943
32,684
13.0
Capitalized salaries and related costs (45,501 ) (42,790 ) 6.3
(136,969 ) (129,471 ) 5.8
Other expenses 2,589
2,169
19.4
8,100
7,812
3.7
Total research and development $ 64,887
$ 61,049
6.3 % $ 192,467
$ 185,823
3.6 %
As a percentage of revenue 9.1 % 9.1 % 9.1 % 9.3 %

The increase in research and development expenses during the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, was primarily due to ~~an increase~~growth in ~~stock-based compensation~~payroll and related costs ~~associated with higher equity grant award sizes due~~as a result of headcount growth to ~~competition for certain engineering talent.~~support investments in new product development and network scaling.

Research and development costs are expensed as incurred, other than certain internal-use software development costs eligible for capitalization. Capitalized development costs consist of payroll and related costs for personnel and external consulting expenses involved in the development of internal-use software used to deliver our services and operate our network. ~~During the three-month period ended September 30, 2019 and September 30, 2018, we~~We capitalized ~~$8.1 million and $8.0~~$9.4 million of stock-based compensation ~~respectively.~~during each of the three-month periods ended June 30, 2020 and June 30, 2019. During each of the ~~nine-month period~~six-month periods ended ~~September~~June 30, 2020 and June 30, 2019, ~~and September 30, 2018,~~ we capitalized ~~$25.6 million and $23.5~~$17.5 million of stock-based ~~compensation, respectively.~~compensation. These capitalized internal-use software development costs are amortized to cost of revenue over

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their estimated useful lives, which is generally two years, but can be up to seven ~~years.~~years based on the software developed and its expected useful life.

We expect research and development costs to increase in ~~2019~~2020 as we maintain our focus on ~~innovation. However,~~innovation; however, we do not expect these costs to increase as a percentage of revenue.

Sales and Marketing Expenses

Sales and marketing expenses consisted of the following for the periods presented (in thousands):


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Payroll and related costs	$	94,645		$	92,126		2.7	%	$	188,239		$	184,777		1.9	%
Stock-based compensation	16,011			15,740			1.7		31,746			30,790			3.1
Marketing programs and related costs	10,577			17,482			(39.5)		19,714			32,015			(38.4)
Other expenses	2,236			9,758			(77.1)		7,556			13,800			(45.2)

Total sales and marketing	$	123,469		$	135,106		(8.6)	%	$	247,255		$	261,382		(5.4)	%
As a percentage of revenue	15.5		%	19.2		%			15.9		%	18.5		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 % Change 2019 2018 % Change
Payroll and related costs $ 92,799
$ 94,216
(1.5 )% $ 277,576
$ 284,113
(2.3 )%
Stock-based compensation 15,593
16,835
(7.4 ) 46,383
49,543
(6.4 )
Marketing programs and related costs 9,545
9,513
0.3
41,560
31,840
30.5
Other expenses 4,321
4,759
(9.2 ) 18,121
14,060
28.9
Total sales and marketing $ 122,258
$ 125,323
(2.4 )% $ 383,640
$ 379,556
1.1 %
As a percentage of revenue 17.2 % 18.7 % 18.1 % 19.0 %

The decrease in sales and marketing expenses during the three- and six-month periods ended June 30, 2020, as compared to the same periods in 2019, was primarily due to the cancellation or postponement of certain marketing events as a result of restrictions associated with the COVID-19 pandemic. The decrease in sales and marketing expenses during the three-month period ended ~~September~~June 30, ~~2019,~~2020, as compared to the same period in ~~2018,~~2019, was ~~primarily~~also attributed to a decline in other expenses as a result of travel restrictions due to ~~a reduction~~COVID-19, which resulted in ~~headcount.~~decreased expenditures for airfare, lodging and other costs related to in-person customer events and meetings.

~~The increase in~~During 2020, we expect sales and marketing ~~program costs for the nine-month period ended September 30, 2019,~~expenses to decrease, as compared to 2019, as we continue to be impacted by COVID-19, which is limiting in-person marketing events and customer meetings and eliminating the ~~same periods in 2018, was primarily for a customer conference that took place during~~associated expenses. These reductions could moderate to the ~~second quarter of 2019 that did not take place in 2018. In addition, we incurred higher costs~~extent restrictions related to ~~sales and marketing programs designed to drive brand awareness and customer demand for our solutions.~~

~~During 2019, we~~the pandemic are lifted. We also plan to continue to ~~focus~~carefully manage costs in our efforts ~~on expanding~~to refine and optimize our go-to-market efforts and improve operating ~~margins while simultaneously pursuing our goal of improving go-to-market capabilities.~~margins.

General and Administrative Expenses

General and administrative expenses consisted of the following for the periods presented (in thousands):


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Payroll and related costs	$	49,475		$	47,705		3.7	%	$	98,074		$	97,356		0.7	%
Stock-based compensation	15,377			14,565			5.6		29,334			27,193			7.9
Depreciation and amortization	20,654			18,778			10.0		41,119			37,151			10.7
Facilities-related costs	23,898			21,042			13.6		48,570			42,065			15.5
Allowance for doubtful accounts	2,893			915			216.2		5,092			1,715			196.9
Acquisition-related costs	62			524			(88.2)		138			975			(85.8)
License of patent	—			(4,452)			(100.0)		—			(8,855)			(100.0)
Legal settlements	275			—			100.0		275			—			100.0

Professional fees and other expenses	17,075			21,039			(18.8)		34,468			45,351			(24.0)
Total general and administrative	$	129,709		$	120,116		8.0	%	$	257,070		$	242,951		5.8	%
As a percentage of revenue	16.3		%	17.0		%			16.5		%	17.2		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 % Change 2019 2018 % Change
Payroll and related costs $ 47,892
$ 46,866
2.2 % $ 145,248
$ 145,634
(0.3 )%
Stock-based compensation 12,825
13,054
(1.8 ) 40,018
40,245
(0.6 )
Depreciation and amortization 19,269
18,646
3.3
56,420
59,741
(5.6 )
Facilities-related costs 21,413
21,567
(0.7 ) 63,478
63,891
(0.6 )
Provision for doubtful accounts 623
652
(4.4 ) 2,338
1,593
46.8
Acquisition-related costs 219
329
(33.4 ) 1,194
1,972
(39.5 )
License of patent —
(4,310 ) (100.0 ) (8,855 ) (12,791 ) (30.8 )
Legal and stockholder matter costs —
—
—
—
23,091
(100.0 )
Endowment of Akamai Foundation —
—
—
—
50,000
(100.0 )
Professional fees and other expenses 20,975
23,107
(9.2 ) 66,326
71,126
(6.7 )
Total general and administrative $ 123,216
$ 119,911
2.8 % $ 366,167
$ 444,502
(17.6 )%
As a percentage of revenue 17.4 % 17.9 % 17.3 % 22.2 %

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The increase in general and administrative expenses for the ~~three-month period~~three- and six-month periods ended ~~September~~June 30, ~~2019,~~2020, as compared to the same ~~period~~periods in ~~2018,~~2019, was primarily due to expansion of company infrastructure throughout 2019, including moving into our new corporate headquarters in Cambridge, Massachusetts, which increased facilities-related costs and depreciation and amortization. Additionally, the ~~cessation~~three- and six-month periods ended June 30, 2019 included license patent fees received as a result of ~~payments to us under the terms of a settlement between the Company and~~our litigation with Limelight Networks, Inc.~~, or Limelight.~~

that did not recur in 2020. The ~~decrease~~allowance for doubtful accounts has also increased during these periods in 2020 as a result of the estimated impact of COVID-19 on our customers’ ability to pay. These increases in general and administrative expenses ~~for the nine-month period ended September 30, 2019, as compared to the same period~~were partially offset by a decrease in ~~2018, was primarily due to a one-time endowment contribution to the Akamai Foundation, legal and stockholder matter costs related to a settlement charge from our litigation with Limelight, and~~ amounts paid to professional service providers for advisory services provided in connection ~~with a non-routine stockholder matter in the first nine months of 2018 that did not recur in 2019.~~internal transformation programs designed to improve operating margins.

Our general and administrative expenses can be ~~viewed in~~categorized across three areas. Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, as well as third-party professional service fees. Infrastructure expense includes payroll, stock-based compensation and other employee-related costs for our network infrastructure functions, as well as facility rent expense, depreciation and amortization of facility and IT-related assets, software and software-related costs, business insurance and taxes. Our network infrastructure function is responsible for network planning, sourcing, architecture evaluation and platform security. Other expense includes acquisition-related costs, ~~provision~~allowance for doubtful accounts, legal settlements, ~~non-routine stockholder matter costs,~~ transformation costs and the license of a patent.

General and administrative expenses for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 are broken out by category as follows (in thousands):


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
	2020			2019			% Change		2020			2019			% Change
Global functions	$	46,818		$	49,462		(5.3)	%	$	94,684		$	98,930		(4.3)	%

As a percentage of revenue	5.9		%	7.0		%			6.1		%	7.0		%
Infrastructure	79,677			72,332			10.2		156,897			144,659			8.5
As a percentage of revenue	10.0		%	10.3		%			10.1		%	10.2		%
Other	3,214			(1,678)			291.5		5,489			(638)			960.3
Total general and administrative expenses	$	129,709		$	120,116		8.0	%	$	257,070		$	242,951		5.8	%
As a percentage of revenue	16.3		%	17.0		%			16.5		%	17.2		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 % Change 2019 2018 % Change
Global functions $ 47,731
$ 46,680
2.3 % $ 146,661
$ 149,830
(2.1 )%
As a percentage of revenue 6.7 % 7.0 % 6.9 % 7.5 %
Infrastructure 74,643
74,009
0.9
219,302
228,256
(3.9 )
As a percentage of revenue 10.5 % 11.1 % 10.3 % 11.4 %
Other 842
(778 ) 208.2
204
66,416
(99.7 )
Total general and administrative expenses $ 123,216
$ 119,911
2.8 % $ 366,167
$ 444,502
(17.6 )%
As a percentage of revenue 17.4 % 17.9 % 17.3 % 22.2 %

During ~~2019,~~2020, we plan to continue to focus our efforts on ~~expanding~~managing our operating margins and, in particular, ~~evaluating potential improvements in the areas of~~assessing opportunities to reduce third-party spending and increase automation of manual tasks.

Amortization of Acquired Intangible Assets


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
(in thousands)	2020			2019			% Change		2020			2019			% Change
Amortization of acquired intangible assets	$	10,381		$	9,648		7.6	%	$	20,815		$	19,247		8.1	%
As a percentage of revenue	1.3		%	1.4		%			1.3		%	1.4		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
(in thousands) 2019 2018 % Change 2019 2018 % Change
Amortization of acquired intangible assets $ 9,624
$ 8,294
16.0 % $ 28,871
$ 25,019
15.4 %
As a percentage of revenue 1.4 % 1.2 % 1.4 % 1.3 %

The increase in amortization of acquired intangible assets for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, was the result of amortization of assets related to our recent acquisitions. Based on our intangible assets at ~~September~~June 30, ~~2019,~~2020, we expect amortization of acquired intangible assets to be approximately ~~$9.6~~$21.1 million for the remainder of ~~2019,~~2020, and ~~$36.9~~$43.0 million, ~~$31.9~~$37.3 million, ~~$26.2~~$28.9 million and ~~$20.3~~$20.5 million for ~~2020,~~ 2021, 2022, 2023 and ~~2023,~~2024, respectively.

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Restructuring (Benefit) ~~Charges~~Charge


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
(in thousands)	2020			2019			% Change		2020			2019			% Change
Restructuring (benefit) charge	$	(167)		$	790		(121.1)	%	$	10,418		$	7,179		45.1	%
As a percentage of revenue	—		%	0.1		%			0.7		%	0.5		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
(in thousands) 2019 2018 % Change 2019 2018 % Change
Restructuring (benefit) charges $ (300 ) $ (732 ) (59.0 )% $ 6,879
$ 14,442
(52.4 )%
As a percentage of revenue — % (0.1 )% 0.3 % 0.7 %

The restructuring ~~(benefit)~~(benefits) charges for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, 2020 were primarily the result of management actions initiated in the fourth quarter of 2019 to focus on investments having the potential to accelerate revenue growth. The restructuring charges relate to certain headcount reductions and a $6.2 million impairment of a right-of-use asset related to the exit of a leased facility. We do not expect material additional restructuring charges related to these actions.

The restructuring charges for the three- and six-month periods ended June 30, 2019 were primarily the result of certain restructuring actions initiated in the fourth quarter of 2018. Management's ~~goal~~intention in implementing the restructuring was to re-balance investments ~~to improve~~with the goal of improving long-term revenue growth and scale. The restructuring charges primarily consist of costs associated with headcount ~~reductions and benefits recorded are the results of changes in estimates of amounts paid versus originally estimated.~~reductions. We do not expect significant additional restructuring charges related to this action.

The restructuring charges for the three- and nine-month periods ended September 30, 2018 were primarily the result of certain actions initiated in the fourth quarter of 2017. Management committed to an action to restructure certain parts of the business, primarily media-related, with the intent of shifting focus away from products that have not seen expected commercial success and to facilitate other cost efficiencies and savings. As part of these actions, certain headcount and facility reductions were implemented during the first half of 2018. In addition, certain capitalized internal-use software charges were realized for software not yet placed into service that will not be completed and launched due to the restructuring action. No additional restructuring charges related to this action are expected.

Non-Operating Income (Expense)


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
(in thousands)	2020			2019			% Change		2020			2019			% Change
Interest income	$	9,502		$	6,410		48.2	%	$	16,545		$	15,045		10.0	%
As a percentage of revenue	1.2		%	0.9		%			1.1		%	1.1		%
Interest expense	$	(17,249)		$	(8,446)		104.2	%	$	(34,454)		$	(20,562)		67.6	%
As a percentage of revenue	(2.2)		%	(1.2)		%			(2.2)		%	(1.5)		%
Other expense, net	$	(1,603)		$	(578)		177.3	%	$	(5,711)		$	(67)		8,423.9	%
As a percentage of revenue	(0.2)		%	(0.1)		%			(0.4)		%	—		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
(in thousands) 2019 2018 % Change 2019 2018 % Change
Interest income $ 7,908

$ 9,258
(14.6 )% $ 22,953
$ 19,632
16.9 %
As a percentage of revenue 1.1 % 1.4 % 1.1 % 1.0 %
Interest expense $ (12,127 ) $ (14,566 ) (16.7 )% $ (32,689 ) $ (28,620 ) 14.2 %
As a percentage of revenue (1.7 )% (2.2 )%
(1.5 )% (1.4 )%
Other expense, net $ (752 ) $ (459 ) 63.8 % $ (819 ) $ (3,207 ) (74.5 )%
As a percentage of revenue (0.1 )% (0.1 )% — % (0.2 )%

For the periods presented, interest income primarily ~~consists~~consisted of interest earned on invested cash balances and marketable securities. The decrease in interest income for the three-month period ended September 30, 2019, as compared to the same period in 2018, was primarily the result of slightly lower average investment balances during the three-month period ended September 30, 2019, as compared to the same period in 2018. The increase in interest income for the ~~nine-month period~~three- and six-month periods ended ~~September~~June 30, ~~2019,~~2020, as compared to the same ~~period~~periods in ~~2018,~~2019, was primarily the result of higher ~~interest rates during~~cash and marketable securities balances in 2020 as a result of proceeds from the ~~nine-month period ended September 30,~~August 2019 ~~as compared to the same period~~issuance of $1,150.0 million in ~~2018.~~principal amount of convertible senior notes due 2027.

