UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________ 
FORM 10-Q
 ______________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedMarch 31, 20222023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to    
            
Commission file number 000-27275
______________________________________________ 
Akamai Technologies, 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, MA 02142
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock - par value $0.01 per shareAKAMNasdaq 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 filerxAccelerated 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 May 3, 2022: 160,305,1935, 2023: 152,202,115
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AKAMAI TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20222023

TABLE OF CONTENTS
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data) (unaudited)(in thousands, except share data) (unaudited)March 31,
2022
December 31,
2021
(in thousands, except share data) (unaudited)March 31,
2023
December 31,
2022
ASSETSASSETSASSETS
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$377,811 $536,725 Cash and cash equivalents$298,800 $542,337 
Marketable securitiesMarketable securities129,058 541,470 Marketable securities453,113 562,979 
Accounts receivable, net of reserves of $3,279 and $1,397 at March 31, 2022, and December 31, 2021, respectively718,793 675,926 
Accounts receivable, net of reserves of $5,557 and $5,917 at March 31, 2023, and December 31, 2022, respectivelyAccounts receivable, net of reserves of $5,557 and $5,917 at March 31, 2023, and December 31, 2022, respectively705,817 679,206 
Prepaid expenses and other current assetsPrepaid expenses and other current assets238,821 166,313 Prepaid expenses and other current assets239,981 185,040 
Total current assetsTotal current assets1,464,483 1,920,434 Total current assets1,697,711 1,969,562 
Marketable securitiesMarketable securities786,712 1,088,048 Marketable securities298,699 320,531 
Property and equipment, netProperty and equipment, net1,579,833 1,534,329 Property and equipment, net1,654,608 1,540,182 
Operating lease right-of-use assetsOperating lease right-of-use assets819,880 815,754 Operating lease right-of-use assets850,282 813,372 
Acquired intangible assets, netAcquired intangible assets, net512,188 313,225 Acquired intangible assets, net432,233 441,716 
GoodwillGoodwill2,745,882 2,156,254 Goodwill2,781,859 2,763,838 
Deferred income tax assetsDeferred income tax assets265,946 168,342 Deferred income tax assets334,733 337,677 
Other assetsOther assets128,855 142,287 Other assets133,208 116,522 
Total assetsTotal assets$8,303,779 $8,138,673 Total assets$8,183,333 $8,303,400 

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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, continued

(in thousands, except share data) (unaudited)(in thousands, except share data) (unaudited)March 31,
2022
December 31,
2021
(in thousands, except share data) (unaudited)March 31,
2023
December 31,
2022
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$122,934 $109,928 Accounts payable$202,129 $145,420 
Accrued expensesAccrued expenses342,802 411,590 Accrued expenses256,924 367,017 
Deferred revenueDeferred revenue139,725 86,517 Deferred revenue140,927 105,109 
Revolving credit facility75,000 — 
Operating lease liabilitiesOperating lease liabilities183,762 175,683 Operating lease liabilities205,055 196,094 
Other current liabilitiesOther current liabilities5,042 6,623 Other current liabilities31,218 5,228 
Total current liabilitiesTotal current liabilities869,265 790,341 Total current liabilities836,253 818,868 
Deferred revenueDeferred revenue30,098 25,342 Deferred revenue23,754 22,117 
Deferred income tax liabilitiesDeferred income tax liabilities41,131 40,974 Deferred income tax liabilities20,439 18,400 
Convertible senior notesConvertible senior notes2,281,927 1,976,167 Convertible senior notes2,286,369 2,285,258 
Operating lease liabilitiesOperating lease liabilities703,605 707,087 Operating lease liabilities735,808 693,265 
Other liabilitiesOther liabilities77,231 68,748 Other liabilities109,369 105,305 
Total liabilitiesTotal liabilities4,003,257 3,608,659 Total liabilities4,011,992 3,943,213 
Commitments and contingenciesCommitments and contingencies00Commitments and contingencies
Stockholders’ equity:Stockholders’ equity: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 outstandingPreferred 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— — 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; 161,460,261 shares issued and 160,535,769 shares outstanding at March 31, 2022, and 160,512,111 shares issued and outstanding at December 31, 20211,615 1,605 
Common stock, $0.01 par value; 700,000,000 shares authorized; 157,299,369 shares issued and 152,743,828 shares outstanding at March 31, 2023, and 156,494,816 shares issued and outstanding at December 31, 2022Common stock, $0.01 par value; 700,000,000 shares authorized; 157,299,369 shares issued and 152,743,828 shares outstanding at March 31, 2023, and 156,494,816 shares issued and outstanding at December 31, 20221,573 1,565 
Additional paid-in capitalAdditional paid-in capital2,974,529 3,340,822 Additional paid-in capital2,625,244 2,578,603 
Accumulated other comprehensive lossAccumulated other comprehensive loss(88,611)(69,105)Accumulated other comprehensive loss(121,161)(140,332)
Treasury stock, at cost, 924,492 shares at March 31, 2022, and no shares at December 31, 2021(102,853)— 
Treasury stock, at cost, 4,555,541 shares at March 31, 2023, and no shares at December 31, 2022Treasury stock, at cost, 4,555,541 shares at March 31, 2023, and no shares at December 31, 2022(351,772)— 
Retained earningsRetained earnings1,515,842 1,256,692 Retained earnings2,017,457 1,920,351 
Total stockholders’ equityTotal stockholders’ equity4,300,522 4,530,014 Total stockholders’ equity4,171,341 4,360,187 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$8,303,779 $8,138,673 Total liabilities and stockholders’ equity$8,183,333 $8,303,400 

The accompanying notes are an integral part of the condensed consolidated financial statements.
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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
    
For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands, except per share data) (unaudited)(in thousands, except per share data) (unaudited)20222021(in thousands, except per share data) (unaudited)20232022
RevenueRevenue$903,647 $842,708 Revenue$915,698 $903,647 
Costs and operating expenses:Costs and operating expenses:Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)Cost of revenue (exclusive of amortization of acquired intangible assets shown below)332,752 306,687 Cost of revenue (exclusive of amortization of acquired intangible assets shown below)361,316 332,752 
Research and developmentResearch and development99,935 82,045 Research and development91,863 99,935 
Sales and marketingSales and marketing122,719 116,354 Sales and marketing129,107 122,719 
General and administrativeGeneral and administrative153,262 136,715 General and administrative146,139 153,262 
Amortization of acquired intangible assetsAmortization of acquired intangible assets13,644 11,427 Amortization of acquired intangible assets15,912 13,644 
Restructuring chargeRestructuring charge8,016 7,116 Restructuring charge44,723 8,016 
Total costs and operating expensesTotal costs and operating expenses730,328 660,344 Total costs and operating expenses789,060 730,328 
Income from operationsIncome from operations173,319 182,364 Income from operations126,638 173,319 
Interest and marketable securities (loss) income, net(211)4,578 
Interest and marketable securities income (loss), netInterest and marketable securities income (loss), net5,292 (211)
Interest expenseInterest expense(2,695)(17,834)Interest expense(2,681)(2,695)
Other expense, netOther expense, net(9,565)(817)Other expense, net(2,363)(9,565)
Income before provision for income taxesIncome before provision for income taxes160,848 168,291 Income before provision for income taxes126,886 160,848 
Provision for income taxesProvision for income taxes(34,050)(11,898)Provision for income taxes(29,780)(19,837)
Loss from equity method investmentLoss from equity method investment(7,635)(698)Loss from equity method investment— (7,635)
Net incomeNet income$119,163 $155,695 Net income$97,106 $133,376 
Net income per share:Net income per share:Net income per share:
BasicBasic$0.74 $0.95 Basic$0.62 $0.83 
DilutedDiluted$0.73 $0.94 Diluted$0.62 $0.82 
Shares used in per share calculations:Shares used in per share calculations:Shares used in per share calculations:
BasicBasic160,494 163,061 Basic155,637 160,494 
DilutedDiluted163,637 165,688 Diluted156,135 163,637 

The accompanying notes are an integral part of the condensed consolidated financial statements.
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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands) (unaudited)(in thousands) (unaudited)20222021(in thousands) (unaudited)20232022
Net incomeNet income$119,163 $155,695 Net income$97,106 $133,376 
Other comprehensive loss:
Other comprehensive income (loss):Other comprehensive income (loss):
Foreign currency translation adjustmentsForeign currency translation adjustments2,036 (24,265)Foreign currency translation adjustments11,722 2,036 
Change in unrealized loss on investments, net of income tax benefit of $4,948 and $937 for the three months ended March 31, 2022 and 2021, respectively(21,542)(2,881)
Other comprehensive loss(19,506)(27,146)
Change in unrealized gain (loss) on investments, net of income tax (provision) benefit of $(2,399) and $4,948 for the three months ended March 31, 2023 and 2022, respectivelyChange in unrealized gain (loss) on investments, net of income tax (provision) benefit of $(2,399) and $4,948 for the three months ended March 31, 2023 and 2022, respectively7,449 (21,542)
Other comprehensive income (loss)Other comprehensive income (loss)19,171 (19,506)
Comprehensive incomeComprehensive income$99,657 $128,549 Comprehensive income$116,277 $113,870 