Interest expense is related to our debt transactions, which are described in Note 97 to the consolidated financial statements. The decrease in interest expense for the three-month period ended September 30, 2019, as compared to the same period in 2018, was due to the repayment of the convertible senior notes issued February 2014 in the first quarter of 2019. The increase in interest expense for the ~~nine-month period~~three- and six-month periods ended ~~September~~June 30, 2020, as compared to the same periods in 2019, was due to the ~~May 2018~~August 2019 issuance of $1,150.0 million in ~~par value~~principle amount of convertible senior notes due ~~2025.~~2027.

Other expense, net primarily represents net foreign exchange gains and losses and other non-operating expense and income items. The fluctuation in other expense, net for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019,~~2020, as compared to the same periods in ~~2018, includes the impact of losses and gains recognized~~2019, is primarily due to the ~~sale~~unfavorable impact of ~~certain investments. Other expense, net may fluctuate in the future based on~~ changes in foreign ~~currency~~ exchange ~~rates or other events.~~rates.

~~Benefit (Provision)~~Provision for Income Taxes


	For the Three Months Ended June 30,													For the Six Months Ended June 30,
(in thousands)	2020			2019		% Change		2020			2019			% Change
Provision for income taxes	$	(18,671)		$(19,253)		(3.0)	%	$	(32,963)		$	(43,678)		(24.5)	%
As a percentage of revenue	(2.3)		%	(2.7)	%			(2.1)		%	(3.1)		%
Effective income tax rate	(10.3)		%	(14.5)	%			(10.3)		%	(16.5)		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
(in thousands) 2019 2018 % Change 2019 2018 % Change
Benefit (provision) for income taxes $ 960
$ (3,187 ) (130.1 )% $ (42,718 ) $ (25,658 ) 66.5 %
As a percentage of revenue 0.1 % (0.5 )% (2.0 )% (1.3 )%
Effective income tax rate 0.7 % (2.9 )% (10.6 )% (11.2 )%

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For the ~~three-month period~~three- and six-month periods ended ~~September~~June 30, ~~2019,~~2020, as compared to the same ~~period~~periods in ~~2018,~~2019, our provision for income taxes decreased due to ~~the release of certain tax reserves related to the expiration of local statutes of limitations, which was partially offset by~~ an increase in ~~profitability,~~foreign income taxed at lower rates, an increase in the excess tax benefit related to stock-based compensation, a decrease in intercompany sales of intellectual property and a decrease in the valuation allowance recorded against deferred tax assets related to state tax ~~credits and a decrease in the provisional amount of the one-time transition tax that was recorded in 2017.~~

For the nine-month period ended September 30, 2019, as compared to the same period in 2018, our provision for income taxes increased due to increased profitability, an increase in the valuation allowance recorded against deferred tax assets related to state credits and a decrease in the provisional amount of the one-time transition tax that was recorded in 2017.credits. These amounts were partially offset by an increase in ~~the release of certain tax reserves related to the expiration of local statutes of limitations and an increase in foreign income taxed at lower rates~~profitability.

For the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019, the~~2020, our effective income tax rate was lower than the federal statutory tax rate due to ~~the release of certain tax reserves related to the expiration of local statutes of limitations,~~ foreign income taxed at lower rates, the impact of the excess tax benefit related to stock-based compensation and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by the ~~impact of the~~ valuation allowance recorded against deferred tax assets related to state tax credits, non-deductible ~~executive~~stock-based compensation and state ~~taxes and an intercompany sale of intellectual property.~~taxes.

For the three- and ~~nine-month period~~six-month periods ended ~~September~~June 30, ~~2018, the~~2019, our effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates, the impact of the excess tax benefit related to stock-based compensation ~~a decrease in the provisional amount of the one-time transition tax that was recorded in 2017, the release of certain tax reserves related to the expiration of local statutes of limitations~~ and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by ~~a decrease in U.S. federal~~the valuation allowance recorded against deferred tax assets related to state tax credits, non-deductible executive compensation, state taxes ~~on Global Intangible Low-Taxed Income~~ and an intercompany sale of intellectual property.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was enacted on March 27, 2020. The CARES Act did not have a material impact on the effective tax rate for the period ended June 30, 2020. We will continue to monitor further changes to the global legislative and regulatory developments enacted as a result of COVID-19.

In determining our net deferred tax assets and valuation allowances, annualized effective income tax rates and cash paid for income taxes, management is required to make judgments and estimates about domestic and foreign profitability, the timing and extent of the utilization of net operating loss carryforwards, applicable tax rates, transfer pricing methodologies and tax planning strategies. Judgments and estimates related to our projections and assumptions are inherently uncertain; therefore, actual results could differ materially from our projections.

Loss from Equity Method Investment


	For the Three Months Ended June 30,														For the Six Months Ended June 30,
(in thousands)	2020			2019			% Change		2020			2019			% Change
Loss from equity method investment	$	(493)		$	—		(100.0)	%	$	(1,115)		$	—		(100.0)	%
As a percentage of revenue	(0.1)		%	—		%			(0.1)		%	—		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
(in thousands) 2019 2018 % Change 2019 2018 % Change
Loss from equity method investment $ (1,388 ) $ —
(100.0 )% $ (1,388 ) $ —
(100.0 )%
As a percentage of revenue (0.2 )% — % (0.1 )% — %

During ~~the three months ended September 30,~~ 2019, we ~~started~~began recognizing our share of earnings from our ~~previously announced~~ investment with Mitsubishi UFJ Financial Group ~~or MUFG. Our investment with MUFG established~~in a joint venture, Global Open Network, Inc., or GO-NET. GO-NET intends to ~~offer~~operate a new blockchain-based online payment network. ~~We recorded a loss of $1.4 million dollars which reflects~~For the three- and six-month periods ended June 30, 2020, the losses recognized reflect our share of the losses incurred by GO-NET. We expect to record additional losses ~~for the remainder of 2019~~in 2020 and beyond as GO-NET continues executing on the early stages of its business plan.

Non-GAAP Financial Measures

In addition to providing financial measurements based on generally accepted accounting principles ~~generally accepted~~ in the ~~U.S.,~~United States of America, or GAAP, we ~~publicly discuss~~provide additional financial ~~measures~~metrics that are not prepared in accordance with GAAP, or non-GAAP financial measures. Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational ~~decision-making,~~decision making, for planning and forecasting purposes, to ~~set~~measure executive compensation and to evaluate our financial performance. These non-GAAP financial measures ~~are:~~are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per ~~diluted~~ share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, as discussed below.

Management believes that these non-GAAP financial measures reflect our ongoing business in a manner that ~~facilitates~~allows for meaningful comparisons and analysis of trends in the business, as they ~~assist in the~~facilitate comparison of financial results across accounting periods and to those of our peer companies. Management also believes that these non-GAAP financial measures

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enable investors to evaluate our operating results and future prospects in the same manner as management. These non-GAAP financial measures may ~~also~~ exclude expenses and gains that may be unusual in nature, infrequent or not reflective of our ongoing operating results.

The non-GAAP financial measures do not replace the presentation of our GAAP financial measures and should only be used as a supplement to, not as a substitute for, our financial results presented in accordance with GAAP.

The non-GAAP adjustments, and our basis for excluding them from non-GAAP financial measures, are outlined below:

•

~~Amortization of acquired intangible assets~~ – We have incurred amortization of intangible assets, included in our GAAP financial statements, related to various acquisitions we have made. The amount of an acquisition's purchase price allocated to intangible assets and term of its related amortization can vary significantly and are unique to each acquisition; therefore, we exclude amortization of acquired intangible assets from our non-GAAP financial measures to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.

•

~~Stock-based compensation and amortization of capitalized stock-based compensation~~ – Although stock-based compensation is an important aspect of the compensation paid to our employees, the grant date fair value varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of our current financial results to previous and future periods difficult to evaluate; therefore, we believe it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation from our non-GAAP financial measures in order to highlight the performance of our core business and to be consistent with the way many investors evaluate our performance and compare our operating results to peer companies.

•

~~Acquisition-related costs~~ – Acquisition-related costs include transaction fees, advisory fees, due diligence costs and other direct costs associated with strategic activities. In addition, subsequent adjustments to our initial estimated amounts of contingent consideration and indemnification associated with specific acquisitions are included within acquisition-related costs. These amounts are impacted by the timing and size of the acquisitions. We exclude acquisition-related costs from our non-GAAP financial measures to provide a useful comparison of our operating results to prior periods and to our peer companies because such amounts vary significantly based on the magnitude of our acquisition transactions and do not reflect our core operations.

•

~~Restructuring charges~~ – We have incurred restructuring charges that are included in our GAAP financial statements, primarily related to workforce reductions and estimated costs of exiting facility lease commitments. We exclude these items from our non-GAAP financial measures when evaluating our continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or historical operations of our business.

•

~~Amortization of debt discount and issuance costs and amortization of capitalized interest expense~~ •Amortization of acquired intangible assets – We have incurred amortization of intangible assets, included in our GAAP financial statements, related to various acquisitions we have made. The amount of an acquisition's purchase price allocated to intangible assets and term of its related amortization can vary significantly and is unique to each acquisition; therefore, we exclude amortization of acquired intangible assets from our non-GAAP financial measures to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.– In August 2019, we issued $1,150 million of convertible senior notes due 2027 with a coupon interest rate of 0.375%. In May 2018, we issued $1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. In February 2014, we issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rates of these convertible senior notes were 3.10%, 4.26% and 3.20%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying values of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded from our non-GAAP results is comprised of these non-cash components and is excluded from management's assessment of our operating performance because management believes the non-cash expense is not representative of ongoing operating performance.


•	~~Gains and losses on investments~~ – We have recorded gains and losses from the disposition, changes to fair value and impairment of certain investments. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operating performance.


•	~~Legal and stockholder matter costs~~ – We have incurred losses related to the settlement of legal matters and costs from professional service providers related to a non-routine stockholder matter. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations.


•	~~Endowment of Akamai Foundation~~ – During the second quarter of 2018, we incurred a charge to endow the Akamai Foundation. We believe excluding these amounts from non-GAAP financial measures is useful to investors as this one-time event is not representative of our core business operations.

•

~~Transformation costs~~ – We have incurred professional services fees associated with internal transformation programs designed to improve operating margins and that are part of a planned program intended to significantly change the manner in which business is conducted. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events and activities giving rise to them occur infrequently and are not representative of our core business operations and ongoing operating performance.


•	~~Income and losses from equity method investment~~ – We record income or losses on our share of earnings and losses of our equity method investment. We exclude such income and losses because we lack control over the operations of the investment and the related income and losses are not representative of our core business operations.

•

~~Income tax effect of non-GAAP adjustments and certain discrete tax items~~ – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or releasing of valuation allowances), if any. We believe that applying the non-GAAP adjustments and their related income tax effect allows us to highlight income attributable to our core operations.

•Stock-based compensation and amortization of capitalized stock-based compensation – Although stock-based compensation is an important aspect of the compensation paid to our employees, the grant date fair value varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of our current financial results to previous and future periods difficult to interpret; therefore, we believe it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation from our non-GAAP financial measures in order to highlight the performance of our core business and to be consistent with the way many investors evaluate our performance and compare our operating results to peer companies.

•Acquisition-related costs – Acquisition-related costs include transaction fees, advisory fees, due diligence costs and other direct costs associated with strategic activities. In addition, subsequent adjustments to our initial estimated amounts of contingent consideration and indemnification associated with specific acquisitions are included within acquisition-related costs. These amounts are impacted by the timing and size of the acquisitions. We exclude acquisition-related costs from our non-GAAP financial measures to provide a useful comparison of our operating results to prior periods and to our peer companies because such amounts vary significantly based on the magnitude of our acquisition transactions and do not reflect our core operations.

•Restructuring charges – We have incurred restructuring charges that are included in our GAAP financial statements, primarily related to workforce reductions and charges associated with exiting facility lease commitments. We exclude these items from our non-GAAP financial measures when evaluating our continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of our business.

•Amortization of debt discount and issuance costs and amortization of capitalized interest expense – In August 2019, we issued $1,150 million of convertible senior notes due 2027 with a coupon interest rate of 0.375%. In May 2018, we issued $1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. In February 2014, we issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rates of these convertible senior notes were 3.10%, 4.26% and 3.20%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying values of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded from our non-GAAP results is comprised of these non-cash components and is excluded from management's assessment of our operating performance because management believes the non-cash expense is not representative of ongoing operating performance.

•Gains and losses on investments – We have recorded gains and losses from the disposition, changes to fair value and impairment of certain investments. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operating performance.

•Legal settlements – We have incurred losses related to the settlement of legal matters. We believe excluding

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these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations.

•Transformation costs – We have incurred professional services fees associated with internal transformation programs designed to improve operating margins and that are part of a planned program intended to significantly change the manner in which business is conducted. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events and activities giving rise to them occur infrequently and are not representative of our core business operations and ongoing operating performance.

•Income and losses from equity method investment – We record income or losses on our share of earnings and losses of our equity method investment. We exclude such income and losses because we lack control over the operations of the investment and the related income and losses are not representative of our core business operations.

•Income tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or releasing of valuation allowances), if any. We believe that applying the non-GAAP adjustments and their related income tax effect allows us to highlight income attributable to our core operations.

The following table reconciles GAAP income from operations to non-GAAP income from operations and non-GAAP operating margin for the periods presented (in thousands):


	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2020			2019			2020			2019
Income from operations	$	190,429		$	135,782		$	342,759		$	270,307
Amortization of acquired intangible assets	10,381			9,648			20,815			19,247
Stock-based compensation	49,191			48,142			96,684			93,447
Amortization of capitalized stock-based compensation and capitalized interest expense	8,038			8,050			16,627			17,283
Restructuring (benefit) charge	(167)			790			10,418			7,179
Acquisition-related costs	62			524			138			975
Legal settlements	275			—			275			—

Transformation costs	—			1,336			—			5,527
Non-GAAP income from operations	$	258,209		$	204,272		$	487,716		$	413,965

GAAP operating margin	24		%	19		%	22		%	19		%
Non-GAAP operating margin	32		%	29		%	31		%	29		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
Income from operations $ 143,289
$ 116,537
$ 413,596
$ 242,211
Amortization of acquired intangible assets 9,624
8,294
28,871
25,019
Stock-based compensation 46,815
46,632
140,262
138,815
Amortization of capitalized stock-based compensation and capitalized interest expense 8,455
7,575
25,738
20,435
Restructuring (benefit) charges (300 ) (732 ) 6,879
14,442
Acquisition-related costs 219
329
1,194
1,972
Legal and stockholder matter costs —
—
—
23,091
Endowment of Akamai Foundation —
—
—
50,000
Transformation costs —
2,552
5,527
2,552
Non-GAAP income from operations $ 208,102
$ 181,187
$ 622,067
$ 518,537

GAAP operating margin 20 % 17 % 19 % 12 %
Non-GAAP operating margin 29 % 27 % 29 % 26 %

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The following table reconciles GAAP net income to non-GAAP net income for the periods presented (in thousands):


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	161,915	$	113,915	$	285,061	$	221,045
Amortization of acquired intangible assets	10,381		9,648		20,815		19,247
Stock-based compensation	49,191		48,142		96,684		93,447
Amortization of capitalized stock-based compensation and capitalized interest expense	8,038		8,050		16,627		17,283
Restructuring (benefit) charge	(167)		790		10,418		7,179
Acquisition-related costs	62		524		138		975
Legal settlements	275		—		275		—

Transformation costs	—		1,336		—		5,527
Amortization of debt discount and issuance costs	15,677		8,010		31,310		19,628
Loss (gain) on investments	—		250		—		(440)
Loss from equity method investment	493		—		1,115		—
Income tax effect of above non-GAAP adjustments and certain discrete tax items	(19,347)		(14,454)		(39,792)		(26,758)
Non-GAAP net income	$	226,518	$	176,211	$	422,651	$	357,133

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
Net income $ 137,890
$ 107,583
$ 358,935
$ 204,358
Amortization of acquired intangible assets 9,624
8,294
28,871
25,019
Stock-based compensation 46,815
46,632
140,262
138,815
Amortization of capitalized stock-based compensation and capitalized interest expense 8,455
7,575
25,738
20,435
Restructuring (benefit) charges (300 ) (732 ) 6,879
14,442
Acquisition-related costs 219
329
1,194
1,972
Legal and stockholder matter costs —
—
—
23,091
Endowment of Akamai Foundation —
—
—
50,000
Transformation costs —
2,552
5,527
2,552
Amortization of debt discount and issuance costs 11,133
14,085
30,761
27,844
(Gain) loss on investments —
(519 ) (440 ) 1,481
Loss from equity method investment 1,388
—
1,388
—
Income tax effect of above non-GAAP adjustments and certain discrete tax items (34,631 ) (27,958 ) (61,389 ) (73,432 )
Non-GAAP net income $ 180,593
$ 157,841
$ 537,726
$ 436,577

The following table reconciles GAAP net income per diluted share to non-GAAP net income per diluted share for the periods presented (in thousands, except per share data):


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020			2019
GAAP net income per diluted share	$	0.98	$	0.69	$	1.74		$	1.34
Amortization of acquired intangible assets	0.06		0.06		0.13			0.12
Stock-based compensation	0.30		0.29		0.59			0.57
Amortization of capitalized stock-based compensation and capitalized interest expense	0.05		0.05		0.10			0.10
Restructuring (benefit) charge	—		—		0.06			0.04
Acquisition-related costs	—		—		—			0.01
Legal settlements	—		—		—			—

Transformation costs	—		0.01		—			0.03
Amortization of debt discount and issuance costs	0.10		0.05		0.19			0.12
Loss (gain) on investments	—		—		—			—
Loss from equity method investment	—		—		0.01			—
Income tax effect of above non-GAAP adjustments and certain discrete tax items	(0.12)		(0.09)		(0.24)			(0.16)
Adjustment for shares⁽¹⁾	0.01		—		0.01			—
Non-GAAP net income per diluted share⁽²⁾	$	1.38	$	1.07	$	2.58		$	2.17

Shares used in GAAP diluted per share calculations	164,768		165,019		164,226			164,903
Impact of benefit from note hedge transactions⁽¹⁾	(653)		—		(326)			—
Shares used in non-GAAP diluted per share calculations⁽¹⁾	164,115		165,019		163,900			164,903

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
GAAP net income per diluted share $ 0.84
$ 0.64
$ 2.18
$ 1.20
Amortization of acquired intangible assets 0.06
0.05
0.18
0.15
Stock-based compensation 0.28
0.28
0.85
0.81
Amortization of capitalized stock-based compensation and capitalized interest expense 0.05
0.05
0.16
0.12
Restructuring (benefit) charges —
—
0.04
0.08
Acquisition-related costs —
—
0.01
0.01
Legal and stockholder matter costs —
—
—
0.14
Endowment of Akamai Foundation —
—
—
0.29
Transformation costs —
0.02
0.03
0.01
Amortization of debt discount and issuance costs 0.07
0.08
0.19
0.16
(Gain) loss on investments —
—
—
0.01
Loss from equity method investment 0.01
—
0.01
—
Income tax effect of above non-GAAP adjustments and certain discrete tax items (0.21 ) (0.17 ) (0.37 ) (0.43 )
Non-GAAP net income per diluted share⁽¹⁾
$ 1.10
$ 0.94
$ 3.26
$ 2.56

Shares used in diluted per share calculations 164,558
167,900
164,788
170,732

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(1) ~~May~~Shares used in non-GAAP diluted per calculations have been adjusted for the three and six months ended June 30, 2020, for the benefit of our note hedge transactions. During the three months ended June 30, 2020, our average stock price was in excess of $95.10, which is the initial conversion price of our convertible senior notes due in 2025. See further discussion below.

(2) Amounts may not foot due to rounding

Non-GAAP net income per diluted share is calculated as non-GAAP net income divided by diluted weighted average common shares outstanding. GAAP diluted weighted average common shares outstanding are adjusted in non-GAAP per share calculations for the shares that would be delivered to us pursuant to the note hedge transactions entered into in connection with the issuance of our convertible senior notes. Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered. However, we would receive a benefit from the note hedge transactions and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a meaningful view of net income per share. Unless ~~and until~~ our weighted average stock price is greater than $95.10, the initial conversion price of the convertible senior notes due 2025, or $116.18, the initial conversion price of the convertible senior notes due 2027, there will be no difference between our GAAP and non-GAAP diluted weighted average common shares outstanding.

We consider Adjusted EBITDA to be another important indicator of the operational strength and performance of our business and a good measure of our historical operating trends. Adjusted EBITDA eliminates items that we do not consider to be part of our core operations. We define Adjusted EBITDA as GAAP net income excluding the following items: interest income; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; ~~gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the endowment of the Akamai Foundation;~~ transformation costs; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; gains and losses from equity method investments; and other non-recurring or unusual items that may arise from time to time. Adjusted EBITDA margin represents Adjusted EBITDA stated as a percentage of revenue.

The following table reconciles GAAP net income to Adjusted EBITDA and Adjusted EBITDA margin for the periods presented (in thousands):


	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2020			2019			2020			2019
Net income	$	161,915		$	113,915		$	285,061		$	221,045
Interest income	(9,502)			(6,410)			(16,545)			(15,045)
Provision for income taxes	18,671			19,253			32,963			43,678
Depreciation and amortization	97,163			88,367			194,348			177,740
Amortization of capitalized stock-based compensation and capitalized interest expense	8,038			8,050			16,627			17,283
Amortization of acquired intangible assets	10,381			9,648			20,815			19,247
Stock-based compensation	49,191			48,142			96,684			93,447
Restructuring (benefit) charge	(167)			790			10,418			7,179
Acquisition-related costs	62			524			138			975
Legal settlements	275			—			275			—

Transformation costs	—			1,336			—			5,527
Interest expense	17,249			8,446			34,454			20,562
Loss (gain) on investments	—			250			—			(440)
Loss from equity method investment	493			—			1,115			—
Other expense, net	1,603			328			5,711			507
Adjusted EBITDA	$	355,372		$	292,639		$	682,064		$	591,705

Adjusted EBITDA margin	45		%	42		%	44		%	42		%

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2019 2018 2019 2018
Net income $ 137,890
$ 107,583
$ 358,935
$ 204,358
Interest income (7,908 ) (9,258 ) (22,953 ) (19,632 )
(Benefit) provision for income taxes (960 ) 3,187
42,718
25,658
Depreciation and amortization 92,525
91,964
270,265
272,772
Amortization of capitalized stock-based compensation and capitalized interest expense 8,455
7,575
25,738
20,435
Amortization of acquired intangible assets 9,624
8,294
28,871
25,019
Stock-based compensation 46,815
46,632
140,262
138,815
Restructuring (benefit) provision (300 ) (732 ) 6,879
14,442
Acquisition-related costs 219
329
1,194
1,972
Legal and stockholder matter costs —
—
—
23,091
Endowment of Akamai Foundation —
—
—
50,000
Transformation costs —
2,552
5,527
2,552
Interest expense 12,127
14,566
32,689
28,620
(Gain) loss on investments —
(519 ) (440 ) 1,481
Loss from equity method investment 1,388
—
1,388
—
Other expense, net 752
978
1,259
1,726
Adjusted EBITDA $ 300,627
$ 273,151
$ 892,332
$ 791,309

Adjusted EBITDA margin 42 % 41 % 42 % 40 %

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Impact of Foreign Currency Exchange Rates

Revenue and earnings from our international operations have historically been an important ~~contributor~~contributors to our financial results. Consequently, our financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, when the local currencies of our foreign subsidiaries weaken, generally our consolidated results stated in U.S. dollars are negatively impacted.

Because exchange rates are a meaningful factor in understanding period-to-period comparisons, management believes the presentation of the impact of foreign currency exchange rates on revenue and earnings enhances the understanding of our financial results and evaluation of performance in comparison to prior periods. The dollar impact of changes in foreign currency exchange rates presented is calculated by translating current period results using monthly average foreign currency exchange rates from the comparative period and comparing them to the reported amount. The percentage change at constant currency presented is calculated by comparing the prior period amounts as reported and the current period amounts translated using the same monthly average foreign currency exchange rates from the comparative period.

Liquidity and Capital Resources

To date, we have financed our operations primarily through public and private sales of debt and equity securities and cash generated by operations. As of ~~September~~June 30, ~~2019,~~2020, our cash, cash equivalents and marketable securities, which primarily consisted of corporate bonds, totaled ~~$2.3~~$2.4 billion. Factoring in the $2.3 billion in principal amount of convertible senior notes we have outstanding, our net cash at ~~September~~June 30, ~~2019~~2020 was ~~$4.3~~$91.4 million. We place our cash investments in instruments that meet high-quality credit standards, as specified in our investment policy. Our investment policy is also designed to limit the amount of our credit exposure to any one issue or issuer and seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity at all times.

Changes in cash, cash equivalents and marketable securities are dependent upon changes in, among other things, working capital items such as accounts receivable, deferred revenues, accounts payable and various accrued expenses, as well as changes in our capital and financial structure due to common stock repurchases, debt ~~repurchases~~repayments and issuances, purchases and sales of marketable securities and similar events. We do not expect events related to the outbreak of COVID-19 to have a material impact to our liquidity in the near term; however, some of our customers may be unable to pay us for our services or may be unable to remit payments in a timely manner due to financial stresses the outbreak may have caused them. We believe that, particularly in situations like these, our strong balance sheet and cash position are important competitive differentiators that provide the financial stability and flexibility ~~necessary~~to enable us to continue to make investments at opportune times. ~~We expect to continue to evaluate strategic investments to strengthen our business.~~

As of ~~September~~June 30, ~~2019,~~2020, we had cash and cash equivalents of ~~$495.4~~$361.9 million held in accounts outside the U.S. The U.S. Tax Cuts and Jobs Act ~~provides for~~establishes a territorial tax system in the U.S., which provides companies with the potential ability to repatriate earnings with minimal U.S. federal income tax ~~impact beginning in 2018.~~impact. As a result, our liquidity is not materially impacted by the amount of cash and cash equivalents held in accounts outside the U.S.

Cash Provided by Operating Activities


	For the Six Months Ended June 30,
(in thousands)	2020		2019
Net income	$	285,061	$	221,045
Non-cash reconciling items included in net income	385,980		353,133
Changes in operating assets and liabilities	(149,107)		(95,399)
Net cash provided by operating activities	$	521,934	$	478,779

For the Nine Months
Ended September 30,
(in thousands) 2019 2018
Net income $ 358,935
$ 204,358
Non-cash reconciling items included in net income 524,256
509,969
Changes in operating assets and liabilities (107,027 ) 7,845
Net cash provided by operating activities $ 776,164
$ 722,172

The increase in cash provided by operating activities for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019,~~2020, as compared to the same period in ~~2018,~~2019, was primarily due to ~~higher~~increased profitability and lower cash paid for taxes in ~~the first nine months of 2019 as compared to the same period in 2018, which was impacted by a $50 million one-time contribution to the Akamai Foundation in 2018.~~2020. The increase ~~in cash provided by operating activities~~ was partially offset by ~~higher annual bonus payouts in~~ the ~~first nine months of 2019 due to higher attainment, an increase in cash paid for income taxes and~~ timing of ~~collections and~~ payments from customers.

Table of ~~other working capital items.~~Contents

Cash Used in Investing Activities


	For the Six Months Ended June 30,
(in thousands)	2020		2019
Cash received (paid) for business acquisition, net of cash acquired	$	106	$	(121,409)
Cash paid for asset acquisition	(36,376)		—
Cash paid for equity method investment	—		(36,008)
Purchases of property and equipment and capitalization of internal-use software development costs	(335,668)		(275,778)
Net marketable securities activity	171,484		257,772
Other investing activity	79		2,237
Net cash used in investing activities	$	(200,375)	$	(173,186)

For the Nine Months
Ended September 30,
(in thousands) 2019 2018
Cash paid for acquired businesses, net of cash acquired $ (121,409 ) $ (79 )
Purchases of property and equipment and capitalization of internal-use software development costs (428,411 ) (288,407 )
Net marketable securities activity (494,237 ) (387,070 )
Other investing activity (34,113 ) (2,678 )
Net cash used in investing activities $ (1,078,170 ) $ (678,234 )

The increase in cash used in investing activities during the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019,~~2020, as compared to the same period in ~~2018,~~2019, was driven by ~~an increase in purchases of marketable securities with the proceeds from our August 2019 issuance of convertible senior notes; in addition to cash paid for the acquisition of Janrain and purchases~~increased investments of property and equipment ~~related~~to support our network growth due to continued expansion of our customer base while continuing to deliver more traffic to our ~~real estate and network infrastructure.~~existing customers. The increase ~~in cash used in investing activities~~ was partially offset by ~~the maturities of~~higher net proceeds from our marketable securities ~~during the nine-month period ended September 30,~~in 2019, ~~which coincided with the repayment of our February 2014 convertible senior notes.~~

~~Cash (Used in) Provided by Financing Activities~~

For the Nine Months
Ended September 30,
(in thousands) 2019 2018
Activity related to convertible senior notes $ 318,554
$ 990,390
Activity related to stock-based compensation (17,912 ) 352
Repurchases of common stock (291,788 ) (625,925 )
Other financing activities (1,558 ) (5,085 )
Net cash provided by financing activities $ 7,296
$ 359,732

~~In each~~since we did not reinvest some of the ~~nine-month periods ended September 30, 2019 and 2018, we issued $1,150.0~~proceeds from maturities in order to repay our $690 million ~~in par value of~~ convertible senior notes, which were repaid on February 15, 2019. The increase was also partially offset by cash paid for business acquisitions in 2019 for our acquisition of Janrain, Inc.

Cash Used in Financing Activities


	For the Six Months Ended June 30,
(in thousands)	2020		2019
Activity related to convertible senior notes	$	—	$	(690,000)
Activity related to stock-based compensation	(34,125)		(21,184)
Repurchases of common stock	(107,880)		(116,247)
Other financing activities	—		(1,558)
Net cash used in financing activities	$	(142,005)	$	(828,989)

Cash used in financing activities decreased during the six-month period ended June 30, 2020, as ~~discussed more fully in Note 9~~compared to the ~~consolidated financial statements included elsewhere~~same period in ~~this quarterly report on Form 10-Q. However, during~~2019, due to the ~~nine-month period ended September 30, we repaid~~repayment of $690 million in convertible senior notes ~~which~~that were due in February 2019. ~~The decrease in cash provided by financing activities in 2019, as compared to 2018, was also partially offset by a decrease in repurchases of common stock.~~

Effective November 2018, ~~the~~our Board of Directors authorized a $1.1 billion share repurchase program through December 2021. Our goals for the share repurchase ~~programs~~program are to offset the dilution created by our employee equity compensation programs and provide the flexibility to return capital to shareholders as business and market conditions warrant.

During the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2019,~~2020, we repurchased ~~3.6~~1.1 million shares of common stock at a weighted average price of ~~$82.14~~$94.39 per share for an aggregate of ~~$291.8~~$107.9 million. As of ~~September~~June 30, ~~2019, $808.2~~2020, $657.6 million remains available for future share repurchases. The timing and amount of any future share repurchases will be determined by our management based on its evaluation of market conditions and other factors.

Convertible Senior Notes

In August 2019, we issued $1,150.0 million in ~~par value~~principal amount of convertible senior notes due 2027 and entered into related convertible note hedge and warrant transactions. ~~The terms of the notes and hedge transaction are discussed more fully in Note 9 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.~~ We intend to use the net proceeds of the offering for share repurchases, working capital and general corporate purposes, including potential acquisitions and other strategic transactions.