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

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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three Months
Ended March 31,
(in thousands) (unaudited)20222021
Cash flows from operating activities:
Net income$119,163 $155,695 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization142,595 131,471 
Stock-based compensation56,227 54,305 
(Benefit) provision for deferred income taxes(13,579)1,764 
Amortization of debt discount and issuance costs1,119 16,257 
Loss on investments16,536 698 
Other non-cash reconciling items, net12,598 528 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(39,198)(15,580)
Prepaid expenses and other current assets(64,695)(35,388)
Accounts payable and accrued expenses(66,938)(72,986)
Deferred revenue55,394 25,439 
Other current liabilities(1,441)(716)
Other non-current assets and liabilities4,670 (11,694)
Net cash provided by operating activities222,451 249,793 
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired(872,099)(15,638)
Purchases of property and equipment(51,005)(87,222)
Capitalization of internal-use software development costs(80,354)(77,497)
Purchases of short- and long-term marketable securities— (90,279)
Proceeds from sales of short- and long-term marketable securities571,369 7,154 
Proceeds from maturities and redemptions of short- and long-term marketable securities120,433 226,995 
Other, net(5,242)179 
Net cash used in investing activities(316,898)(36,308)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility75,000 — 
Proceeds related to the issuance of common stock under stock plans21,941 21,410 
Employee taxes paid related to net share settlement of stock-based awards(54,819)(63,946)
Repurchases of common stock(102,853)(58,241)
Other, net(104)— 
Net cash used in financing activities(60,835)(100,777)
Effects of exchange rate changes on cash, cash equivalents and restricted cash(1,462)(7,151)
Net (decrease) increase in cash, cash equivalents and restricted cash(156,744)105,557 
Cash, cash equivalents and restricted cash at beginning of period537,751 353,466 
Cash, cash equivalents and restricted cash at end of period$381,007 $459,023 

 For the Three Months
Ended March 31,
(in thousands) (unaudited)20232022
Cash flows from operating activities:
Net income$97,106 $133,376 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization135,457 142,595 
Stock-based compensation61,883 56,227 
Provision (benefit) for deferred income taxes4,925 (27,792)
Amortization of debt issuance costs1,098 1,119 
(Gain) loss on investments(174)16,536 
Other non-cash reconciling items, net21,602 12,598 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(25,251)(39,198)
Prepaid expenses and other current assets(26,009)(64,695)
Accounts payable and accrued expenses(97,263)(66,938)
Deferred revenue36,449 55,394 
Other current liabilities25,834 (1,441)
Other non-current assets and liabilities(2,158)4,670 
Net cash provided by operating activities233,499 222,451 
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired(20,070)(872,099)
Purchases of property and equipment(141,700)(51,005)
Capitalization of internal-use software development costs(80,545)(80,354)
Purchases of short- and long-term marketable securities(134,191)— 
Proceeds from sales of short- and long-term marketable securities185,249 571,369 
Proceeds from maturities and redemptions of short- and long-term marketable securities91,637 120,433 
Other, net(20,268)(5,242)
Net cash used in investing activities(119,888)(316,898)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility— 75,000 
Proceeds related to the issuance of common stock under stock plans21,257 21,941 
Employee taxes paid related to net share settlement of stock-based awards(29,894)(54,819)
Repurchases of common stock(348,600)(102,853)
Other, net(52)(104)
Net cash used in financing activities(357,289)(60,835)
Effects of exchange rate changes on cash, cash equivalents and restricted cash2,297 (1,462)
Net decrease in cash, cash equivalents and restricted cash(241,381)(156,744)
Cash, cash equivalents and restricted cash at beginning of period543,022 537,751 
Cash, cash equivalents and restricted cash at end of period$301,641 $381,007 


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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands) (unaudited)(in thousands) (unaudited)20222021(in thousands) (unaudited)20232022
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received of $1,025 and $1,846 for the three months ended March 31, 2022 and 2021, respectively$50,533 $17,736 
Supplemental disclosures of cash flow information:Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds received of $225 and $1,025 for the three months ended March 31, 2023 and 2022, respectivelyCash paid for income taxes, net of refunds received of $225 and $1,025 for the three months ended March 31, 2023 and 2022, respectively$86,066 $50,533 
Cash paid for interest expenseCash paid for interest expense2,156 2,156 Cash paid for interest expense2,156 2,156 
Cash paid for operating lease liabilitiesCash paid for operating lease liabilities54,285 63,673 Cash paid for operating lease liabilities55,167 54,285 
Non-cash activities:Non-cash activities:Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilitiesOperating lease right-of-use assets obtained in exchange for operating lease liabilities38,582 82,125 Operating lease right-of-use assets obtained in exchange for operating lease liabilities102,952 38,582 
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expensesPurchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses48,326 60,193 Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses101,196 48,326 
Capitalization of stock-based compensationCapitalization of stock-based compensation7,803 9,459 Capitalization of stock-based compensation14,611 7,803 
Reconciliation of cash, cash equivalents and restricted cash:Reconciliation of cash, cash equivalents and restricted cash:Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalentsCash and cash equivalents$377,811 $456,799 Cash and cash equivalents$298,800 $377,811 
Restricted cashRestricted cash3,196 2,224 Restricted cash2,841 3,196 
Cash, cash equivalents and restricted cashCash, cash equivalents and restricted cash$381,007 $459,023 Cash, cash equivalents and restricted cash$301,641 $381,007 

The accompanying notes are an integral part of the condensed consolidated financial statements.
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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Three Months Ended March 31, 2022
(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance at January 1, 2022160,512,111 $1,605 $3,340,822 $(69,105)$— $1,256,692 $4,530,014 
Cumulative-effect adjustment from adoption of new accounting pronouncement(375,414)139,987 (235,427)
Issuance of common stock upon the vesting of restricted and deferred stock units, net of shares withheld for employee taxes948,150 10 (54,649)(54,639)
Stock-based compensation63,770 63,770 
Repurchases of common stock(924,492)(102,853)(102,853)
Net income119,163 119,163 
Foreign currency translation adjustment2,036 2,036 
Change in unrealized loss on investments, net of tax(21,542)(21,542)
Balance at March 31, 2022160,535,769 $1,615 $2,974,529 $(88,611)$(102,853)$1,515,842 $4,300,522 

Three Months Ended March 31, 2023
(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance at January 1, 2023156,494,816 $1,565 $2,578,603 $(140,332)$— $1,920,351 $4,360,187 
Issuance of common stock upon the vesting of restricted and deferred stock units, net of shares withheld for employee taxes804,553 (31,344)(31,336)
Stock-based compensation77,985 77,985 
Repurchases of common stock(4,555,541)(351,772)(351,772)
Net income97,106 97,106 
Foreign currency translation adjustment11,722 11,722 
Change in unrealized gain on investments, net of tax7,449 7,449 
Balance at March 31, 2023152,743,828 $1,573 $2,625,244 $(121,161)$(351,772)$2,017,457 $4,171,341 

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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued

Three Months Ended March 31, 2021Three Months Ended March 31, 2022
(in thousands, except share data) (unaudited)(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at January 1, 2021162,709,720 $1,627 $3,664,820 $(20,201)$— $605,050 $4,251,296 
Balance at January 1, 2022Balance at January 1, 2022160,512,111 $1,605 $3,340,822 $(69,105)$— $1,256,692 $4,530,014 
Cumulative-effect adjustment from adoption of new accounting pronouncementCumulative-effect adjustment from adoption of new accounting pronouncement(375,414)139,987 (235,427)
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxesIssuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes1,128,184 11 (64,017)(64,006)Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes948,150 10 (54,649)(54,639)
Stock-based compensationStock-based compensation63,765 63,765 Stock-based compensation63,770 63,770 
Repurchases of common stockRepurchases of common stock(591,963)(58,241)(58,241)Repurchases of common stock(924,492)(102,853)(102,853)
Net incomeNet income155,695 155,695 Net income133,376 133,376 
Foreign currency translation adjustmentForeign currency translation adjustment(24,265)(24,265)Foreign currency translation adjustment2,036 2,036 
Change in unrealized loss on investments, net of taxChange in unrealized loss on investments, net of tax(2,881)(2,881)Change in unrealized loss on investments, net of tax(21,542)(21,542)
Balance at March 31, 2021163,245,941 $1,638 $3,664,568 $(47,347)$(58,241)$760,745 $4,321,363 
Balance at March 31, 2022Balance at March 31, 2022160,535,769 $1,615 $2,974,529 $(88,611)$(102,853)$1,530,055 $4,314,735 


The accompanying notes are an integral part of the condensed consolidated financial statements.
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AKAMAI TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

Akamai Technologies, Inc. (the “Company”) provides solutions to power and protect life online. Its globally-distributedmassively distributed edge and cloud platform is comprised ofcomprises more than 350,000 servers in over4,200 locations across more than 130 countries. The Company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company is currently organized and operates in 1as one reportable and operating segment: providing solutions to power and protect life online.segment.

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America 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 consolidation.the accompanying interim condensed consolidated 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 interim condensed 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, 2021,2022, filed with the Securities and Exchange Commission on February 28, 2022.2023. The December 31, 20212022 consolidated balance sheet included herein is derived from the Company's audited consolidated financial statements.