In May 2018, we issued $1,150.0 million in ~~par value~~principal amount of convertible senior notes due 2025 and entered into related convertible note hedge and warrant transactions. ~~The terms of the notes, hedge and warrant transactions are discussed more fully in Note 9 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.~~ We used a portion of the net proceeds to repay at maturity all of our $690.0 million outstanding aggregate ~~principle~~principal amount of convertible senior notes due in 2019.

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In February 2014, we issued $690.0 million in ~~par value~~principal amount of convertible senior notes due 2019 and entered into related convertible note hedge and warrant transactions. We repaid the full principal amount due in cash in February 2019, as the notes matured and no conversions occurred.

The terms of the notes and hedge transactions are discussed more fully in Note 7 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Revolving Credit Facility

In May 2018, we entered into a $500.0 million, five-year revolving credit agreement, or the Credit Agreement. Borrowings under the facility may be used to finance working capital needs and for general corporate purposes. The facility provides for an initial $500.0 million in revolving loans. Under specified circumstances, the facility can be increased to up to $1.0 billion in aggregate principal amount.

Borrowings under the Credit Agreement bear interest, at our option, at a base rate plus a spread of 0.00% to 0.25% or an adjusted LIBOR rate plus a spread of 0.875% to 1.25%, in each case with such spread being determined based on our consolidated leverage ratio specified in the Credit Agreement. Regardless of what amounts, if any, are outstanding under the Credit Agreement, we are also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.075% to 0.15%, with such rate being based on our consolidated leverage ratio specified in the Credit Agreement.

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants, and events of default. Principal covenants include a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. There were no outstanding borrowings under the Credit Agreement as of ~~September~~June 30, ~~2019.~~2020.

Liquidity Outlook

Based on our present business plan, we expect our current cash, cash equivalents and marketable securities balances and our forecasted cash flows from operations to be sufficient to meet our foreseeable cash needs for at least the next 12 months. Our foreseeable cash needs, in addition to our recurring operating costs, include our expected capital expenditures, investments in information technology, ~~and facility expansion, consummation of pending business acquisitions,~~ opportunistic business acquisitions, anticipated share repurchases, lease and purchase commitments and settlements of other long-term liabilities. ~~Additionally, in the fourth quarter of 2019, we will be adding a significant right-of-use asset and associated liability related to our new headquarters.~~

Contractual Obligations

Our principal commitments consist of service agreements with various vendors for bandwidth usage, obligations under leases with co-location facilities for data center capacity, ~~and bandwidth usage,~~ obligations under leases for office space and open vendor purchase orders. Our minimum commitments related to bandwidth usage and co-location ~~services~~leases may vary from period to period depending on the timing and length of contract renewals with our ~~service providers. With the exception~~vendors. As of ~~the issuance of the $1,150.0 million of convertible senior notes issued in August 2019, as of September~~June 30, ~~2019,~~2020, there have been no significant changes in our future non-cancelable minimum payments under these commitments from those reported in our annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, other than normal period-to-period variations.

Off-Balance Sheet Arrangements

We have entered into indemnification agreements with third parties, including vendors, customers, landlords, our officers and directors, shareholders of acquired companies, joint venture partners and third parties to which we license technology. Generally, these indemnification agreements require us to reimburse losses suffered by a third party due to various events, such as lawsuits arising from patent or copyright infringement or our negligence. These indemnification obligations are considered off-balance sheet arrangements in accordance with the authoritative guidance for guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others. See also Note 1213 to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, ~~2018~~2019 for further discussion of these indemnification agreements. The fair value of guarantees issued or modified during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was determined to be immaterial.

As of ~~September~~June 30, ~~2019,~~2020, we did not have any additional material off-balance sheet arrangements.

~~Critical~~

Significant Accounting Policies and Estimates

See Note 1 ~~and Note 2~~ to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for information regarding recent and newly adopted accounting ~~pronouncements, including our adoption of the new standard for lease accounting.~~pronouncements. See also Note 2 to ~~the~~our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019. There have been no material changes to our ~~critical~~significant accounting policies and estimates from those reported in our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our portfolio of cash equivalents and short- and long-term investments is maintained in a variety of securities, including U.S. government agency obligations, high-quality corporate debt securities, commercial paper, mutual funds and money market funds. The majority of our investments are classified as available-for-sale securities and carried at fair market value with cumulative unrealized gains or losses recorded as a component of accumulated other comprehensive loss within stockholders' equity. A sharp rise in interest rates could have an adverse impact on the fair market value of certain securities in our portfolio. We do not currently hedge our interest rate exposure and do not enter into financial instruments for trading or speculative purposes.

Foreign Currency Risk

Growth in our international operations will incrementally increase our exposure to foreign currency fluctuations as well as other risks typical of international operations that could impact our business, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures and other regulations and restrictions.

Transaction Exposure

Foreign exchange rate fluctuations may adversely impact our consolidated results of operations as exchange rate fluctuations on transactions denominated in currencies other than our functional currencies result in gains and losses that are reflected in our consolidated statements of income. We enter into short-term foreign currency forward contracts to offset foreign exchange gains and losses generated by the re-measurement of certain assets and liabilities recorded in non-functional currencies. Changes in the fair value of these derivatives, as well as re-measurement gains and losses, are recognized in our consolidated statements of income within other income, net. Foreign currency transaction gains and losses from these forward contracts were determined to be immaterial during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. We do not enter into derivative financial instruments for trading or speculative purposes.

Translation Exposure

To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency-denominated transactions will result in increased revenue and operating expenses. Conversely, our revenue and operating expenses will decrease when the U.S. dollar strengthens against foreign currencies.

Foreign exchange rate fluctuations may also adversely impact our consolidated financial condition as the assets and liabilities of our foreign operations are translated into U.S. dollars in preparing our consolidated balance sheet. These gains or losses are recorded as a component of accumulated other comprehensive loss within stockholders' equity.

Credit Risk

Concentrations of credit risk with respect to accounts receivable are limited to certain customers to which we make substantial sales. Our customer base consists of a large number of geographically dispersed customers diversified across numerous industries. We believe that our accounts receivable credit risk exposure is limited. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, no customer had an accounts receivable balance greater than 10% of our accounts receivable. We believe that at ~~September~~June 30, ~~2019,~~2020, the concentration of credit risk related to accounts receivable was insignificant.

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Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2019.~~2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~September~~June 30, ~~2019,~~2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended ~~September~~June 30, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

We are party to litigation that we consider routine and incidental to our business. We do not currently expect the results of any of these litigation matters to have a material effect on our business, results of operations, financial condition or cash flows.

Item 1A. Risk Factors

The following are important factors that could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this quarterly report on Form 10-Q or presented elsewhere by management from time to time. We have ~~not made any material changes to~~updated the following risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019 to reflect the actual and potential impact of the novel coronavirus outbreak or similar events on our business: We may face slowing revenue growth which could negatively impact our profitability and stock price; If we are unable to continue to increase the amount of traffic we deliver over our network, it will be difficult to maintain or improve our current level of profitability without impacting our operations; Our business strategy depends on the ability to source adequate transmission capacity and the servers we need to operate our network; failure to have access to those resources could lead to loss of revenue and service disruptions; If we do not continue to develop new solutions that are attractive to enterprises, our revenues and operating results could be adversely affected; Cybersecurity breaches and attacks on us, as well as steps we need to take to prevent them, could lead to significant costs and disruptions that harm our business, financial results and reputation; We face risks associated with global operations that could harm our business; Defects or disruptions in our products and IT systems could require us to increase spending on upgrading systems, diminish demand for our solutions or subject us to substantial liability; Our failure to effectively manage our operations as our business evolves could harm us; If we are unable to retain our key employees and hire and retain qualified sales, technical, marketing and support personnel, our ability to compete could be harmed; Our stock price has been, and may continue to be, volatile, and your investment could lose value; We may have exposure to greater-than-anticipated tax liabilities; and Provisions of our charter, by-laws and Delaware law may have anti-takeover effects that could prevent a change in control even if the change in control would be beneficial to our stockholders.

We may face slowing revenue growth which could negatively impact our profitability and stock price.

~~In future periods, our revenue growth may not continue. In particular, our percentage~~The revenue growth rate we have enjoyed in recent years may not continue in future periods ~~may be lower than in recent years.~~and could decline. Our revenue depends on ~~the~~ continued growth ofin demand for our solutions and our ability to maintain the prices we charge for ~~our solutions.~~them. Our traditional offerings, particularly our Media and Web Performance solutions, are subject to increasing pricing pressure in certain verticals and geographies due to competition and business conditions affecting many of our customers. This has increased the difficulty of accelerating revenue growth. We have seen a significant increase in revenue from our media solutions so far this year; that rate of increase may be difficult to replicate in future periods if the increased media usage related

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to the COVID-19 pandemic and associated stay-at-home orders across the globe stabilizes or the amount of traffic on our network otherwise does not grow at rates similar to those ~~customers. Inability~~we enjoyed in the first half of this year. Our ability to ~~maintain prices negatively impacts~~increase our ~~profitability. Our~~ revenue ~~results may also fluctuate for~~depends on many other ~~reasons~~factors including ~~the following:~~how well we can:

•increase traffic on our ~~ability to~~ network;

•retain ~~and increase sales of additional solutions to~~ existing customers and sell new and additional products to them;

•attract new customers;

•develop and sell new solutions that are attractive to our current and potential customers and ~~satisfy our customers’ demands;~~not easily replicable by competitors;

•address potential commoditization of our delivery-based solutions, which ~~would~~can lead to lower prices and loss of customers to competitors;

~~our ability to develop and sell new solutions that are not easily replicable by competitors;~~

~~the impact of~~•counteract multi-vendor policies designed to reduce reliance on any particular provider, such as us;

•adapt to changes in our customer contracting models from a committed revenue structure to a "pay-as-you-go" approach, which would make it easier for customers to stop doing business with ~~us;~~us, or from traditional overage billing models to ones that do not incorporate surcharges for usage above committed levels;

•anticipate and react to changes in usage or adoption rates of the Internet, e-commerce and electronic devices;

•handle the impact of competition across our business;

•cope with any inability of our customers, particularly commerce, travel and media companies, to continue their operations and spending levels; and

•manage the impact of changes in general economic ~~conditions.~~conditions, public health issues, natural disasters and public unrest.

Many of our customers are facing significant disruptions to their business as a result of the international public health emergency associated with the COVID-19 outbreak. Many sporting events that were to be broadcast over the Internet have been canceled or postponed, reducing our anticipated revenues. In addition, we have renegotiated contract terms with numerous customers, including retailers, travel and hospitality companies and airlines, that are facing financial difficulty; those and other companies impacted by the pandemic may significantly reduce their purchases of our solutions or become unable to pay us for those they have committed to use. The economic fallout from the COVID-19 pandemic is likely to have far-reaching consequences across many other industries, which could lead to reduced spending by many other enterprises on technology solutions such as those we offer. Some of our American customers have filed for bankruptcy protection; an extended recession could lead to more bankruptcies among our customers. Any of these circumstances would negatively impact our revenues. Restrictions on travel could also make it more difficult for us to finalize customer contracts.

~~We may~~

A slowing revenue growth rate could negatively impact our profitability and stock price.

If we are unable to continue to increase the amount of traffic we deliver over our network, it will be ~~unable~~difficult to maintain or improve our current level of ~~profitability.~~profitability without impacting our operations.

~~Our ability to maintain~~Maintaining or ~~improve~~improving our profitability ~~is contingent~~depends both on our ability to increase our revenue, even with the potential challenges discussed above, and limit our expenses. We base our decisions about expense levels and investments on estimates of our future revenue and future anticipated rate of growth; however, many of our expenses are fixed cost in nature for some minimum amount of time so it may not be possible to reduce costs in a timely manner or without incurring fees to exit certain obligations early. AsIn anticipation of higher traffic on our network, including the significant traffic increases we have seen coincident with the COVID-19 outbreak and related changes in lifestyles and working situations, we have increased capital expenditures in recent quarters and expect to continue doing so in the near-term future. While it is always challenging to anticipate traffic growth, our ability to do so is even more limited now due to uncertainty about how long and at what levels the growth we have seen as a result ~~leveraging the Akamai Intelligent Edge Platform by increasing the amount~~ of COVID-19 will continue. If such anticipated traffic ~~we deliver is key to profitable revenue growth.~~growth does not materialize, our profitability will be negatively affected. Numerous factors can impact traffic growth including:

•the pace of introduction of over-the-top (often referred to as OTT) video delivery initiatives by our customers;

•the popularity of our customers' streaming offerings as compared to those offered by companies that do not use our solutions;

•the pace at which our customers' enterprise applications move from behind the firewall to the cloud;

•media and other customers utilizing their own data centers and implementing delivery approaches that limit or eliminate reliance on third party providers like us;

•global pandemics such as COVID-19; and

~~macro-economic market~~•general economic conditions and industry pressures.

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If we are unable to increase revenue through traffic growth or otherwise and limit expenses, our results of operations will suffer. If we are required to significantly reduce expenses to maintain or improve profitability, such actions may negatively affect our ability to invest in our business for innovation, systems improvement and other initiatives.

Our business strategy depends on the ability to source adequate transmission capacity and the servers we need to operate our network; failure to have access to those resources could lead to loss of revenue and service disruptions.

With the COVID-19 pandemic, Internet traffic has grown rapidly in 2020 due to stay-at-home orders across the globe or voluntary practices that limit in-person interactions and require remote work. Our ability to handle increased traffic is dependent in part upon transmission capacity provided by third party telecommunications network providers and availability of co-location facilities to house our servers. We may be unable to purchase the bandwidth and space we need from these providers due to limitations on their resources or other reasons outside of our control. Inability to access facilities where we would ~~suffer.~~like to install servers, or perform maintenance on existing servers, because of governmental restrictions on access due to stay-at-home orders or social distancing requirements impedes our ability to expand or maintain capacity. As a result, there can be no assurance that we are adequately prepared for unexpected increases in bandwidth demands by our customers, particularly those under cyber-attack or impacted by pandemic-related events. Failure to put in place the capacity we require to operate our business effectively could result in a reduction in, or disruption of, service to our customers and ultimately a loss of those customers. The Akamai Intelligent Edge Platform relies on hundreds of thousands of servers deployed around the world. Disruptions in our supply chain could prevent us from purchasing servers and other needed equipment at attractive prices or at all. For example, it has been, and may continue to be, more difficult to purchase servers, component parts and other equipment that are manufactured in areas that face disruptions to operations due to unrest or other political activity, public health issues (such as the COVID-19 pandemic), safety issues, natural disasters or general economic conditions. Failure to have adequate server deployment could harm the quality of our services, which could lead to the loss of customers and revenue.

If we are unable to compete effectively, our business will be adversely affected.

We compete in markets that are intensely competitive and rapidly changing. Our current and potential competitors vary by size, product offerings, and geographic region and range from start-ups that offer solutions competing with a discrete part of our business to large technology or telecommunications companies that offer, or may be planning to introduce, products and services that are broadly competitive with what we do. The primary competitive factors in our market are: differentiation of technology, global presence, quality of solutions, customer service, technical expertise, security, ease-of-use, breadth of services offered, price, and financial strength. Our competitors include some of our current partners and customers.

Many of our current and potential competitors have substantially greater financial, technical and marketing resources, larger customer bases, broader product portfolios, longer operating histories, greater brand recognition and more established relationships in the industry than we do. As a result, some of these competitors may be able to:

•develop superior products or ~~services,~~ services;

•enter new markets more easily;

•gain greater market acceptance for their products and ~~services, enter new markets more easily, and~~ services;

•expand their offerings more efficiently orand more rapidly;

~~combine~~•bundle their products that are competitive with ours with other solutions they offer in a way that makes our offerings less appealing to current and potential customers;

•more quickly adapt to new or emerging technologies and changes in customer ~~requirements more quickly;~~requirements;

•take advantage of acquisition, investment and other opportunities more readily;

•offer lower prices than ours;

~~allocate greater resources to~~•spend more money on the promotion, marketing, and sales of their products and services; and

~~dedicate greater resources to the~~•spend more money on research and development, ~~of their products~~including offering higher salaries to talented professionals which may impact our ability to hire or retain engineering and ~~services.~~other personnel.

Smaller and more nimble competitors may be able to:

•attract customers by offering less sophisticated versions of products and services than we provide at lower prices than those we charge;

•develop new business models that are disruptive to us;

•in some cases, use funds from recent initial public offerings or private financings to strengthen their business to enable them to better compete with us; and

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•respond more quickly than we can to new or emerging technologies, changes in customer requirements, and market and industry developments, resulting in superior offerings.

~~Existing and potential customers may not purchase our solutions, or may limit their use of them, because they:~~

~~pursue a "do-it-yourself" approach by putting in place equipment, software, and other technology solutions for content and application delivery within their internal systems;~~

~~enter into relationships directly with network providers instead of relying on an overlay network like ours; or~~

~~implement multi-vendor policies to reduce reliance on any particular external providers such as us.~~

Ultimately, any type of increased competition ~~of all types~~ could result in price and revenue reductions, loss of customers and loss of market share, each of which could materially impact our business, profitability, financial condition, results of operations and cash flows.

If current and potential large customers shift to hardware-based or other DIY internal solutions, our business will be negatively impacted.

We are reliant on large media and other customers to direct significant amounts of traffic to our network for a significant part of our revenues. In the past, some of those customers have determined that it is better for them to employ a “do-it-yourself” or “DIY” strategy by putting in place equipment, software, and other technology solutions for content and application delivery and security protection within their internal systems instead of using Akamai solutions for some or all of their needs. Essentially, this is another form of competition for us. As the amount of money a customer spends with us increases, the risk that they will seek alternative solutions such as DIY or a multi-vendor policy likewise increases. If additional large customers shift to this model, traffic on our network and our contracted revenue commitments would decrease, which would negatively impact our business, profitability, financial condition, results of operations and cash flows.

If we do not continue to develop new solutions that are attractive to enterprises, our revenues and operating results could be adversely affected.

ItInnovation is important to our revenue growth and ~~profitability that we enter into new business areas that generate revenue.~~profitability. We must ~~do so~~develop new solutions that customers want to purchase in a rapidly-changing technology environment where it can be difficult to anticipate the needs of potential customers ~~where~~and competitors ~~may develop products and services that~~ are ~~or may be viewed as, better than ours and where it can be costly to acquire other companies.~~also developing new solutions. The process of developing new solutions is complex, lengthy, and uncertain; we must commit significant resources to developing new services or features without knowing whether our investments will result in solutions the market will accept, and we may choose to invest in business areas for which a viable market for our products does not ultimately develop. This could cause our expenses to grow more rapidly than our revenue. ~~There is often~~Similarly, trying to innovate through acquisition can be costly and with uncertain prospects for success. If we choose to cut research and development expenses to increase our profitability, investment in innovation could suffer and limit our development of new products. Restrictions on the ability of our developers and other employees to work in our facilities as a ~~lengthy period between commencing~~result of restrictions imposed by governments to combat the COVID-19 pandemic could reduce their effectiveness including, for example, by making it more difficult for them to collaborate as effectively in the development ~~initiatives and bringing~~of new or improved solutions to market. During this time, technology preferences, customer demand and the market for our solutions, or those introduced by our competitors, may move in directions that we had not anticipated when we decided to pursue such initiatives. Furthermore, we may not successfully execute our technology initiatives because of errors in planning, timing or execution, technical or operational hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources.

solutions. Failure to ~~invest in areas that can potentially provide a positive return or to adequately~~ develop, on a cost-effective basis, innovative new or enhanced solutions that are attractive to customers and profitable to us ~~and an inability to keep pace with rapid technological and market changes~~ could have a material detrimental effect on our business, results of operations, financial condition and cash flows.

We and other companies that compete in this industry and these markets experience continually shifting business relationships, commercial focuses and business priorities, all of which occur in reaction to industry and market forces and the emergence of new opportunities. These shifts have led or could lead to our customers or partners becoming our competitors; network suppliers no longer seeking to work with us; and large technology companies that previously did not appear to show interest in the markets we seek to address entering into those markets as our competitors. With this constantly changing environment, we may face operational difficulties in adjusting to the changes or our core strategies could become obsolete. Any of these developments could harm our business.

Cybersecurity breaches and attacks on us, as well as steps we need to take to prevent them, could lead to significant costs and disruptions that ~~could~~ harm our business, financial results and reputation.

~~In the regular course of business, we transmit~~The Akamai Intelligent Edge Platform transmits and ~~store~~stores both our and our customers' information, data, and encryption ~~keys as well as our own;~~keys; customer information and data may, in turn, include ~~individual~~personal data of and about ~~their end-users.~~individuals. Maintaining the security of the information we hold and ~~availability~~ of our solutions, network and internal IT systems, ~~and the security~~which include hundreds of ~~information we hold~~thousands of servers, is a critical issue for us and our customers. Internet-based attacks on our customers and our own network are frequent and take a variety of forms that evolve over time, including distributed denial of service, or DDoS, attacks, infrastructure attacks, botnets, malicious file uploads, cross-site scripting, credential abuse, ransomware, bugs, viruses, worms and malicious software programs. Malicious actors ~~can~~ also attempt to fraudulently induce employees or suppliers to disclose sensitive information through illegal electronic spamming, phishing or other tactics. In addition, unauthorized parties may attempt to gain physical access to our facilities in order to infiltrate our internal-use information systems.

Cyberthreats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. We

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The complexities in managing the security profile of a distributed network with vast scale and geographic reach that evolves to incorporate new capabilities expose us to both known and unknown vulnerabilities. These vulnerabilities, resident in either software or configurations, may ~~have no current capability to detect certain vulnerabilities, which could allow them to~~ persist ~~in an environment over long~~for extended periods of time. ~~Cyberthreats can have cascading impacts~~Our ability to detect vulnerabilities could be particularly limited during extraordinary events, such as the COVID-19 pandemic, where more workers are working remotely and dealing with unusual distractions. Similar security risks exist with respect to acquired companies, our business partners and the third-party vendors that ~~unfold with increasing speed across our internal networks and systems and those~~we rely on for aspects of our information technology support services and administrative functions. As a result, we are subject to risks that the activities of our business partners and customers. Breaches of our facilities, network, or data security could disrupt the security of our systems and business applications, impair our ability to provide solutions to our customers and protect their data, result in product development delays, compromise confidential or technical business information, thereby harming our reputation or competitive position, result in theft or misuse of our intellectual property or other assets, expose us to fines or other penalties, require us to allocate more resources to improved technologies, or otherwisethird-party vendors may adversely affect our ~~business.~~business even if an attack or breach does not directly target our systems.

To defend against security threats to our internal IT systems and cloud-based services, we must continuously engineer more secure solutions, enhance security and reliability features, improve the deployment of software updates to address security vulnerabilities, develop mitigation technologies that help to secure customers from attacks, and maintain the digital security infrastructure that protects the integrity of our network, products, and services. ~~The cost of~~This is frequently costly, with a negative impact on near-term profitability. We may need to increase our spending in the future; these ~~steps~~costs could reduce our operating ~~margins. If~~margin.

Breaches of our facilities, network, or data security could, among other things:

•disrupt the security of our systems and business applications;

•impair our ability to provide solutions to our customers and protect their data;

•result in product development delays;

•compromise confidential or technical business information, thereby harming our reputation or competitive position;

•result in theft or misuse of our intellectual property or other assets;

•expose us to lawsuits, fines or other penalties under privacy laws and other regulations;

•require us to allocate more resources to improved technologies; or

•otherwise adversely affect our business.

Any of these occurrences could have a material detrimental effect on our business, results of operations, financial condition and cash flows.

Evolving privacy, content and other regulations could negatively impact our profitability and business operations.

Laws and regulations that apply to the Internet related to privacy, security requirements, data localization, and restrictions on social media or other content could pose risks to our revenues, intellectual property, and customer relationships as well as increase expenses or create other disadvantages to our business. Interpretations of laws or regulations that would subject us to regulatory supervision or, in the alternative, require us to exit a line of business or a country, could lead to loss of significant revenues and have a negative impact on the quality of our solutions.

Privacy laws are rapidly proliferating, changing and evolving globally. Governments, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. New laws, such as the European Union General Data Protection Regulation, or GDPR, and the California Consumer Privacy Act of 2018, or CCPA, and industry self-regulatory codes have been enacted, and more laws are being considered that may affect how we ~~fail~~use data generated from our network as well as our ability to ~~do these things well, actual or perceived security vulnerabilities in~~reach current and prospective customers, understand how our solutions are being used and respond to customer requests allowed under the laws. Any perception that our business practices, our data ~~corruption issues,~~collection activities or how our solutions operate represent an invasion of privacy, whether or not consistent with current regulations and industry practices, may subject us to public criticism or boycotts, class action lawsuits, reputational harm, or claims by regulators, industry groups or other third parties, all of which could disrupt our business and expose us to liability. Compliance with GDPR and other laws may be administratively difficult and expensive.

Engineering efforts to build new capabilities to facilitate compliance with data localization, privacy, law enforcement access requirements, or other regulations could require us to take on substantial expense and the divert engineering resources from other projects. We might experience reduced ~~performance~~demand for our offerings if we are unable to engineer products that meet our legal duties or help our customers meet their obligations under the GDPR, the CCPA, or other data regulations, or if the changes we implement to comply with such laws and regulations make our offerings less attractive.

Our ability to leverage the data generated by our global network of servers is important to the value of many of the solutions we offer, our operational efficiency and future product development opportunities. Our ability to use data in this way may be constrained by regulatory developments. Compliance with applicable laws and regulations regarding personal data may require changes in services, business practices, or internal systems that result in increased costs, lower revenue, reduced

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efficiency, or greater difficulty in competing with foreign-based firms. Compliance with data regulations might limit our ability to innovate or offer certain features and functionality in some jurisdictions where we operate. Failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged non-compliant activity, as well as negative publicity and diversion of management time and effort.

Although we take steps intended to improve the security controls across our business groups and geographies, our security controls over personal data, our training of employees and third parties on data security, and other practices we follow may not prevent the improper disclosure or misuse of customer or end user data we store and manage. Improper disclosure or misuse of personal data could harm our reputation, ~~and~~ lead to legal exposure to end customers or end users, or subject us to ~~reduce~~liability under laws that protect personal data, resulting in increased costs or ~~delay future purchases~~loss of ~~our solutions, or to use competing products or services.~~revenue.

Similar security risks exist with respect to our business partners and the third-party vendors that we rely on for aspects of our information technology support services and administrative functions. As a result, we are subject to risks that the activities

~~of our business partners and third-party vendors may adversely affect our business even if an attack or breach does not directly target our systems.~~

Acquisitions and other strategic transactions we complete could result in operating difficulties, dilution, diversion of management attention and other harmful consequences that may adversely impact our business and results of operations.

We expect to continue to pursue acquisitions and other types of strategic relationships that involve technology sharing or close cooperation with other companies. Acquisitions and other complex transactions are accompanied by a number offace risks ~~including the following:~~

~~difficulty integrating the technologies, operations and personnel of acquired businesses;~~

~~potential disruption of our ongoing business;~~

~~potential distraction of management;~~

~~diversion of business resources from core operations;~~

~~expenses related to the transactions;~~

~~having a dilutive effect on our earnings;~~

~~assumption of legal risks related to compliance with laws, including privacy and anti-corruption regulations;~~

~~failure to realize synergies or other expected benefits;~~

~~acquisition of IT systems that expose us to cybersecurity risks;~~

~~increased accounting charges such as impairment of goodwill or intangible assets, amortization of intangible assets acquired and a reduction in the useful lives of intangible assets acquired; and~~

~~potential unknown liabilities~~ associated with ~~acquired businesses.~~global operations that could harm our business.

~~Any inability to integrate completed acquisitions or combinations in an efficient and timely manner could have an adverse impact on our results of operations. If we use a~~A significant portion of our ~~available cash~~revenue growth in recent quarters has been attributable to ~~pay~~revenue gains outside the United States. Our operations in foreign countries subject us to risks (in addition to the regulatory risks discussed above) that may increase our costs, make our operations less efficient and require significant management attention. These risks include:

•uncertainty regarding liability for ~~acquisitions that are not successful, it could harm our balance sheet~~content or services;

•loss of revenues if the U.S. or foreign governments impose limitations on doing business with significant current or potential customers;

•adjusting to different employee/employer relationships and ~~limit our flexibility~~different regulations governing such relationships;

•becoming subject to ~~pursue other opportunities without having enjoyed the intended benefits~~regulatory oversight, which may become more likely as governments exercise more oversight of the ~~acquisition. As we complete acquisitions, we may encounter~~ Internet in times of crisis such as the COVID-19 pandemic or under other circumstances;

•corporate and personal liability for alleged or actual violations of laws and regulations;

•difficulty in ~~incorporating acquired technologies into~~staffing, developing and managing foreign operations as a result of distance, language and cultural differences;

•theft of intellectual property in high-risk countries where we operate;

•difficulties in transferring funds from, or converting currencies in, certain countries;

•managing the costs and processes necessary to comply with export control, sanctions, anti-corruption, data protection and competition laws and regulations;

•geo-political developments that impact our ~~offerings while maintaining~~customers' ability to operate or deliver traffic in a country, such as regulations recently adopted in India to prevent certain applications from being served there;

•reliance on channel partners over which we have limited control or influence on a day-to-day basis; and

•potentially adverse tax consequences.

To continue to grow our revenues generated outside the ~~quality standards that are consistent with~~United States, we will likely need to increase our ~~brand~~reliance on resellers, systems integrators, and ~~reputation. If we are not successful in completing acquisitions or~~ other strategic ~~transactions that we may pursue in~~partners and to leverage those relationships to expand our distribution channels. We have not always been successful at developing these relationships due to the ~~future, we may incur substantial expenses and devote significant management time and resources without a successful result. Future acquisitions could require use of substantial portions~~complexity of our available cash or result in dilutive issuances of securities. Technology sharing or other strategic relationships we enter into may give rise to disputes over intellectual property ownership, operational responsibilities and other significant matters. Such disputes may be expensive and time-consuming to resolve.

~~The information technology industry and the markets in which we compete are constantly evolving, which makes~~solutions, our ~~future business strategies, practices and results difficult to predict.~~

The information technology industry and the markets in which we compete have grown significantly over the life of our company and continue to evolve rapidly in response to new technological advances, changing business modelshistorical reliance on an internal sales force, and other factors. We and the other companies that compete in this industry and these markets experience continually shifting business relationships, commercial focuses and business priorities, all of which occur in reaction to industry and market forces and the emergence of new opportunities. These shifts have led or could lead to:

~~our customers or partners becoming our competitors;~~

~~our network suppliers becoming partners with us or, conversely, no longer seeking to work with us;~~

~~our working more closely with hardware providers;~~

~~large technology companies that previously did not appear to show interest in the markets we seek to address entering into those markets as our competitors; and~~

~~needing to expand into new lines of business or to change or abandon existing strategies.~~

The Internet itself is constantly evolving. There could develop an inflection point above which global usage of the Internet increases to a level that causes our current approaches to the delivery of content and applications to no longer be sustainable at current levels of profitability or at all.

With this constantly changing environment, our future business strategies, practices and results may be difficult to predict, and we may face operational difficulties in adjusting to the changes. Any of these developments could harm our business.

Our failure to ~~effectively manage~~maintain and increase the number and quality of relationships with channel partners, and any inability to successfully execute on the partnerships we initiate, could significantly impede our ~~operations as our business evolves could harm us.~~revenue growth prospects in the short and long term.