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 interim condensed 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.

NRevision of Previously Issued Financial Statementsewly-Adopted Accounting Pronouncements

In August 2020,During the Financial Accounting Standards Board ("FASB") issued guidance that is expected to reduce complexity and improve comparabilitypreparation of the financial reporting associated withstatements for the year ended December 31, 2022, an error was identified in the Company’s accounting for convertible instruments and contractsan intercompany sale of intellectual property that occurred during 2022. During each of the first three quarters of 2022, the Company failed to record a deferred tax asset in an entity’s own equity. The Company adopted this guidance on January 1, 2022 on a modified retrospective basis.

The convertible senior notes included on the Company'sjurisdiction where the intellectual property was sold for the step up in tax basis that was achieved with the sale. This caused net deferred taxes to be understated in the interim condensed consolidated balance sheet more closely reflectssheets, the principal amounts. Prior to the adoption of this guidance, the Company separated its convertible senior notes into a liability and an equity component. The equity portion is now eliminated. The cumulative effect of the changes was an increase to convertible senior notes of $304.7 million, an increase to deferredprovision for income tax liabilities of $0.7 million, an increase to deferred income tax assets of $77.7 million, a decrease to property and equipment of $7.7 million, and a decrease to additional paid-in capital of $375.4 million on the condensed consolidated balance sheet. The net effect of these adjustments was recorded as an increase to retained earnings as of January 1, 2022.

Additionally, the new guidance eliminates the use of the treasury stock method for convertible instruments that can be settled in whole or in part with equity, when calculating diluted earnings per share. Instead, it requires application of the if-converted method. Under that method, diluted earnings per share would generally be calculated assuming that all the convertible senior notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be antidilutive. The application of the if-converted method reduces the Company’s reported diluted earnings per share after the adoption date. However, in December 2021, the Company made an irrevocable election to settle the principal portion of the convertible senior notes with cash. Accordingly, the if-converted method is only impacted by any potential sharestaxes to be delivered for the amount in excess of the principal portion. The changes to the diluted earnings per share guidance did not materially impact our results of operations.

With the elimination of the debt discount created by the equity component, amortization of the debt discount is eliminated, which decreases interest expense,overstated and therefore increases net income and earnings per share fromto be understated in the periodinterim condensed consolidated statements of adoption. This hadincome. Management evaluated the effecterror and determined that the related impact was not material to any of increasing our basic and diluted earningsthe Company's previously issued financial statements.

Changes to the interim condensed consolidated statements of income for the three months ended March 31, 2022, as a result of the error, were as follows (in thousands, except per share by $0.08data):

For the Three Months Ended March 31, 2022
As Previously ReportedAdjustmentAs Revised
Provision for income taxes$(34,050)$14,213 $(19,837)
Net income119,163 14,213 133,376 
Net income per share:
Basic$0.74 $0.09 $0.83 
Diluted$0.73 $0.09 $0.82 

The condensed consolidated statements of comprehensive income, condensed consolidated statements of cash flows and condensed consolidated statements of shareholders' equity for the three months ended March 31, 2022 were also revised to reflect the impact to net income as stated in the table above. The benefit for deferred income tax line was also adjusted in the interim condensed consolidated statement of cash flows, however, the error had no net impact on cash flows from operating, investing or financing activities for the three months ended March 31, 2022.

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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, 2022. The following policy has been updated as of January 1, 2023.

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 servers increased from five years to six years, effective January 1, 2023. These changes decreased depreciation expense by $16.7 million and increased net income by $14.0 million, or $0.09 per share, for the three months ended March 31, 2023.

2. Fair Value Measurements

The following is a summary of available-for-saleAvailable-for-sale marketable securities held as of March 31, 20222023 and December 31, 20212022 were as follows (in thousands):

Gross UnrealizedClassification on Balance SheetGross UnrealizedClassification on Balance Sheet
Amortized CostGainsLossesAggregate
Fair Value
Short-Term
Marketable
Securities
Long-Term
Marketable
Securities
Amortized CostGainsLossesAggregate
Fair Value
Short-Term
Marketable
Securities
Long-Term
Marketable
Securities
As of March 31, 2022
Corporate bonds$645,755 $— $(17,750)$628,005 $108,981 $519,024 
U.S. government agency obligations272,133 — (7,009)265,124 19,306 245,818 
$917,888 $— $(24,759)$893,129 $128,287 $764,842 
As of December 31, 2021
As of March 31, 2023As of March 31, 2023
Commercial paperCommercial paper$25,056 $— $(24)$25,032 $25,032 $— Commercial paper$960 $$— $961 $961 $— 
Corporate bondsCorporate bonds1,268,991 1,191 (4,275)1,265,907 459,012 806,895 Corporate bonds508,508 336 (14,722)494,122 254,986 239,136 
U.S. government agency obligationsU.S. government agency obligations316,728 (1,281)315,450 56,530 258,920 U.S. government agency obligations243,717 47 (7,232)236,532 196,843 39,689 
$1,610,775 $1,194 $(5,580)$1,606,389 $540,574 $1,065,815 $753,185 $384 $(21,954)$731,615 $452,790 $278,825 
As of December 31, 2022As of December 31, 2022
Time depositTime deposit$19,530 $— $— $19,530 $19,530 $— 
Corporate bondsCorporate bonds624,082 — (21,029)603,053 362,458 240,595 
U.S. government agency obligationsU.S. government agency obligations252,573 — (10,391)242,182 180,320 61,862 
$896,185 $— $(31,420)$864,765 $562,308 $302,457 

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 interim condensed 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 interim condensed consolidated balance sheets. Upon realization, those amounts are reclassified from accumulated other comprehensive loss to interest and marketable securities income, net in the interim condensed consolidated statements of income. As of March 31, 2022,2023, the Company held for investment corporate bonds and U.S. government agency obligations with a fair value of $43.8$597.0 million, which wereare classified as available-for-sale marketable securities that hadand have been in a continuous unrealized loss position for more than 12 months. The unrealized losslosses related to these corporate bonds was $1.1securities were $21.7 million and isare included in accumulated other comprehensive loss as of March 31, 2022.2023. The unrealized loss islosses 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.

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The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets as of March 31, 20222023 and December 31, 20212022 were as follows (in thousands):

Total Fair ValueFair Value Measurements at
Reporting Date Using
Total Fair ValueFair Value Measurements at
Reporting Date Using
Level 1Level 2 Total Fair ValueLevel 1Level 2
As of March 31, 2022
As of March 31, 2023As of March 31, 2023
Cash Equivalents and Marketable Securities:Cash Equivalents and Marketable Securities:Cash Equivalents and Marketable Securities:
Money market fundsMoney market funds$1,428 $1,428 $— Money market funds$635 $635 $— 
Time depositTime deposit25,576 — 25,576 
Commercial paperCommercial paper961 — 961 
Corporate bondsCorporate bonds494,122 — 494,122 
Corporate bonds628,005 — 628,005 
U.S. government agency obligationsU.S. government agency obligations265,124 — 265,124 U.S. government agency obligations236,532 — 236,532 
Mutual fundsMutual funds22,641 22,641 — Mutual funds20,198 20,198 — 
$917,198 $24,069 $893,129 $778,024 $20,833 $757,191 
As of December 31, 2021
As of December 31, 2022As of December 31, 2022
Cash Equivalents and Marketable Securities:Cash Equivalents and Marketable Securities:Cash Equivalents and Marketable Securities:
Money market fundsMoney market funds$109,313 $109,313 $— Money market funds$999 $999 $— 
Commercial paper39,031 — 39,031 
Time depositTime deposit285,830 — 285,830 
Corporate bondsCorporate bonds1,265,907 — 1,265,907 Corporate bonds603,053 — 603,053 
U.S. government agency obligationsU.S. government agency obligations315,450 — 315,450 U.S. government agency obligations242,182 — 242,182 
Mutual fundsMutual funds23,129 23,129 — Mutual funds18,745 18,745 — 
$1,752,830 $132,442 $1,620,388 $1,150,809 $19,744 $1,131,065 

As of March 31, 20222023 and December 31, 2021,2022, the Company grouped 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 March 31, 20222023 and December 31, 2021,2022, the Company grouped time deposits, commercial paper, U.S. government agency obligations and corporate bonds using a Level 2 valuation because quoted prices for similar assets in active markets (or identical assets in an inactive market) are available. The Company did not have any transfers of assets or liabilities between Level 1 or Level 2 of the fair value measurement hierarchy during the three months ended March 31, 2022.2023.

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 use primarily 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 the assumptions market participants would use to estimate the fair value of a financial instrument.

Contractual maturities of the Company’s available-for-sale marketable securities held as of March 31, 20222023 and December 31, 20212022 were as follows (in thousands):

March 31,
2022
December 31,
2021
March 31,
2023
December 31,
2022
Due in 1 year or lessDue in 1 year or less$128,287 $540,574 Due in 1 year or less$452,790 $562,308 
Due after 1 year through 5 yearsDue after 1 year through 5 years764,842 1,065,815 Due after 1 year through 5 years278,825 302,457 
$893,129 $1,606,389 $731,615 $864,765 

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3. Accounts Receivable

Net accounts receivable consisted of the following as of March 31, 20222023 and December 31, 20212022 (in thousands):
 
March 31,
2022
December 31,
2021
March 31,
2023
December 31,
2022
Trade accounts receivableTrade accounts receivable$511,584 $501,959 Trade accounts receivable$516,398 $490,162 
Unbilled accounts receivableUnbilled accounts receivable210,488 175,364 Unbilled accounts receivable194,976 194,961 
Gross accounts receivableGross accounts receivable722,072 677,323 Gross accounts receivable711,374 685,123 
Allowances for current expected credit losses and other reservesAllowances for current expected credit losses and other reserves(3,279)(1,397)Allowances for current expected credit losses and other reserves(5,557)(5,917)
Accounts receivable, netAccounts receivable, net$718,793 $675,926 Accounts receivable, net$705,817 $679,206 

A summary of activity in the accounts receivable allowance for current expected credit losses and other reserves for the three months ended March 31, 2023 and 2022 and 2021 iswas as follows (in thousands):

March 31,
2022
March 31,
2021
March 31,
2023
March 31,
2022
Beginning balanceBeginning balance$1,397 $1,822 Beginning balance$5,917 $1,397 
Charges to income from operationsCharges to income from operations1,951 923 Charges to income from operations1,397 1,951 
Collections from customers previously reserved and otherCollections from customers previously reserved and other(69)(1,091)Collections from customers previously reserved and other(1,757)(69)
Ending balanceEnding balance$3,279 $1,654 Ending balance$5,557 $3,279 

Charges to income from operations primarily represents charges to bad debt expenseprovision for doubtful accounts for increases in the allowance for current expected credit losses.

4. Incremental Costs to Obtain a Contract with a Customer

The following table summarizes the deferredDeferred costs associated with obtaining customer contracts, specifically commission and incentive payments, as of March 31, 20222023 and December 31, 20212022 were as follows (in thousands):

March 31,
2022
December 31,
2021
March 31,
2023
December 31,
2022
Deferred costs included in prepaid and other current assets$39,948 $43,562 
Deferred costs included in prepaid expenses and other current assetsDeferred costs included in prepaid expenses and other current assets$37,226 $37,316 
Deferred costs included in other assetsDeferred costs included in other assets28,290 30,436 Deferred costs included in other assets29,870 29,069 
Total deferred costsTotal deferred costs$68,238 $73,998 Total deferred costs$67,096 $66,385 

The following table summarizes additional informationInformation related to incremental costs to obtain a contract with a customer for the three months ended March 31, 2023 and 2022 and 2021were as follows (in thousands):

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
2022202120232022
Amortization expense related to deferred costsAmortization expense related to deferred costs$15,022 $13,727 Amortization expense related to deferred costs$12,175 $15,022 
Incremental costs capitalizedIncremental costs capitalized9,484 9,872 Incremental costs capitalized12,417 9,484 

Amortization expense related to deferred costs is primarily included in sales and marketing expense in the interim condensed consolidated statements of income.

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5. Acquired Intangible Assets and Goodwill

Acquired intangible assets that are subject to amortization consisted of the following as of March 31, 20222023 and December 31, 20212022 (in thousands):

March 31, 2022December 31, 2021 March 31, 2023December 31, 2022
Gross
Carrying
Amount
Accumulated AmortizationNet
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated AmortizationNet
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Completed technology$328,516 $(134,891)$193,625 $257,857 $(128,715)$129,142 
Completed technologiesCompleted technologies$333,647 $(170,930)$162,717 $327,848 $(162,323)$165,525 
Customer-related intangible assetsCustomer-related intangible assets499,945 (224,061)275,884 398,182 (216,192)181,990 Customer-related intangible assets481,965 (251,001)230,964 480,817 (244,158)236,659 
Non-compete agreementsNon-compete agreements254 (127)127 258 (107)151 Non-compete agreements249 (208)41 244 (183)61 
Trademarks and trade namesTrademarks and trade names14,663 (6,365)8,298 8,039 (6,097)1,942 Trademarks and trade names14,650 (7,980)6,670 14,642 (7,585)7,057 
Acquired license rightsAcquired license rights34,810 (556)34,254 490 (490)— Acquired license rights34,810 (2,969)31,841 34,810 (2,396)32,414 
TotalTotal$878,188 $(366,000)$512,188 $664,826 $(351,601)$313,225 Total$865,321 $(433,088)$432,233 $858,361 $(416,645)$441,716 

Aggregate expense related to amortization of acquired intangible assets for the three months ended March 31, 2023 and 2022 and 2021 was $13.6$15.9 million and $11.4$13.6 million, respectively. Based on the Company’s acquired intangible assets as of March 31, 2022,2023, aggregate expense related to amortization of acquired intangible assets is expected to be $50.4$48.0 million for the remainder of 2022, and $61.3 million, $65.8 million, $66.2 million2023, and $59.9 million, $62.4 million, $58.0 million and $44.8 million for 2023, 2024, 2025, 2026 and 2026,2027, respectively.

The changechanges in the carrying amount of goodwill for the three months ended March 31, 2022 was2023 were as follows (in thousands):

Balance as of January 1, 20222023$2,156,2542,763,838 
Acquisition of Linode Limited Liability CompanyStorageOS, Inc.588,44014,989 
Measurement period adjustments related to acquisitions completed in prior years1,884 
Foreign currency translation(696)3,032 
Balance as of March 31, 20222023$2,745,8822,781,859 

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

6. Acquisitions

Acquisition-related costs during the three months ended March 31, 20222023 were $10.3$2.2 million and are included in general and administrative expense in the interim condensed consolidated statements of income. Pro forma results of operations for the acquisition completed during the three months ended March 31, 20222023 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 interim condensed consolidated statements of income are also not presented separately because they are not material.

LinodeNeosec

In May 2023, the Company acquired Neosec, Inc. ("Neosec") for approximately $86.7 million, net of cash acquired and subject to post-closing adjustments. Neosec is an API detection and response platform based on data and behavioral analytics. The acquisition is intended to complement the Company's application and API security portfolio by extending its visibility into the rapidly growing API threat landscape. The allocation of the purchase price has not been finalized as of the filing of these interim condensed consolidated financial statements. The Company expects the majority of the purchase price to be allocated to acquired intangible assets and goodwill.

StorageOS

In March 2022,2023, the Company acquired all the outstanding equity interests of Linode Limited Liability CompanyStorageOS, Inc. ("Linode"StorageOS"), also known as Ondat, a privately-held cloud-based storage technology provider for $898.8$20.6 million in cash. Linode is an infrastructure-as-a-service platform provider that allows for developer-friendlyThe acquisition of StorageOS's cloud computing capabilities. The acquisitionstorage technology and its industry-recognized talent is intended to enhancestrengthen the Company’s edgeCompany's cloud computing services by creatingofferings. Storage is a uniquekey component of any cloud platform to build, run and secure applications from the cloud to the edge. As of March 31, 2022, the purchase price allocation is preliminary, pending finalization of the fair value of the tangible and intangible assets acquired, certain income tax matters and net working capital.
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computing offering, and this acquisition will help enhance the Company's storage capabilities, allowing us to offer a fundamentally different approach to cloud that integrates core and distributed computing sites with a massively scaled edge network. The following table presents the preliminary allocationCompany allocated $15.0 million of the purchase price for Linode (in thousands):

Total purchase consideration$898,777 
Allocation of the purchase consideration:
Cash$26,678 
Accounts receivable7,220 
Prepaid expenses and other current assets6,288 
Property and equipment60,670 
Operating lease right-of-use assets16,970 
Identifiable intangible assets212,520 
Goodwill588,440 
Deferred income tax assets2,901 
Other assets652 
Total assets acquired922,339 
Accounts payable(5,387)
Accrued expenses(970)
Operating lease liabilities(17,205)
Total liabilities assumed(23,562)
Net assets acquired$898,777 

cost of the acquisition to goodwill and $3.5 million to a technology-related identifiable intangible asset with a useful life of 8.8 years. The value of the goodwill can be attributedis primarily attributable to a numbersynergies related to the integration of business factors, includingStorageOS technology onto the Company's platform as well as a trained technical workforce and cost synergies expected to be realized. The Company expects that allworkforce. All of the goodwill related to the acquisition of Linode willStorageOS is expected to be deductible for tax purposes.

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

Gross Carrying AmountWeighted Average Useful Life (in years)
Customer-related intangible assets$100,700 11
Completed technologies70,900 6
Acquired license rights34,320 15
Trademarks6,600 9
Total$212,520 

The Company applied the relief-from-royalty method to estimate the fair valuesallocation of the completed technologies and trademarks and the excess earnings method to estimate the fair valuespurchase price has not been finalized as of the customer-related acquired intangible assets. The Company used readily available market data to estimate the fair valuesfiling of the acquired license rights. The total weighted average amortization period for the intangible assets acquired from Linode is 9.7 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.these interim condensed consolidated financial statements.

7. Debt

Convertible Senior 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, and mature on September 1, 2027, unless repurchased or converted in accordance with their terms prior to maturity.