~~Our future operating results will depend on our ability~~Actions taken to address the COVID-19 pandemic have made, and are expected to continue to make, it more difficult for us to manage ~~our operations. As~~international operations, including as a result of travel restrictions on us and our customers. Geo-political events such as the ~~diversification of~~United Kingdom's withdrawal from the European Union, commonly referred to as Brexit, may impact our business ~~personnel growth, increased usage~~in different parts of ~~alternative working arrangements, acquisitions~~the world. In particular, it is possible that the level of economic activity in the United Kingdom and ~~international expansion in recent years, many~~the rest of our employees are now based outside of our Cambridge, Massachusetts headquarters; however, most key management decisions are made by a relatively small group of individuals based primarily at our headquarters. If we are unable to appropriately increase management depth, enhance succession planningEurope will be adversely impacted and decentralize our decision-making at a pace commensurate with our actual or desired growth rates, we may not be able to achieve our financial or operational goals. It is also important to our continued success that we ~~hire qualified personnel, properly train them~~will face increased regulatory and ~~manage out poorly-performing personnel, all while maintaining our corporate culture~~legal complexities, including those related to tax, trade, security and ~~spirit~~employee relations as a result of ~~innovation. If we are not successful in these efforts, our growth and operations~~Brexit. Such changes could be ~~adversely affected.~~

~~As our business evolves, we must also expand~~costly and adapt our IT and operational infrastructure. Our business relies on our data systems, traffic measurement systems, billing systems, ordering processes and other operational and financial reporting and control systems. All of these systems have become increasingly complex due to the diversification and complexity of our business, acquisitions of new businesses with different systems, and increased regulation over controls and procedures. As a result, these systems could generate errors that impact traffic measurement or invoicing. We will need to continue to upgrade and improve our data systems, traffic measurement systems, billing systems, ordering processes and other operational and financial systems, procedures and controls. These upgrades and improvements may be difficult and costly. If we are unable to adapt our systems and organization in a timely, efficient and cost-effective manner to accommodate changing circumstances, our business may be adversely affected.

~~Our restructuring and reorganization activities may be~~potentially disruptive to our operations and ~~harm~~business relationships in affected regions. Trade disputes and unrest and other political activity, public health emergencies such as the COVID-19 outbreak, natural disasters or general economic or political factors that disrupt our ~~business.~~customers' businesses or our own operations could negatively impact our revenue and ability to offer services in impacted countries.

~~Over~~We entered into a Non-Prosecution Agreement with the ~~past several years,~~U.S. Securities and Exchange Commission, or the Commission, in June 2016 in connection with resolution of an investigation relating to sales practices in a country outside the U.S. In the event we violate the terms of this Non-Prosecution Agreement, we could be subject to additional investigation or enforcement by the Commission or the Department of Justice. Although we have implemented ~~internal restructurings~~policies and ~~reorganizations~~procedures designed to ~~reduce~~ensure compliance with the ~~size~~Non-Prosecution Agreement and ~~cost~~relevant laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies or applicable laws. Any such violations could result in fines and

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penalties, criminal sanctions against us or our employees and prohibitions on the conduct of our ~~operations, improve operational efficiencies, enhance~~business and on our ability to ~~pursue market opportunities and accelerate~~offer our ~~technology development initiatives. We may take similar steps~~solutions in ~~the future as we seek to realize operating synergies, optimize our operations to achieve our target operating model and profitability objectives, respond to market forces,~~one or ~~better reflect changes in the strategic direction of our business. Disruptions in operations may occur as a result of taking these actions. Taking these actions may~~more countries. They could also result in significant expense for us, including with respect to workforce reductions, as well as decreased productivity due to employee distraction and unanticipated employee turnover. Substantial expense or business disruptions resulting from restructuring and reorganization activities could adverselymaterially affect our ~~operating results.~~

~~If we are unable to retain~~brand or reputation, our ~~key employees and hire and retain qualified sales, technical, marketing and support personnel, our ability to compete could be harmed.~~

Our future success depends upon the services of our executive officers and other key technology, sales, marketing and support personnel who have critical industry experience and relationships. There is significant competition for talented individuals in the regions in which our primary offices are located, which affects both our ability to retain key employees and hire new ones. In making employment decisions, particularly in our industry, job candidates and current personnel often consider the value of stock-based compensation. In recent years, we have increasingly linked compensation levels to corporate performance metrics. Declines in the price of our stock or failure to achieve annual revenue and profitability metrics would make equity-based awards less valuable, adversely affectingglobal operations, any international expansion efforts, our ability to attract orand retain ~~key employees.~~employees, our business overall, and our financial results.

~~None of~~Fluctuations in foreign currency exchange rates affect our ~~officers or key employees is bound~~operating results in U.S. dollar terms.

Revenue generated and expenses incurred by ~~an employment agreement for any specific term. Members of~~ our ~~senior management team have left Akamai over~~international subsidiaries are often denominated in the years for a variety of reasons, and we cannot be certain that there will not be additional departures, which, if they occur, may be disruptive to our operations and detrimental to our future outlook. The losscurrencies of the services of any of our key employees or our inability to attract and retain new talent could hinder or delay the implementation of our business model and the development and introduction of, and negatively impact our ability to sell, our solutions.

~~Our stock price has been, and may continue to be, volatile, and your investment could lose value.~~

~~The market price of our common stock has historically been volatile. Trading prices may continue to fluctuate in response to a number of events and factors, including the following:~~

~~quarterly variations in operating results;~~

~~announcements by our customers related to their businesses that could be viewed as impacting their usage of our solutions;~~

~~market speculation about whether we are a takeover target or considering a strategic transaction;~~

~~activism by any single large stockholder or combination of stockholders;~~

~~changes in financial estimates and recommendations by securities analysts;~~

~~failure to meet the expectations of securities analysts;~~

~~purchases or sales of our stock by our officers and directors;~~

~~macro-economic factors;~~

~~repurchases of shares of our common stock;~~

~~successful cyber-attacks affecting our network or systems;~~

~~performance by other companies in our industry; and~~

~~geopolitical conditions such as acts of terrorism or military conflicts.~~

~~Furthermore, our revenue, particularly that portion attributable to usage of our solutions beyond customer commitments, can be difficult to forecast, and, as~~local countries. As a result, our ~~quarterly operating~~consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as the financial results can fluctuate substantially. This concern is particularly acute with respect to our media and commerce customers. In the future, our customer contracting models may change to move away from a committed revenue structure to a "pay-as-you-go" approach. The absence of a minimum revenue commitment would make it easier for customers to stop doing business with us, which would create additional challenges with our forecasting processes. Because a significant portion of our ~~cost structure is largely fixed in the short-term, revenue shortfalls tend~~international subsidiaries are translated from local currencies into U.S. dollars. In addition, our financial results are subject to ~~have a disproportionately negative impact on our profitability. If we announce revenue or profitability results that do not meet or exceed our guidance or make~~ changes in ~~our guidance with respect~~exchange rates that impact the settlement of transactions in non-functional currencies. While we have implemented a foreign currency hedging program to ~~future operating results, our stock price may decrease significantly as a result.~~mitigate transactional exposures, there is no guarantee that such program will be effective.

Any of these events, as well as other circumstances discussed in these Risk Factors, may cause the price of our common stock to fall. In addition, the stock market in general, and the market prices of stock of publicly-traded technology companies in particular, have experienced significant volatility that often has been unrelated to the operating performance of affected companies. These broad stock market fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.

Defects or disruptions in our ~~solutions~~products and IT systems could require us to increase spending on upgrading systems, diminish demand for our solutions or subject us to substantial liability.

Our solutions are highly complex and are designed to be deployed in and across numerous large and complex networks that we do not control. From time to time, we have needed to correct errors and defects in the software that underlies our platform that have given rise to service incidents or otherwise impacted our operations. We have also experienced customer dissatisfaction with the quality of some of our media delivery and other services, which has led to loss of business and could lead to loss of customers in the future. While we have robust quality control processes in place, there may be additional errors and defects in our software that may adversely affect our operations. We may not have in place adequate quality assurance procedures to ensure that we detect errors in our software in a timely manner, and we may have insufficient resources to efficiently address multiple service incidents happening simultaneously or in rapid succession. If we are unable to efficiently and cost-effectively fix errors or other problems that may be identified and improve the quality of our solutions or systems, or if there are unidentified errors that allow persons to improperly access our services or systems, we could experience loss of revenue and market share, damage to our reputation, increased expenses, delayed payments and be exposed to legal actions by our customers.

Our business relies on our data systems, traffic measurement systems, billing systems, ordering processes and other operational and financial reporting and control systems. All of these systems have become increasingly complex due to the diversification and complexity of our business, acquisitions of new businesses with different systems, and increased regulation over controls and procedures. As a result, these systems could generate errors that impact traffic measurement or invoicing, revenue recognition and financial forecasting. We will need to continue to upgrade and improve our data systems, traffic measurement systems, billing systems, ordering processes and other operational and financial systems, procedures and controls. These upgrades and improvements may ~~experience insufficient transmission~~be difficult and ~~co-location space, which~~costly. In addition, we could face strains on, or failures of, our internal IT systems if the COVID-19 persists for a longer period or governmental restrictions limit the ability of our command center personnel to work in our physical locations. If we are unable to adapt our systems and organization in a timely, efficient and cost-effective manner to accommodate changing circumstances, our business may be adversely affected.

Acquisitions and other strategic transactions we complete could result in ~~disruptions~~operating difficulties, dilution, diversion of management attention and other harmful consequences that may adversely impact our business and results of operations.

•difficulty integrating the technologies, operations and personnel of acquired businesses;

•potential disruption of our ~~services and loss~~ongoing business;

•potential distraction of ~~revenue.~~management;

Our operations are dependent in part upon transmission capacity provided by third party telecommunications network providers and access to co-location facilities to house our servers. There can be no assurance that we are adequately prepared for unexpected increases in bandwidth demands by our customers, particularly those under cyber-attack. The bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including payment disputes, network providers going out•diversion of business ~~natural disasters, networks imposing traffic limits,~~resources from core operations;

•financial consequences including an increase in operating expenses and other dilutive effects on our earnings;

•assumption of legal risks related to compliance with laws, including privacy and anti-corruption regulations;

•failure to realize synergies or ~~governments adopting regulations~~other expected benefits;

•acquisition of IT systems that ~~impact~~expose us to cybersecurity risks;

~~network operations. In some regions, network providers may choose to compete with us~~•increased accounting charges such as impairment of goodwill or intangible assets, amortization of intangible assets acquired and become unwilling to sell us adequate transmission capacity at fair market prices. This risk is heightened where market power is concentrated with one or a few major networks. We also may be unable to move quickly enough to augment capacity to reflect growing traffic or security demands. Failure to put in place the capacity we require to operate our business effectively could result in a reduction in ~~or disruption~~the useful lives of ~~service to our customers~~intangible assets acquired; and ~~ultimately a loss of those customers.~~

~~We face risks~~•potential unknown liabilities associated with ~~global operations~~acquired businesses.

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Any inability to integrate completed acquisitions or combinations in an efficient and timely manner could have an adverse impact on our results of operations. If we use a significant portion of our available cash to pay for acquisitions that are not successful, it could harm our ~~business.~~balance sheet and limit our flexibility to pursue other opportunities without having enjoyed the intended benefits of the acquisition. As we complete acquisitions, we may encounter difficulty in incorporating acquired technologies into our offerings while maintaining the quality standards that are consistent with our brand and reputation. If we are not successful in completing acquisitions or other strategic transactions that we may pursue in the future, we may incur substantial expenses and devote significant management time and resources without a successful result. Future acquisitions could require use of substantial portions of our available cash or result in dilutive issuances of securities.

~~We have operations in numerous foreign countries and may continue~~Our failure to ~~expand~~effectively manage our operations ~~internationally.~~as our business evolves could harm us.

Our future operating results will depend on our ability to manage our operations. As a result of the diversification of our business, personnel growth, increased usage of alternative working arrangements, acquisitions and international expansion in recent years, many of our employees are now based outside of our Cambridge, Massachusetts headquarters; however, most key management decisions are made by a relatively small group of individuals based primarily at our headquarters. If we are ~~increasingly subject~~unable to ~~risks associated~~appropriately increase management depth, enhance succession planning and decentralize our decision-making at a pace commensurate with ~~international business activities that~~our actual or desired growth rates, we may ~~increase~~not be able to achieve our ~~costs, make our operations less efficient and require significant management attention. These risks include:~~

~~regulations related to privacy, security requirements, data localization~~financial or ~~restricting content that could pose risks~~operational goals. It is also important to our ~~intellectual property, increase~~continued success that we hire qualified personnel, properly train them and manage out poorly-performing personnel, all while maintaining our corporate culture and spirit of innovation. If we are not successful in these efforts, our growth and operations could be adversely affected. With the ~~cost~~restrictions on businesses intended to curb the spread of ~~doing business in a country or create other disadvantages to our business;~~

~~interpretations of laws or regulations that would subject us to regulatory supervision or, in~~ the ~~alternative, require us to exit a country, which could lead to loss of significant revenues and have a negative impact on the quality~~COVID-19 virus, most of our ~~solutions;~~

~~uncertainty regarding liability for content or services;~~

~~adjusting~~employees worldwide have been working remotely since the first quarter of 2020. A long-term continuation of these restrictions could, among other things, negatively impact employee morale and productivity, inhibit our ability to ~~different employee/employer relationships~~hire and ~~different regulations governing such relationships;~~

~~corporate~~train new employees and ~~personal liability for alleged or actual violations of laws and regulations;~~

~~difficulty in staffing, developing and managing foreign operations as~~impede our ability to support customers at the levels they expect. As a result, ~~of distance, language~~our business could suffer.

Our restructuring and ~~cultural differences;~~

~~currency exchange rate fluctuations and limitations on the repatriation and investment of funds;~~

~~difficulties in transferring funds from, or converting currencies in, certain countries;~~

~~reliance on channel partners over which we have limited control or influence on a day-to-day basis; and~~

~~potentially adverse tax consequences.~~

~~Geo-political events such as the United Kingdom's pending withdrawal from the European Union, commonly referred to as Brexit,~~reorganization activities may increase the likelihood of certain of these risks materializing or heighten their impact on us in affected regions. In particular, it is possible that the level of economic activity in the United Kingdom and the rest of Europe will be adversely impacted and that we will face increased regulatory and legal complexities, including those related to tax, trade, security and employee relations as a result of Brexit. Such changes could be costly and potentially disruptive to our operations and ~~business relationships in affected regions. Trade disputes, unrest and other political activity that disrupts~~harm our ~~customers' businesses or our own operations could negatively impact our revenue and ability to offer services in impacted countries.~~business.

In addition, compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business. These numerous, rapidly-changing and sometimes conflicting laws and regulations include, among others:

~~internal control and disclosure rules;~~

~~data protection, privacy and filtering regulations and requirements;~~

~~export control and sanctions regulations;~~

~~anti-corruption laws, such as~~Over the ~~U.S. Foreign Corrupt Practices Act, the UK Bribery Act and local laws prohibiting corrupt payments to governmental officials; and~~

~~antitrust and competition regulations.~~

We entered into a Non-Prosecution Agreement with the U.S. Securities and Exchange Commission, or the Commission, in June 2016 in connection with the previously-disclosed investigation relating to sales practices in a country outside the U.S. In the event we violate the terms of this Non-Prosecution Agreement, we could be subject to additional investigation or enforcement by the Commission or the Department of Justice. Althoughpast several years, we have implemented ~~policies~~internal restructurings and ~~procedures~~reorganizations designed to ~~ensure compliance with~~reduce the ~~Non-Prosecution Agreement~~size and relevant laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies or applicable laws. Any such violations could result in fines and penalties, criminal sanctions against us or our employees and prohibitions on the conductcost of our ~~business and on~~operations, improve operational efficiencies, enhance our ability to ~~offer~~pursue market opportunities and accelerate our ~~solutions~~technology development initiatives. We may take similar steps in ~~one~~the future as we seek to realize operating synergies, optimize our operations to achieve our target operating model and profitability objectives, respond to market forces, or ~~more countries. They~~better reflect changes in the strategic direction of our business. Disruptions in operations may occur as a result of taking these actions. Taking these actions may also result in significant expense for us, including with respect to workforce reductions, as well as decreased productivity due to employee distraction and unanticipated employee turnover. Substantial expense or business disruptions resulting from restructuring and reorganization activities could ~~also materially~~adversely affect our ~~brand~~operating results.