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the notes will be convertible into 8.6073 shares of the Company's common stock, which is equivalent to a conversion price of approximately $116.18 per share, subject to adjustments in certain events. 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.

Upon conversion, the Company will pay the principal amount in cash and will pay, or deliver, as the case may be, any amount in excess of the principal amount in cash, shares of the Company's common stock or a combination of cash and shares of the Company's commonCompany stock, at the Company's election. 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.

Prior to January 1, 2022, inIn accounting for the issuance of the 2027 Notes, the Company separatedprincipal less debt issuance costs are recorded as debt on the 2027 Notes into liability and equity components.Company's interim condensed consolidated balance sheet. 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”) isissuance costs are 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 condensed consolidated balance sheet to meet the conditions for equity classification. On January 1, 2022, the Company adopted the revised guidance for accounting for convertible instruments, which eliminated the equity component. Refer to Note 1 to the condensed consolidated financial statements included elsewhere in this report for details on the revised guidance for accounting for convertible instruments adoption.

Initially, the Company allocated the total transaction costs incurred to the liability and equity components based on their relative values. However, subsequent to the adoption of the revised guidance for accounting for convertible instruments, all transaction costs are presented as a reduction to the 2027 Notes. Prior to January 1, 2022, transaction costs attributable to the liability component were being amortized to interest expense over the term of the 2027 Notes, and subsequent to the adoption of the revised guidance, all transaction costs are being amortized to interest expense over thecontractual term of the 2027 Notes.

The 2027 Notes consisted of the following components as of March 31, 20222023 and December 31, 20212022 (in thousands):

March 31,
2022
December 31,
2021
Liability component:
Principal$1,150,000 $1,150,000 
Less: debt discount and issuance costs, net of amortization(10,113)(169,030)
Net carrying amount$1,139,887 $980,970 
Equity component:$— $220,529 
March 31,
2023
December 31,
2022
Principal$1,150,000 $1,150,000 
Less: issuance costs, net of amortization(8,239)(8,707)
Net carrying amount$1,141,761 $1,141,293 

The estimated fair value of the 2027 Notes at March 31, 20222023 and December 31, 20212022 was $1,327.0$1,057.9 million and $1,359.3$1,111.0 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
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closing price of the Company's common stock of $119.39$78.30 on March 31, 2022,2023, the value of the 2027 Notes if converted to common stock was moreless 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 the convertible note hedge and warrant transactions. The remaining net proceeds are intended to be used for share repurchases, working capital and general corporate purposes, including potential acquisitions and other strategic transactions.

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 Company determined that the note hedge meets the definition of a derivative and is classified in stockholders’ equity, as the note hedge is indexed to the Company's common stock, and the Company, at its election, may pay or deliver to holdersreceive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The Company recorded the purchase of the hedge as a decrease to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the note hedge in its interim condensed consolidated financial statements.

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. The Company determined that the warrants meet the definition of a derivative and are classified in stockholders’ equity, as the warrants are indexed to the Company's common stock, and 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 Company recorded the proceeds from the issuance of the warrants as an increase to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the warrants in its interim condensed consolidated financial statements.

Convertible Senior 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.

Each $1,000 principal amount of the notes will be convertible into 10.5150 shares of the Company's common stock, which is equivalent to a conversion price of approximately $95.10 per share, subject to adjustments in certain events. 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.

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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, regardless of the foregoing circumstances.

Upon conversion, the Company will pay the principal amount in cash and will pay, or deliver, as the case may be, any amount in excess of the principal amount in cash, shares of common stock or a combination of cash and shares of the Company stock, at the Company's election. 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.

Prior to January 1, 2022, inIn accounting for the issuance of the 2025 Notes, the Company separatedprincipal less debt issuance costs are recorded as debt on the 2025 Notes into liability and equity components.Company's interim condensed consolidated balance sheet. 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”) isissuance costs are 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 condensed consolidated balance sheet to meet the conditions for equity classification. On January 1, 2022, the Company adopted the new revised guidance for accounting for convertible instruments, which eliminated the equity component. Refer to Note 1 to the condensed consolidated financial statements included elsewhere in this report for details on the revised guidance for accounting for convertible instruments adoption.

Initially, the Company allocated the total transaction costs incurred to the liability and equity components based on their relative values. However, subsequent to the adoption of the revised guidance for accounting for convertible instruments, all transaction costs are presented as a reduction to the 2025 Notes. Prior to January 1, 2022, transaction costs attributable to the liability component were being amortized to interest expense over the term of the 2025 Notes, and subsequent to the adoption of the revised guidance, all transaction costs are being amortized to interest expense over thecontractual term of the 2025 Notes.

The 2025 Notes consisted of the following components as of March 31, 20222023 and December 31, 20212022 (in thousands):

March 31,
2022
December 31,
2021
Liability component:
Principal$1,150,000 $1,150,000 
Less: debt discount and issuance costs, net of amortization(7,960)(154,803)
Net carrying amount$1,142,040 $995,197 
Equity component:$— $285,225 
March 31,
2023
December 31,
2022
Principal$1,150,000 $1,150,000 
Less: issuance costs, net of amortization(5,392)(6,035)
Net carrying amount$1,144,608 $1,143,965 

The estimated fair value of the 2025 Notes at March 31, 20222023 and December 31, 20212022 was $1,518.8$1,151.5 million and $1,510.4$1,209.1 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 $119.39$78.30 on March 31, 2022,2023, the value of the 2025 Notes if converted to common stock was moreless than the principal amount of $1,150.0 million.$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. The remaining net proceeds are intended to be used for share repurchases, working capital and general corporate purposes, including potential acquisitions and other strategic transactions.

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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 Company determined that the note hedge meets the definition of a derivative and is classified in stockholders’ equity, as the note hedge is indexed to the Company's common stock, and the Company, at its election, may pay or deliver to holdersreceive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The Company recorded the purchase of the hedge as a decrease to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the note hedge in its interim condensed consolidated financial statements.

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. The Company determined that the warrants meet the definition of a derivative and are classified in stockholders’ equity, as the warrants are indexed to the Company's common stock, and 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 Company recorded the proceeds from the issuance of the warrants as an increase to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the warrants in its interim condensed consolidated financial statements.

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Revolving Credit Facility

In May 2018, the Company entered into a $500.0 million five-year, revolving credit agreement (the “Credit“2018 Credit Agreement”). Borrowings under the 2018 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.

Borrowings under the Credit Agreement bearbore 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 2018 Credit Agreement. Regardless of what amounts, if any, are outstanding under the 2018 Credit Agreement, the Company iswas 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 2018 Credit Agreement.

In November 2022, the Company entered into a $500.0 million five-year, revolving credit agreement (the “2022 Credit Agreement”). The 2022 Credit Agreement replaces the 2018 Credit Agreement. Borrowings under the 2022 Credit Agreement may be used to finance working capital needs and for general corporate purposes. The 2022 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 2022 Credit Agreement expires, and any amounts outstanding thereunder will become due and payable, on November 22, 2027, subject to up to two one-year extensions at the Company's request and with the consent of the lenders party thereto.

Borrowings under the 2022 Credit Agreement bear interest, at the Company's option, and subject to a credit spread adjustment, at a term benchmark rate plus a spread of 0.75% to 1.125%, a reference rate plus a spread of 0.75% to 1.125%, or a base rate plus a spread of 0.00% to 0.125%, in each case with such spread being determined based on the Company's consolidated leverage ratio specified in the 2022 Credit Agreement. Regardless of what amounts, if any, are outstanding under the 2022 Credit Agreement, the Company is also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.07% to 0.125%, with such rate being based on the Company's consolidated leverage ratio specified in the 2022 Credit Agreement.

The 2022 Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. PrincipalThe negative covenants include restrictions on subsidiary indebtedness, liens and fundamental changes. These covenants are subject to a number of important exceptions and qualifications. The principal financial covenant requires a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. In March 2022, the Company borrowed $75.0 million. There were no outstanding borrowings under the 2022 Credit Agreement and as of March 31, 2023. In April 2023, the Company borrowed $90.0 million under the 2022 $75.0 million remained outstanding. The Company plans to repay amounts outstanding in less than 12 months.Credit Agreement.