If we are unable to retain our key employees and hire and retain qualified sales, technical, marketing and support personnel, our ability to compete could be harmed.

Our future success depends upon the services of our executive officers and other key technology, sales, marketing and support personnel who have critical industry experience and relationships. There is significant competition for talented individuals in the regions in which our primary offices are located, which affects both our ability to retain key employees and hire new ones. None of our officers or ~~reputation,~~key employees is bound by an employment agreement for any specific term, and members of our ~~global operations,~~senior management have left Akamai over the years for a variety of reasons. With restrictions on activities imposed by governments across the world as a result of the COVID-19 pandemic, it has become more difficult to hire new employees into our business. If these restrictions persist for an extended period, we may be unable to address fully our hiring needs. The loss of the services of a significant number of our employees or any ~~international expansion efforts,~~of our ~~ability~~key employees (including as a result of health issues related to the COVID-19 pandemic) or our inability to attract and retain ~~employees, our business overall, and our financial results.~~

~~Government regulation is evolving, and unfavorable changes could harm our business.~~

Laws and regulations that apply to communications and commerce over the Internet are becoming more prevalent. In particular, domestic and foreign government attempts to regulate the operation of the Internet could negatively impact our business. It is unclear whether potential changes to regulations previously adopted by the U.S. Federal Communications Commission that govern certain aspects of the operation of the Internet (such as content blocking and throttling and paid prioritization) will be adopted and, if adopted, how they would apply to content delivery network providers like us. It is also uncertain how future regulatory and legislative initiatives or changes will impact our business.

~~Increasing regulatory focus on privacy issues and expanding laws and regulations could expose us to increased liability.~~

Privacy laws are rapidly proliferating, changing and evolving globally. Governments, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. New laws, such as the European Union General Data Protection Regulation, or GDPR, and the California Consumer Privacy Act of 2018, and industry self-regulatory codes have been enacted and more laws are being considered that may affect how we use data generated from our network as well as our ability to reach current and prospective customers, understand how our solutions are being used and respond to customer requests allowed under the laws. Any perception that our business practices, our data collection activities or how our solutions operate represent an invasion of privacy, whether or not consistent with current regulations and industry practices, may subject us to public criticism (or boycotts), class action lawsuits, reputational harm, or claims by regulators, industry groups or other third parties, all of which could disrupt our business and expose us to liability. Compliance with GDPR and other lawsnew talent may be ~~administratively difficult and expensive. Steps we take to help ensure compliance with these laws would increase our expenses, which could impact our profitability.~~

We also have a publicly-available privacy policy concerning our collection, use and disclosure of customer and user data. Any failure, or perceived failure, by us to comply with our posted privacy policy could result in damagedisruptive to our ~~reputation or proceedings or actions against us, which could potentially have an adverse effect on our~~operations and overall business.

We may need to defend against patent or copyright infringement claims, which would cause us to incur substantial costs or limit our ability to use certain technologies in the future.

As we expand our business and develop new technologies, products and services, we ~~may~~have become increasingly subject to intellectual property infringement and other claims ~~including those that may arise under international laws. In many cases, we~~and related litigation. We have also agreed to indemnify our customers and channel and strategic partners if our solutions infringe or misappropriate specified intellectual property rights; ~~therefore,~~as a result, we have been and could again become involved in litigation or claims brought against customers or channel or strategic partners if

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our solutions or technology are the subject of such allegations. Any litigation or claims, whether or not valid, brought against us or pursuant to which we indemnify our customers or partners could result in substantial costs and diversion of resources and require us to do one or more of the following:

•cease selling, incorporating or using features, functionalities, products or services that incorporate the challenged intellectual property;

•pay substantial damages and incur significant litigation expenses;

•obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or

•redesign products or services.

If we are forced to take any of these actions, our business may be seriously harmed.

Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.

We rely on a combination of patent, copyright, trademark and trade secret laws and contractual restrictions on disclosure to protect our intellectual property rights. These legal protections afford only limited protection. We have previously brought lawsuits against entities that we believed were infringing our intellectual property rights but have not always prevailed. Such lawsuits can be expensive and require a significant amount of attention from our management and technical personnel, and the outcomes are unpredictable. Monitoring unauthorized use of our solutions is difficult, and we cannot be certain that the steps we have taken or will take will prevent unauthorized use of our technology. Furthermore, we cannot be certain that any pending or future patent applications will be granted, that any future patent will not be challenged, invalidated or circumvented, or that rights granted under any patent that may be issued will provide competitive advantages to us. If we are unable to protect our

proprietary rights from unauthorized use, the value of our intellectual property assets may be reduced. Although we have licensed from other parties proprietary technology covered by patents, we cannot be certain that any such patents will not be challenged, invalidated or circumvented. Such licenses may also be non-exclusive, meaning our competition may also be able to access such technology.

We rely on certain “open-source” software the use of which could result in our having to distribute our proprietary software, including our source code, to third parties on unfavorable terms, which could materially affect our business.

Certain of our offerings use software that is subject to open-source licenses. Open-source code is software that is freely accessible, usable and modifiable; however, certain open-source code is governed by license agreements, the terms of which could require users of such software to make any derivative works of the software available to others on unfavorable terms or at no cost. Because we use open-source code, we may be required to take remedial action in order to protect our proprietary software. Such action could include replacing certain source code used in our software, discontinuing certain of our products or taking other actions that could be expensive and divert resources away from our development efforts. In addition, the terms relating to disclosure of derivative works in many open-source licenses are unclear. If a court interprets one or more such open-source licenses in a manner that is unfavorable to us, we could be required to make certain of our key software available at no cost. Furthermore, open-source software may have security flaws and other deficiencies that could make our solutions less reliable and damage our business.

Our stock price has been, and may continue to be, volatile, and your investment could lose value.

The market price of our common stock has historically been volatile. Trading prices may continue to fluctuate in response to a number of events and factors, including the following:

•quarterly variations in operating results;

•announcements by our customers related to their businesses that could be viewed as impacting their usage of our solutions;

•market speculation about whether we are a takeover target or considering a strategic transaction;

•announcements by competitors;

•activism by any single large stockholder or combination of stockholders;

•changes in financial estimates and recommendations by securities analysts;

•failure to meet the expectations of securities analysts;

•purchases or sales of our stock by our officers and directors;

•general economic conditions and other macro-economic factors;

•repurchases of shares of our common stock;

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•successful cyber-attacks affecting our network or systems;

•performance by other companies in our industry; and

•geopolitical conditions such as acts of terrorism, military conflicts or global pandemics.

Furthermore, our revenue, particularly that portion attributable to usage of our solutions beyond customer commitments, can be difficult to forecast, and, as a result, our quarterly operating results can fluctuate substantially. This concern is particularly acute with respect to our media and commerce customers. We have introduced new billing models over the years, including recently offering a zero overage plan that eliminates surcharges for certain traffic. In the future, our customer contracting models may ~~be unsuccessful at developing and maintaining strategic relationships with third parties that expand our distribution channels and increase~~change to move away from a committed revenue structure to a "pay-as-you-go" approach, which could ~~significantly limit~~make it easier for customers to reduce the amount of business they do with us or leave altogether. Changes in billing models and committed revenue requirements could, therefore, create challenges with our ~~long-term growth.~~

~~Achieving future success will likely require us to maintain and increase the number and depth~~forecasting processes. Because a significant portion of our ~~relationships with resellers, systems integrators, product makers and other strategic partners and~~cost structure is largely fixed in the short-term, revenue shortfalls tend to ~~leverage those relationships to expand our distribution channels and increase revenue. If we become reliant on~~have a ~~small number of large partners, any termination of our relationship with one of them could have an adverse~~disproportionately negative impact on our ~~financial condition. The need~~profitability. If we announce revenue or profitability results that do not meet or exceed our guidance or make changes in our guidance with respect to ~~develop such relationships can be particularly acute in areas outside~~future operating results, our stock price may decrease significantly as a result.

Any of ~~the U.S. We have not always been successful at developing~~ these relationships due to the complexity of our solutions, our historical reliance on an internal sales force, and other factors. Recruiting and retaining qualified channel partners and training them in the use of our technology and solutions and ensuring that they are compliant with our ethical expectations require significant time and resources. In order to develop and expand our distribution channel, we must continue to expand and improve our portfolio of solutionsevents, as well as other circumstances discussed in these Risk Factors, may cause the systems, processes and procedures that support our channels. Those systems, processes and procedures may become increasingly complex and difficult to manage. The time and expense required for the sales and marketing organizationsprice of our ~~channel partners~~common stock to ~~become familiar with~~fall. In addition, the stock market in general, and the market prices of stock of publicly-traded technology companies in particular, have experienced significant volatility that often has been unrelated to the operating performance of affected companies. These broad stock market fluctuations may adversely affect the market price of our ~~offerings, including~~common stock, regardless of our new services developments, may make it more difficult to introduce those products to enterprises. Our failure to maintain and increase the number and quality of relationships with channel partners, and any inability to successfully execute on the partnerships we initiate, could significantly impede our revenue growth prospects in the short and long term.operating performance.

If the accounting estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may be adversely affected.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments about, among other things, taxes, revenue recognition, stock-based compensation costs, capitalization of internal-use software development costs, investments, contingent obligations, allowance for doubtful accounts, intangible assets, and restructuring charges. These estimates and judgments affect, among other things, the reported amounts of our assets, liabilities, revenue and expenses, the amounts of charges accrued by us, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances and at the time they are made. If our estimates or the assumptions underlying them are not correct, actual results may differ materially from our estimates and we may need to, among other things, accrue significant additional charges that could adversely affect our results of operations, which in turn could adversely affect our stock price. In addition, new accounting pronouncements and interpretations of accounting pronouncements have occurred and may occur in the future that could adversely affect our reported financial results.

We may have exposure to greater-than-anticipated tax liabilities.

Our future income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items such as equity-related compensation. We have recorded certain tax reserves to address potential exposures involving our income tax and sales and use tax positions. These potential tax

liabilities result from the varying application of statutes, rules, regulations and interpretations by different jurisdictions. We are currently subject to tax audits in various jurisdictions including the Commonwealth of Massachusetts. In the second quarter of 2018, we filed an appeal with the Massachusetts Appellate Tax Board, or MATB, contesting adverse audit findings relating to our eligibility to claim certain tax benefits and exemptions. In July 2020, the MATB ruled in our favor. The ruling is subject to appeal.If the ultimate outcome of ~~this~~our appeal and other audits are adverse to us, our reserves may not be adequate to cover our total actual liability, and we would need to take a financial charge. Although we believe our estimates, our reserves and the positions we have taken in all jurisdictions are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

We have complied with Section 404 of the Sarbanes-Oxley Act of 2002 by assessing, strengthening and testing our system of internal controls. Even though we concluded our internal control over financial reporting and disclosure controls and

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procedures were effective as of the end of the period covered by this report, we need to continue to maintain our processes and systems and adapt them to changes as our business evolves and we rearrange management responsibilities and reorganize our business. This continuous process of maintaining and adapting our internal controls and complying with Section 404 is expensive and time-consuming and requires significant management attention. We cannot be certain that our internal control measures will continue to provide adequate control over our financial processes and reporting and ensure compliance with Section 404. Furthermore, as our business changes, including by expanding our operations in different markets, increasing reliance on channel partners and completing acquisitions, our internal controls may become more complex and we will be required to expend significantly more resources to ensure our internal controls remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm identify material weaknesses, the disclosure of that fact, even if quickly remediated, could reduce the market's confidence in our financial statements and harm our stock price.

Any failure to meet our debt obligations would damage our business.

As of the date of this report, we had total ~~par value~~principal amount of $1,150.0 million of convertible senior notes outstanding due in 2027 and we had total ~~par value~~principal amount of $1,150.0 million of convertible senior notes outstanding due in 2025. We also entered into a credit facility in May 2018 that provides for an initial $500.0 million in revolving loans; under specified circumstances, we would be able to borrow an additional $500.0 million thereunder. Our ability to repay any amounts we borrow under our credit facility, refinance the notes, make cash payments in connection with conversions of the notes or repurchase the notes in the event of a fundamental change (as defined in the applicable indenture governing the notes) will depend on market conditions and our future performance, which is subject to economic, financial, competitive and other factors beyond our control. We also may not use the cash we have raised through future borrowing under the credit facility or the issuance of the convertible senior notes in an optimally productive and profitable manner. If we are unable to remain profitable or if we use more cash than we generate in the future, our level of indebtedness at such time could adversely affect our operations by increasing our vulnerability to adverse changes in general economic and industry conditions and by limiting or prohibiting our ability to obtain additional financing for additional capital expenditures, acquisitions and general corporate and other purposes. In addition, if we are unable to make cash payments upon conversion of the notes, we would be required to issue significant amounts of our common stock, which would be dilutive to the stock of existing stockholders. If we do not have sufficient cash to repurchase the notes following a fundamental change, we would be in default under the terms of the notes, which could seriously harm our business. Although the terms of our credit facility include certain financial ratios that potentially limit our future indebtedness, the terms of the notes do not do so. If we incur significantly more debt, this could intensify the risks described above.

~~Fluctuations in foreign currency exchange rates affect our operating results in U.S. dollar terms.~~

An increasing portion of our revenue is derived from international operations, growing to 41.2% of overall revenues for the nine months ended September 30, 2019, as compared to 38.0% and 34.2% for the full years of 2018 and 2017, respectively. Revenue generated and expenses incurred by our international subsidiaries are often denominated in the currencies of the local countries. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as the financial results of our international subsidiaries are translated from local currencies into U.S. dollars. In addition, our financial results are subject to changes in exchange rates that impact the settlement of transactions in non-functional currencies. While we have implemented a foreign currency hedging program to mitigate transactional exposures, there is no guarantee that such program will be effective.

We may issue additional shares of our common stock or instruments convertible into shares of our common stock and thereby materially and adversely affect the market price of our common stock.

Our Board of Directors has the authority to issue additional shares of our common stock or other instruments convertible into, or exchangeable or exercisable for, shares of our common stock. If we issue additional shares of our common stock or instruments convertible into, or exchangeable or exercisable for, shares of our common stock, it may materially and adversely affect the market price of our common stock.

~~Actions of activist stockholders could be distracting to us, cause us to incur significant expenses and impact the trading value of our common stock.~~

Responding to actions by activist stockholders could be distracting to our Board of Directors, our executives and our other employees. Such activities may also require us to incur significant legal and other advisor fees and public relations costs. Perceived uncertainty as to our future direction could affect customer and investor sentiment, resulting in longer sales cycles, employee retention and hiring challenges, and volatility in the price of our common stock.

Our sales to government clients subject us to risks including early termination, audits, investigations, sanctions and penalties.

We have customer contracts with the U.S. government, as well as foreign, state and local governments and their respective agencies. Such government entities often have the right to terminate these contracts at any time, without cause. There is increased pressure for governments and their agencies, both domestically and internationally, to reduce spending. Most of our government contracts are subject to legislative approval of appropriations to fund the expenditures under these contracts. These factors combine to potentially limit the revenue we derive from government contracts in the future. Additionally, government contracts generally have requirements that are more complex than those found in commercial enterprise agreements and therefore are more costly to comply with. Such contracts are also subject to audits and investigations that could result in civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.