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Interest Expense

The 2027 Notes bear interest at a fixed rate of 0.375%, with interest payable semi-annually on March 1 and September 1 of each year. The 2025 Notes bear interest at a fixed rate of 0.125%, with interest payable semi-annually on May 1 and November 1 of each year. The Company is also obligated to pay ongoing commitment fees under the terms of the Credit Agreement,its credit agreements, in addition to interest payable on outstanding borrowings. Prior to the adoption of the revised guidance for accounting for convertible instruments on January 1, 2022, the Company also amortized as interest expense the value of debt discounts of the 2027 Notes and the 2025 Notes. The following table sets forth total interestInterest expense included in the interim condensed consolidated statements of income for the three months ended March 31, 2023 and 2022 and 2021was as follows (in thousands):

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
2022202120232022
Amortization of debt discounts and issuance costs$1,168 $17,182 
Amortization of debt issuance costsAmortization of debt issuance costs$1,166 $1,168 
Coupon interest payable on 2025 NotesCoupon interest payable on 2025 Notes359 359 Coupon interest payable on 2025 Notes359 359 
Coupon interest payable on 2027 NotesCoupon interest payable on 2027 Notes1,078 1,078 Coupon interest payable on 2027 Notes1,078 1,078 
Interest payable under the Credit Agreement139 140 
Interest payable under the credit agreementsInterest payable under the credit agreements146 139 
Capitalization of interest expenseCapitalization of interest expense(49)(925)Capitalization of interest expense(68)(49)
Total interest expenseTotal interest expense$2,695 $17,834 Total interest expense$2,681 $2,695 

8. Restructuring

During the first quarter of 2022, Mitsubishi UFJ Financial Group ("MUFG"),2023, management committed to an action to restructure certain parts of the majority ownerCompany to enable it to prioritize investments in the fastest growing areas of Global Open Network, Inc. (“GO-NET"), announced its intention to suspend the operations of GO-NET and to eventually liquidate it. The Company has a 20% stake in GO-NET and also provides services to GO-NET.business. As a result, certain headcount reductions were necessary.
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The Company incurred expenses of $23.6 million for the three months ended March 31, 2022, the Company recorded as a restructuring charge the impairment of $7.5 million primarily related to certain capitalized internal-use software assets that will no longer be used in operations or will not generate sufficient future cash to support their values.2023. The Company does not expect to incur material additional charges related to this action.

Additionally, theThe Company launched its FlexBase program in May 2022, which is a flexible workspace arrangement that allows employees to choose to work from their home office, a Company office or a Company office.combination of both. This is a significant change to the way employees worked prior to the program, and prior to office shutdowns as part of the COVID-19 pandemic. Planning for the program commenced in 2021, and in the fourth quarter of 2021, theThe Company identifiedbegan to identify certain facilities that were no longer needed.needed in the fourth quarter of 2021. As a result, an impairmentimpairments of right-of-use assets and leasehold improvements waswere recognized. The Company has incurred expenses$25.9 million of $3.7 milliontotal expenses related to this program, of which a benefit of $0.1 million was incurred in the first quarter of 2022. Management is still evaluating the Company's future work environment and additional charges related to such type of action may occur in 2022.

During the fourth quarter of 2020, management committed to an action to restructure certain parts of the Company to better position itself to become more agile in delivering its solutions. 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 incurred expenses of $31.5 million as part of this action, of which $7.0$18.5 million was incurred during the three months ended March 31, 2021 and was comprised of $6.3 million of employee severance and related benefits and $0.7 million of internal-use software charges. The2023. As the Company did not incur anyexecutes its FlexBase program, additional charges related to this action duringare expected to occur over the three months ended March 31, 2022, nor does it expect to incur material additional charges related to this action.next 12 months.

The Company also recognizes restructuring charges for redundant employees, facilities and contracts associated with completed acquisitions.

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The Company's accrual for employee severance and related benefits for all restructuring actions during the three months ended March 31, 2023 was as follows (in thousands):


Balance as of January 1, 2023$541 
Costs incurred23,937 
Cash disbursements(556)
Translation adjustments and other
Balance as of March 31, 2023$23,929 
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9. Stockholders’ Equity

Share Repurchase Program

Effective January 2022, the board of directors of the Company authorized a $1.8 billion share repurchase program through December 31, 2024. During the three months ended March 31, 2022,2023, the Company repurchased 0.94.6 million shares of its common stock for $102.9$348.6 million. The Company's goals for the share repurchase program are to offset the dilution created by its employee equity compensation programs over time and provide the flexibility to return capital to stockholders as business and market conditions warrant, while still preserving its ability to pursue other strategic opportunities.

Stock-Based Compensation

The following table summarizesComponents of total stock-based compensation included in the Company’s interim condensed consolidated statements of income for the three months ended March 31, 2023 and 2022 and 2021were as follows (in thousands):
 
For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
2022202120232022
Cost of revenueCost of revenue$6,233 $7,096 Cost of revenue$9,329 $6,233 
Research and developmentResearch and development20,232 18,369 Research and development21,844 20,232 
Sales and marketingSales and marketing12,326 12,478 Sales and marketing13,545 12,326 
General and administrativeGeneral and administrative17,436 16,362 General and administrative17,165 17,436 
Total stock-based compensationTotal stock-based compensation56,227 54,305 Total stock-based compensation61,883 56,227 
Provision for income taxesProvision for income taxes(14,043)(13,044)Provision for income taxes(11,413)(14,043)
Total stock-based compensation, net of income taxesTotal stock-based compensation, net of income taxes$42,184 $41,261 Total stock-based compensation, net of income taxes$50,470 $42,184 

During 2023, the Company redesigned one of its performance-based compensation programs from a cash-based to a stock-based program that vests in one year.

In addition to the amounts of stock-based compensation reported in the table above, the Company’s interim condensed consolidated statements of income for the three months ended March 31, 20222023 and 2021,2022 include stock-based compensation reflected as a component of amortization primarily consisting of capitalized internal-use software of $7.6$7.5 million and $7.7 $7.6
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million, respectively, before taxes.

10. Accumulated Other Comprehensive Loss

The following table summarizes the changesChanges in accumulated other comprehensive loss, net of tax, which is reported as a component of stockholders' equity, for the three months ended March 31, 20222023 were as follows (in thousands):

Foreign Currency TranslationNet Unrealized Gains (Losses) on InvestmentsTotal
Balance as of January 1, 2022$(71,809)$2,704 $(69,105)
Other comprehensive income (loss)2,036 (21,542)(19,506)
Balance as of March 31, 2022$(69,773)$(18,838)$(88,611)
Foreign Currency TranslationNet Unrealized (Losses) Gains on InvestmentsTotal
Balance as of January 1, 2023$(116,474)$(23,858)$(140,332)
Other comprehensive income11,722 7,449 19,171 
Balance as of March 31, 2023$(104,752)$(16,409)$(121,161)

AmountsThere were no amounts reclassified from accumulated other comprehensive loss to net income were immaterial for the three months ended March 31, 2022.2023.

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11. Revenue from Contracts with Customers

The Company sells its solutionsservices 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 revenueRevenue by geography included in the Company’s interim condensed consolidated statements of income for the three months ended March 31, 2023 and 2022 and 2021was as follows (in thousands):

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
2022202120232022
U.S.U.S.$481,007 $463,180 U.S.$473,833 $481,007 
InternationalInternational422,640 379,528 International441,865 422,640 
Total revenueTotal revenue$903,647 $842,708 Total revenue$915,698 $903,647 

The Company reports its revenue in 3three solution categories: security, delivery and compute. Revenue by solution was previously reported by group: Security Technology Group and Edge Technology Group. Revenue from security solutions was previously presented as Security Technology Group revenue and revenue from delivery and compute solutions was previously presented as Edge Technology Group revenue. Security includes solutions that are designed to protect business online by keeping infrastructure, websites, applications and users safe. Delivery includes solutions that are designed to enable business online, including media delivery and web performance. Compute includes cloud computing, edge applications, cloud optimization solutions and net storage. The following table summarizes revenueRevenue by solution category included in the Company’s interim condensed consolidated statements of income for the three months ended March 31, 2023 and 2022 and 2021was as follows (in thousands):

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
2022202120232022
SecuritySecurity$381,567 $310,219 Security$405,552 $381,567 
DeliveryDelivery444,148 473,669 Delivery394,384 444,148 
ComputeCompute77,932 58,820 Compute115,762 77,932 
Total revenueTotal revenue$903,647 $842,708 Total revenue$915,698 $903,647 

Most security, delivery and compute services represent obligations that are satisfied over time as the customer simultaneously receives and consumes the services provided by the Company. Accordingly, the majority of the Company's revenue is recognized over time, generally ratably over the term of the arrangement due to consistent monthly usage commitments that expire each period. Any usage over a given commitment is recognized in the period in which the units are served. Any bursting over given commitments is recognized in the period in which the traffic is served. A small percentage of the Company's contracts 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 three months ended March 31, 20222023 and 2021,2022, the Company recognized $56.2$57.5 million and $43.3$56.2 million of revenue that was included in deferred revenue as of December 31, 20212022 and 2020,2021, respectively.

As of March 31, 2022,2023, the aggregate amount of remaining performance obligations from contracts with customers was $3.2$3.3 billion. The Company expects to recognize approximately 70% of its remaining performance obligations as revenue over the next 12 months, withmonths. The remainder of the remainingbalance is expected to be recognized thereafter.over the next two to three years. 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. Revenue recognized during each of the three months ended March 31, 20222023 and 2021,2022, related to performance obligations satisfied in previous periods was not material.

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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.

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 Massachusetts Department of Revenue appealed the decision in January 2022. The Company has determined that it is more-likely-than-not that it will prevail and no reserve has been recorded related to these controversies.

The Company’s effective income tax rate was 21.2%23.5% and 7.1%12.3% for the three months ended March 31, 2023 and 2022, respectively. The higher effective tax rate for the three months ended March 31, 2023 was primarily due to a decrease in the excess tax benefit related to stock-based compensation, an increase in the valuation allowance recorded against tax credits and 2021, respectively. foreign net operating loss carryforwards (NOLs) and an increase in the revaluation of certain foreign income tax liabilities due to foreign exchange rate fluctuations.

For the three months ended March 31, 2022,2023, the effective income tax rate was higher than the federal statutory tax rate due to an intercompany sale of intellectual property, tax on global intangible low taxed income, and non-deductible stock-based compensation.compensation, a shortfall related to stock-based compensation and an increase in the valuation allowance recorded against tax credits and foreign NOLs. These amounts were partially offset by 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.

For the three months ended March 31, 2021,2022, 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 the revaluation of certain foreign income tax liabilities due to foreign exchange rate fluctuations and the benefit of U.S. federal, state and foreign research and development tax credits. These amounts were partially offset by an intercompany sale of intellectual property, the tax on global intangible low taxed income and non-deductible stock-based compensation, the valuation allowance recorded against deferred tax assets related to state tax credits and state taxes.compensation.

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"(“RSUs”), deferred stock units ("DSUs"(“DSUs”), convertible senior notes and warrants issued by the Company. For the three months ended March 31, 2022, theThe dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method and the dilutive effect of the convertible securities is reflected in diluted earnings per share by application of the if-converted method. For the three months ended March 31, 2021, 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 months ended March 31, 2023 and 2022 and 2021were as follows (in thousands, except per share data):
 
For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021 20232022
Numerator:Numerator:Numerator:
Net incomeNet income$119,163 $155,695 Net income$97,106 $133,376 
Denominator:Denominator:Denominator:
Shares used for basic net income per shareShares used for basic net income per share160,494 163,061 Shares used for basic net income per share155,637 160,494 
Effect of dilutive securities:Effect of dilutive securities:Effect of dilutive securities:
Stock optionsStock optionsStock options— 
RSUs and DSUsRSUs and DSUs1,320 1,667 RSUs and DSUs498 1,320 
Convertible senior notesConvertible senior notes1,822 955 Convertible senior notes— 1,822 
Warrants related to issuance of convertible senior notes— — 
Shares used for diluted net income per shareShares used for diluted net income per share163,637 165,688 Shares used for diluted net income per share156,135 163,637 
Basic net income per shareBasic net income per share$0.74 $0.95 Basic net income per share$0.62 $0.83 
Diluted net income per shareDiluted net income per share$0.73 $0.94 Diluted net income per share$0.62 $0.82 

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For the three months ended March 31, 20222023 and 2021,2022, certain potential outstanding common shares issuable in respect of stock options,from 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 market- and performance-based RSUs were excluded from the computation of diluted net income per share because the underlying market and 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 months ended March 31, 2023 and 2022 and 2021 arewere as follows (in thousands):

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
2022202120232022
Service-based RSUsService-based RSUs2,234 2,070 Service-based RSUs7,867 2,234 
Market- and performance-based RSUsMarket- and performance-based RSUs1,054 1,338 Market- and performance-based RSUs1,580 1,054 
Convertible senior notes— 9,898 
Warrants related to issuance of convertible senior notesWarrants related to issuance of convertible senior notes21,991 21,991 Warrants related to issuance of convertible senior notes21,991 21,991 
Total shares excluded from computationTotal shares excluded from computation25,279 35,297 Total shares excluded from computation31,438 25,279 

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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 interim condensed consolidated financial statements included herein contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. 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,” “could,” “expects,” “anticipates,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “if,” “continues,” “goal,” “likely,” “may,” “will” 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 and in our other reports with the Securities and Exchange Commission 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, including the potential impact of any mergers, acquisitions, divestitures or other events that may be announced after the date hereof.

Our management’s discussion and analysis of our financial condition and results of operations is based upon our unaudited interim condensed 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,("GAAP"), for interim periods and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended or the Exchange Act.(the "Exchange Act"). The preparation of these unaudited interim condensed 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 December 31, 20212022 for further discussion of our critical accounting policies and estimates.

Overview

We provide solutions to power and protect life online.online through our massively distributed worldwide network of servers, or our Akamai Connected Cloud. The Akamai Connected Cloud is comprised of an edge and cloud architecture for cloud computing, security and content delivery, and central to our financial success. The key factors that influence our financial success are our ability to build on recurring revenue commitments for our security and performance offerings, increase media traffic on our network, continue to develop, scale and successfully bring to market our cloud computing platform and compute-to-edge solutions that meet the needs of professional users and enterprises, effectively manage the prices we charge for our solutions, develop new products and carefullyappropriately manage our capital spending and other expenses. The purpose of this discussion and analysis section is to provide material information relevant to an assessment of our financial condition and results of operations from management’s perspective, including to describe and explain key trends, events and other factors that impacted our reported results and that are likely to impact our future performance.

Revenue

For most of our solutions, our customers commit to contracts having terms of a year or longer, which allows us to have a consistent and predictable base level of revenue. In addition to a base level of revenue, we are also dependent on mediadelivery customers, and to a lesser extent some security and computing 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 and the usage of cloud computing services, the rate of adoption of gaming, social media and video platform offerings, the timing and variability of customer-specific one-time events and geopolitical, economic and other developments that impact our customers' businesses. Seasonal variations that impact traffic on our network, such as holiday-related activities, can cause revenue fluctuations from quarter to quarter.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 key factors impacting our revenue growth.

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

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Increased sales of our security solutions, led by application security solutions and more recently,segmentation solutions from our acquisition of Guardicore Ltd., and increased sales of our compute solutions, primarily attributable to our acquisition of Linode Limited Liability Company ("Linode") in early 2022, have made a significant contribution to revenue growth. During the first quarter of 2023, security represented the largest share of revenue with security and compute revenue representing over half of our total revenue. We plan to continue to invest in these areas with a focus on further enhancing our product portfolios and extending our go-to-market capabilities, particularly in certain markets and through our channel partners.

We have experienced increases in the amount of traffic delivered for customers that use our delivery solutions for video, gaming downloads and social media. During 2020 and in early 2021, we saw a dramatic increase in traffic
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growthTraffic on our network relatedcontinues to the shutdowns and restrictions relatedgrow as compared to the novel coronavirus, or COVID-19, pandemic. Primarily as a result of the rollback of many pandemic-related restrictions, we sawprior years, however, the rate of traffic growth moderateis impacted by a number of external factors. Most recently, as we and our customers manage through a time of economic headwinds and uncertainty, we expect traffic growth rates to be impacted. Conversely, our rate of traffic growth increased significantly during 2021 and the first three monthsheight of 2022. We do not expect the events related to the COVID-19 pandemic in 2020 and its2021. These traffic fluctuations may continue to impact to our revenuedelivery revenue. We expect traffic growth rates to repeat inimprove for the foreseeable future. We expect traffic delivered for our customersremainder of 2023 as compared to continue to grow, but anticipate growth rates will moderate.last year.

The prices paid by some of our customers have declined in recent years due to competition and contract renewals. Duringrenewals, which negatively impacts our revenue growth rates. We have been able to mitigate some of the first quarter of 2022 as comparednegative impacts to 2021, we experienced a decline inour revenue from our delivery solutions due to the above factors. While we have increased committed recurring revenue from our solutionsgrowth rates by upselling incremental solutions to our existing customerscustomers. We are taking steps to try to maintain alignment between customer traffic volumes and adding new customers to offset the negative trends, we expect revenue challenges from our delivery solutions to continue in 2022.unit pricing.

Revenue from our international operations has generally been growing at a faster pace in recent years than from our U.S. operations, particularly in terms offrom new customer acquisition increases in traffic and cross-selling of incremental solutions. Because we publicly report in U.S. dollars, and due toif the strengthening U.S. dollar strengthens, our reported revenue results have beenwill be negatively impacted during the first quarter of 2022. We expect to continue to be impacted by the strengthening U.S. dollar during the remainder of 2022. However, conversely,impacted. Conversely, a weaker dollar would benefit our reported results.

We have experienced variations in certain types of revenue from quarter to quarter.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 that impact the amount of media traffic on our network; the timing of large customer contract renewals; and the frequency and timing of purchases of custom 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.costs, which includes energy to power our network. We have observed the following trends related to our profitability in recent years:

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 or improve current levels of profitability.

Co-location costs which include the costs of energy to power our network, are also a significant portion of our cost of revenue. By improvingAs we build out our new compute locations to provide us with the ability to scale our platform, we expect to continue to enter into longer term leases that include certain financial commitments in order to achieve more favorable unit economics. The costs of the financial commitments are expensed ratably over the life of the lease, and, as a result, in some cases, we are incurring costs in advance of these compute locations being fully utilized. We continue to improve our internal-use software and remain disciplined in managing our hardware deployments, to enableparticularly for our delivery platform, which enables us to use servers more efficiently,efficiently. With these efficiencies we have been able to manageminimize the growthimpact of co-location costs, including combating the rise ofrising energy costs, particularly in Europe.costs. We expect to continue to scale our network in the future, andwhich will need to continueallow us to effectively manage our co-location costs to maintain or improve current levels of profitability.