Litigation may adversely impact our business.

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From time to time, we are or may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including patent, commercial, product liability, breach of contract, employment, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. In addition, under our charter, we could be required to indemnify and advance expenses to our directors and officers in connection with their involvement in certain actions, suits, investigations and other proceedings. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses.

Furthermore, because litigation is inherently unpredictable and may not be covered by insurance, there can be no assurance that the results of any litigation matters will not have an adverse impact on our business, results of operations, financial condition or cash flows.

~~Facilities transitions could be disruptive to our operations and may result in unanticipated expense and adverse effects to our cash position and cash flows.~~

We plan to move into our new headquarters building in Cambridge, Massachusetts in late 2019. This location represents our largest office in terms of square footage and employee headcount. Relocating our operations may be costly and could be disruptive and adversely affect productivity in the short term. We could also face unanticipated expenses associated with the transition that could adversely impact our cash position and cash flows.

~~General global market and economic conditions may have an adverse impact on our operating performance, results of operations and cash flows.~~

Our business has been and could continue to be affected by general global economic and market conditions. To the extent economic conditions impair our customers' ability to profitably monetize the content we deliver on their behalf, they may reduce or eliminate the traffic we deliver for them. Such reductions in traffic would lead to a reduction in our revenue. Additionally, in a down-cycle economic environment, we may experience the negative effects of increased competitive pricing

pressure, customer loss, a deceleration in commerce over the Internet and corresponding decrease in traffic delivered over our network and failures by customers to pay amounts owed to us on a timely basis or at all. Suppliers on which we rely for servers, bandwidth, co-location and other solutions could also be negatively impacted by economic conditions that, in turn, could have a negative impact on our operations or expenses.

Global climate change and related natural resource conservation regulations could adversely impact our business.

~~Our deployed network~~The long-term effects of ~~servers consumes significant energy resources, including those generated by~~climate change on the ~~burning~~global economy and our industry in particular remain unknown. Changes in weather where we operate may increase the costs of ~~fossil fuels.~~powering and cooling computer hardware we use to develop software and provide cloud-based services. Catastrophic natural disasters could negatively impact our office locations. In response to concerns about global climate change, governments may adopt new regulations affecting the use of fossil fuels or requiring the use of alternative fuel sources. Our deployed network of servers consumes significant energy resources, including those generated by the burning of fossil fuels. While we have invested in projects to support renewable energy development, our customers, investors and other stakeholders may require us to take more steps to demonstrate that we are taking ecologically responsible measures in operating our business. The costs and any expenses we may incur to make our network more ~~energy efficient~~energy-efficient and comply with any new regulations could make us less profitable in future periods. Failure to comply with applicable laws and regulations or other requirements imposed on us could lead to fines, lost revenue and damage to our reputation.

Because we currently do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if it appreciates in value.

We currently intend to retain our future earnings, if any, for use in the operation of our business and do not expect to pay any cash dividends in the foreseeable future on our common stock. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

Provisions of our charter, by-laws and Delaware law may have anti-takeover effects that could prevent a change in control even if the change in control would be beneficial to our stockholders.

Provisions of our charter, by-laws and Delaware law could make it more difficult for a third party to control or acquire us, even if doing so would be beneficial to our stockholders. These provisions include:

~~a classified board structure that is being phased out over time so that only approximately one-third of~~ •our Board of Directors ~~was up for re-election this year and only approximately two-thirds of our Board of Directors will be up for re-election in 2020;~~

~~our Board of Directors has~~having the right to elect directors to fill a vacancy created by the expansion of the Board of Directors or the resignation, death or removal of a director;

•stockholders ~~must~~needing to provide advance notice to nominate individuals for election to the Board of Directors or to propose matters that can be acted upon at a stockholders' meeting; and

•the ability of our Board of Directors ~~may~~to issue, without stockholder approval, shares of undesignated preferred stock.

Further, as a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Our Board of Directors could rely on Delaware law to prevent or delay an acquisition of us.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following is a summary of our repurchases of our common stock in the ~~third~~second quarter of ~~2019~~2020 (in thousands, except share and per share data):


Period ⁽¹⁾	(a) Total Number of Shares Purchased ⁽²⁾	(b) Average Price Paid per Share ⁽³⁾		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽⁴⁾	(d) Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs⁽⁴⁾
April 1, 2020 – April 30, 2020	—	$	—	—	$	684,931
May 1, 2020 – May 31, 2020	127,135	98.97		127,135	672,348
June 1, 2020 – June 30, 2020	144,442	102.10		144,442	657,600
Total	271,577	$	100.64	271,577	$	657,600

(1)Information is based on settlement dates of repurchase transactions.

(2)Consists of shares of our common stock, par value $0.01 per share.

(3)Includes commissions paid.

(4)Effective November 2018, the Board authorized a $1.1 billion repurchase program through December 2021.

Period ⁽¹⁾

(a) Total Number of Shares Purchased ⁽²⁾

(b) Average Price Paid per Share ⁽³⁾

(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽⁴⁾

(d) Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs⁽⁴⁾
July 1, 2019 – July 31, 2019 455,007
$ 82.09
455,007
$ 946,399
August 1, 2019 – August 31, 2019 1,375,350
89.04
1,375,350
823,941
September 1, 2019 – September 30, 2019 174,599
90.09
174,599
808,211
Total 2,004,956
$ 87.55
2,004,956
$ 808,211

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~~(1)~~	~~Information is based on settlement dates of repurchase transactions.~~


~~(2)~~	~~Consists of shares of our common stock, par value $0.01 per share.~~


~~(3)~~	~~Includes commissions paid.~~


~~(4)~~	~~Effective November 2018, the Board authorized a $1.1 billion repurchase program through December 2021.~~

Item 6. Exhibits



Exhibit ~~4.1 (A)~~31.1		Indenture (including form of Notes) with respect to the Registrant’s 0.375% Convertible Senior Notes due September 1, 2027, dated as of August 16, 2019, between the Registrant and U.S. Bank National Association, as trustee

~~Exhibit 10.1 (B)~~	~~Akamai Technologies, Inc. Executive Severance Pay Plan, as amended~~

~~Exhibit 10.2 (B)~~	~~Addendum to the Transition Agreement dated September 27, 2019 between the Registrant and James Benson~~

~~Exhibit 10.3 (A)~~	~~Form of Call Option Confirmation between the Registrant and each Option Counterparty~~

~~Exhibit 10.4 (A)~~	~~Form of Warrant Confirmation between the Registrant and each Option Counterparty~~

~~Exhibit 31.1~~	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/ Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

Exhibit 31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/ Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

Exhibit 32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.*

101.SCH		Inline XBRL Taxonomy Extension Schema Document*

101.CAL		Inline XBRL Taxonomy Calculation Linkbase Document*

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB		Inline XBRL Taxonomy Label Linkbase Document*

101.PRE		Inline XBRL Taxonomy Presentation Linkbase Document*

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit ~~101,.INS)~~101.INS)



~~(A)~~*		~~Incorporated by reference to the Registration's Current Report on Form 8-K (File No. 000-27275, 191033874) filed with the Commission on August 16, 2019.~~
~~(B)~~	~~Incorporated by reference to the Registrant's Current Report on Form 8-K (File No. 000-27275, 191132693) filed with the Commission on October 2, 2019.~~
*	Submitted electronically herewith

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, (ii) Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, (iii) Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, (iv) Consolidated Statements of Stockholders' Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, (v) Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 and (vi) Notes to Unaudited Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			Akamai Technologies, Inc.

August 7, 2020			~~Akamai Technologies, Inc.~~

~~November 8, 2019~~	By:	/s/ EdEdward McGowan
				EdEdward McGowan
				Chief Financial Officer (Duly Authorized Officer, Principal Financial Officer)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	~~September~~June 30, ~~2019~~2020



(in thousands, except share data)	September 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	738,462	$	1,036,455
Marketable securities	831,749		855,650
Accounts receivable, net of reserves of $1,745 and $1,534 at September 30, 2019, and December 31, 2018, respectively	516,657		479,889
Prepaid expenses and other current assets	167,040		163,360
Total current assets	2,253,908		2,535,354
Marketable securities	734,116		209,066
Property and equipment, net	1,079,914		910,618
Operating lease right-of-use assets	349,155		—
Acquired intangible assets, net	166,407		168,348
Goodwill	1,583,479		1,487,404
Deferred income tax assets	39,321		34,913
Other assets	151,134		116,067
Total assets	$	6,357,434	$	5,461,770



	Three Months Ended September 30, 2018
(in thousands, except share data)	Common Stock				Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
(in thousands, except share data)	Shares		Amount		Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
Balance at July 1, 2018	169,311,093		$	1,718	$	4,303,531		$	(185,512	)	$	(41,971	)	$	(632,488	)	$	3,445,278
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes	470,224		4		(6,091		)										(6,087		)
Stock-based compensation					55,417												55,417
Repurchases of common stock	(5,894,598	)						(440,413		)							(440,413		)
Net income														107,583			107,583
Foreign currency translation adjustment											(7,771		)				(7,771		)
Change in unrealized gain on investments, net of tax											1,524						1,524
Balance at September 30, 2018	163,886,719		$	1,722	$	4,352,857		$	(625,925	)	$	(48,218	)	$	(524,905	)	$	3,155,531



	Nine Months Ended September 30, 2019
(in thousands, except share data)	Common Stock				Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
	Shares		Amount
Balance at January 1, 2019	162,904,550		$	1,629	$	3,670,033		$	—		$	(48,912	)	$	(430,890	)	$	3,191,860
Cumulative-effect adjustment to accumulated deficit related to adoption of new accounting pronouncement														851			851
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes	1,833,758		18		(59,653		)										(59,635		)
Issuance of common stock under employee stock purchase plan	473,462		5		27,664												27,669
Stock-based compensation					167,475												167,475
Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880					240,820												240,820
Issuance of warrants related to convertible senior notes					185,150												185,150
Purchase of note hedge related to convertible senior notes					(312,225		)										(312,225		)
Repurchases of common stock	(3,552,268	)						(291,788		)							(291,788		)
Net income														358,935			358,935
Foreign currency translation adjustment											(10,744		)				(10,744		)
Change in unrealized gain on investments, net of tax											3,232						3,232
Balance at September 30, 2019	161,659,502		$	1,652	$	3,919,264		$	(291,788	)	$	(56,424	)	$	(71,104	)	$	3,501,600



	Nine Months Ended September 30, 2018
(in thousands, except share data)	Common Stock				Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
	Shares		Amount
Balance at January 1, 2018	169,893,324		$	1,699	$	4,073,362		$	—		$	(21,930	)	$	(690,662	)	$	3,362,469
Cumulative-effect adjustment to accumulated deficit related to adoption of new accounting pronouncement														(38,601		)	(38,601		)
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes	1,797,241		18		(44,619		)										(44,601		)
Issuance of common stock under employee stock purchase plan	543,520		5		25,763												25,768
Stock-based compensation					164,310												164,310
Equity component of convertible senior notes, net of deferred tax of $4,971 and issuance costs of $4,418					275,836												275,836
Issuance of warrants related to convertible senior notes					119,945												119,945
Purchase of note hedge related to convertible senior notes					(261,740		)										(261,740		)
Repurchases of common stock	(8,347,366	)						(625,925		)							(625,925		)
Net income														204,358			204,358
Foreign currency translation adjustment											(26,047		)				(26,047		)
Change in unrealized gain on investments, net of tax											(241		)				(241		)
Balance at September 30, 2018	163,886,719		$	1,722	$	4,352,857		$	(625,925	)	$	(48,218	)	$	(524,905	)	$	3,155,531



	Total Fair Value			Fair Value Measurements at Reporting Date Using
	Total Fair Value			Level 1		Level 2		Level 3
As of September 30, 2019
Cash Equivalents and Marketable Securities:
Money market funds	$	4,000		$	4,000	$	—	$	—
Commercial paper	78,436			—		78,436		—
Corporate bonds	1,286,746			—		1,286,746		—
U.S. government agency obligations	186,656			—		186,656		—
Mutual funds	14,027			14,027		—		—
	$	1,569,865		$	18,027	$	1,551,838	$	—

As of December 31, 2018
Cash Equivalents and Marketable Securities:
Money market funds	$	380,260		$	380,260	$	—	$	—
Certificates of deposit	39,993			39,993		—		—
Commercial paper	282,946			—		282,946		—
Corporate bonds	681,345			—		681,345		—
U.S. government agency obligations	50,472			—		50,472		—
Mutual funds	10,016			10,016		—		—
	$	1,445,032		$	430,269	$	1,014,763	$	—

Liabilities:
Contingent consideration related to a completed acquisition	$	(6,300	)	$	—	$	—	$	(6,300	)



Balance as of January 1, 2019	$	1,487,404
Acquisition of Janrain, Inc.	99,685
Foreign currency translation	(3,610		)
Balance as of September 30, 2019	$	1,583,479



	September 30, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Completed technology	$	154,091	$	(95,861	)	$	58,230	$	145,091	$	(81,587	)	$	63,504
Customer-related intangible assets	263,410		(158,562		)	104,848		245,710		(144,786		)	100,924
Non-compete agreements	730		(467		)	263		700		(306		)	394
Trademarks and trade names	7,400		(4,334		)	3,066		7,200		(3,674		)	3,526
Acquired license rights	490		(490		)	—		490		(490		)	—
Total	$	426,121	$	(259,714	)	$	166,407	$	399,191	$	(230,843	)	$	168,348



Total purchase consideration	$	123,632

Allocation of the purchase consideration:
Cash	$	2,223
Accounts receivable	7,318
Prepaid expenses and other current assets	838
Identifiable intangible assets	26,930
Goodwill	99,685
Deferred tax assets	5,124
Other assets	87
Total assets acquired	142,205
Accounts payable	(1,641		)
Accrued expenses	(2,596		)
Deferred revenue	(14,336		)
Total liabilities assumed	(18,573		)
Net assets acquired	$	123,632



	Gross Carrying Amount		Weighted Average Useful Life (in years)
Completed technologies	$	9,000	3.0
Customer-related intangible assets	17,700		6.0
Trademarks	200		0.8
Non-compete agreements	30		1.0
Total	$	26,930



	For the Three Months Ended September 30, 2019								For the Nine Months Ended September 30, 2019
	Real Estate Arrangements			Co-location Arrangements		Total			Real Estate Arrangements			Co-location Arrangements		Total
Operating lease cost	$	14,517		$	23,142	$	37,659		$	43,506		$	70,082	$	113,588
Short-term lease cost	26			3,509		3,535			231			10,697		10,928
Variable lease cost	3,617			7,053		10,670			10,655			16,769		27,424
Sublease income	(839		)	—		(839		)	(2,791		)	—		(2,791		)
Total operating lease costs	$	17,321		$	33,704	$	51,025		$	51,601		$	97,548	$	149,149



	Real Estate Arrangements		Co-location Arrangements
Remainder of 2019	$	10,975	$	27,688
2020	49,206		29,454
2021	45,094		9,789
2022	41,090		5,767
2023	39,245		3,944
Thereafter	200,317		10,158
Total lease payments	385,927		86,800
Less: imputed interest	84,087		4,931
Total lease liabilities	$	301,840	$	81,869



	Real Estate Arrangements		Bandwidth and Co-location Arrangements
2019	$	54,561	$	138,777
2020	78,683		24,420
2021	75,991		8,463
2022	72,579		5,233
2023	70,101		2,156
Thereafter	599,339		3,709
Total	$	951,254	$	182,758



	Employee Severance and Related Benefits			Software Charges			Excess Facilities, Contract Terminations and Other			Total
Balance as of January 1, 2019	$	10,508		$	198		$	275		$	10,981
Costs incurred	6,825			—			54			6,879
Cash disbursements	(16,839		)	(99		)	(262		)	(17,200		)
Balance as of September 30, 2019	$	494		$	99		$	67		$	660