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Network build-out and supporting service costs represent another significant portion of our cost of revenue. These costs include maintenance and supporting services incurred as we continue to build-out our compute infrastructure and maintain our global network.network, and costs of third-party cloud providers used for some of our operations. We have seen these costs increase in recent years as a result of our network expansion and pricing pressure from vendors.increased use of third-party cloud services. As we continue to invest inbuild out our network,compute infrastructure, we plan to migrate third-party cloud services to our own cloud solutions, which may reduce our costs over time. We will need to effectively manage our network build-out and supporting costs.costs to improve current levels of profitability.

Our employees are core to the operations of our business, and payroll and related costs, including stock-based compensation, is one of our largest expenses. It is important to the success of operations that we offer competitive compensation packages. However, we needremain disciplined in allocating our resources to ensure we continue to focus on the right investmentssupport our faster growing security and maintaincompute solutions, including maintaining operational efficiencies to mitigate the rising cost of talent. We plan to continue to hire employeesBeginning in support2023, we have redesigned one of our strategic initiatives, but do not expect overall headcountperformance-based compensation programs to increase significantly in 2022.better align employee incentives with the interests of our stockholders by shifting certain employees from a cash-based program to a stock-based program.

Depreciation expense related to our network equipment also contributes to our overall expense levels, andlevels. In recent years we expect to continue to investhave invested in our network in 2022,as traffic levels have increased, which will increaseincreased our capital expenditures and resulting depreciation expense. We plan to continue to make investments in capital expenditures, however, the focus is to further invest in support of our faster growing compute solutions. Due to the software and hardware initiatives we have undertaken to manage our global network more efficiently, the useful lives of our servers have been extended, which will partially offset increased depreciation expense from the build out of our compute infrastructure.

27Growth in our international operations incrementally increases our exposure to foreign currency fluctuations. Because we report in U.S. dollars, if the dollar strengthens, our expenses will be positively impacted. Conversely, a weaker dollar would negatively impact our expenses.

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Recent Acquisitions

In March 2022,2023, we acquired all of the outstanding equity interests of Linode Limited Liability Company, or Linode, for $898.8 million. Linode is an infrastructure-as-a-service platform provider that allows for developer-friendly cloud computing capabilities. The acquisition is intended to enhance our computing services by creating a unique cloud platform to build, runStorageOS, Inc., also known as Ondat, and secure applications from the cloud to the edge. Linode has approximately 250 employees.

In October 2021,in May 2023, we acquired Guardicore Ltd., or Guardicore, for $610.4 million in cash. Guardicore's micro-segmentation solution is designed to limit user access to only those applications thatNeosec, Inc. These acquisitions are authorized to communicate with each other, thereby limiting the spread of malware and protecting the flow of enterprise data across the network. Guardicore has approximately 270 employees, and the acquisition is expected to be slightly dilutive to our earnings per share at least through 2022.

Remote Work

As of May 2022, all of our offices are open for employees who would prefer to work from one of our offices. We have a rigorous process for assessing whether any office can remain open based on local government regulations, local health trends and business needs. Except for employees whose job responsibilities require in-office work, none of our employees are required to fully return to the office, even those that are currently open. In addition, we launched our FlexBase program in May 2022, which allows the more than 90% of our workforce designated as flexible to choose whether they want to work from an Akamai office or their home office, even after we decide it is safe to open all of our offices in light of the COVID-19 pandemic.

Our operations have not been significantly disrupted by the shift to remote working. While we have incurred and expect to continue to incur expenses associated with enabling remote work, reconfiguring work spaces to help ensure the safety and well-being of employees accessing our locations and re-thinking our facility footprint and the way we utilize office space, we do not currently believe those costs will materially impact our financial condition or results of operations.share.

Global Developments

During the first quarter of 2022, several global macro-economicGlobal macroeconomic and geopolitical developments have emerged. These developments did not haveconditions continue to impact our business and revenue growth rates. We, along with our customers, continue to manage through an uncertain period of inflation, growing recessionary concerns, supply chain challenges, uncertain energy supplies, heightened geopolitical tensions, fluctuations in foreign exchange rates and rising interest rates. As a significant impact on our results of operations during the first quarter of 2022, but we anticipate they may in the remainder of 2022. We experienced the strengtheningresult of the U.S. dollar, which is expected touncertain macroeconomic environment, we have a negative impact onexperienced elongated sales cycles with our revenue for the remainder of 2022. We have also experienced a decline in revenue related to the war in Ukraine. Approximately 1% of our revenue is generated from traffic we serve into Russia, Belaruscustomers and Ukraine. We have seen a decrease in traffic in these countries since the war beganprospects, and expect to continue to experience a declineelongated sales cycles in 2022 as compared2023. To the extent these macroeconomic conditions continue, we expect that it may continue to 2021. Our board of directors is continuing to oversee risks related to macro-economicadversely affect our business, operations and geopolitical developments, including the war in Ukraine, and management is monitoring these developments, including the potential impact from the war on our business. As a result of overall macro-economic trends, concerns of a potential recession and future projections of traffic consumption that suggest traffic growth will moderate as restrictions related to the COVID-19 pandemic are lifted, we anticipate our traffic will grow, but at a more moderate pace than we have experienced previously.financial results.

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Results of Operations

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

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021 20232022
RevenueRevenue100.0 %100.0 %Revenue100.0 %100.0 %
Costs and operating expenses:Costs and operating expenses:Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)Cost of revenue (exclusive of amortization of acquired intangible assets shown below)36.8 36.4 Cost of revenue (exclusive of amortization of acquired intangible assets shown below)39.5 36.8 
Research and developmentResearch and development11.1 9.7 Research and development10.0 11.1 
Sales and marketingSales and marketing13.6 13.8 Sales and marketing14.1 13.6 
General and administrativeGeneral and administrative17.0 16.2 General and administrative16.0 17.0 
Amortization of acquired intangible assetsAmortization of acquired intangible assets1.5 1.4 Amortization of acquired intangible assets1.7 1.5 
Restructuring chargeRestructuring charge0.9 0.8 Restructuring charge4.9 0.9 
Total costs and operating expensesTotal costs and operating expenses80.9 78.3 Total costs and operating expenses86.2 80.8 
Income from operationsIncome from operations19.1 21.7 Income from operations13.8 19.2 
Interest and marketable securities (loss) income, net— 0.5 
Interest and marketable securities income (loss), netInterest and marketable securities income (loss), net0.6 — 
Interest expenseInterest expense(0.3)(2.1)Interest expense(0.3)(0.3)
Other expense, netOther expense, net(1.1)(0.1)Other expense, net(0.3)(1.1)
Income before provision for income taxesIncome before provision for income taxes17.7 20.0 Income before provision for income taxes13.9 17.8 
Provision for income taxesProvision for income taxes(3.8)(1.4)Provision for income taxes(3.3)(2.2)
Loss from equity method investmentLoss from equity method investment(0.8)(0.1)Loss from equity method investment— (0.8)
Net incomeNet income13.1 %18.5 %Net income10.6 %14.8 %

Revenue

Revenue by solution was previously reported by product group: Security Technology Group and Edge Technology Group. Revenue from security solutions was previously presented as Security Technology Group revenue. Revenue from delivery and compute solutions was previously presented as Edge Technology Group revenue. Revenue by solution category during the periods presented was as follows (in thousands):

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021% Change% Change at Constant Currency20232022% Change% Change at Constant Currency
SecuritySecurity$381,567 $310,219 23.0 %25.5 %Security$405,552 $381,567 6.3 %8.9 %
DeliveryDelivery444,148 473,669 (6.2)(4.4)Delivery394,384 444,148 (11.2)(9.1)
ComputeCompute77,932 58,820 32.5 34.8 Compute115,762 77,932 48.5 50.7 
Total revenueTotal revenue$903,647 $842,708 7.2 %9.3 %Total revenue$915,698 $903,647 1.3 %3.6 %

During the three-month period ended March 31, 2022,2023, the increase in our revenue as compared to the same period in 20212022 was primarily the result of continued strong growth in sales of solutions offered by our security solutions, in addition to the acquisition of Linode in March 2022 driving growth in sales of our compute solutions. However, theseThese increases were impacted bypartially offset due to a decline in revenue from our delivery solutions due to the significant strengtheningpricing impact of the U.S. dollar.renewals.

The increase in security solutions revenue for the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was due to growth acrossin a number of key products in our security productssolutions portfolio, including Bot Manager, Kona Site Defenderour web application firewall and our Zero Trust security solutions as well as strong performance from Guardicoresegmentation solutions.

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The decrease in delivery solutions revenue for the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was primarily due to reductionsa reduction in salesthe traffic growth rate, particularly among our largest customers, which we believe was attributed to macroeconomic challenges our customers are experiencing and the pricing impact of application performance solutions, partially offset by moderate growth in over-the-top, or OTT.renewals.
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The increase in compute solutions revenue for the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was primarily due to strong growth in compute products, including through theour acquisition of Linode in 2022, and continued growth in cloud optimization solutions.the March 2022.

Revenue derived in the U.S. and internationally during the periods presented was as follows (in thousands):
    
For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021% Change% Change at Constant Currency20232022% Change% Change at Constant Currency
U.S.U.S.$481,007 $463,180 3.8 %3.8 %U.S.$473,833 $481,007 (1.4)%(1.4)%
InternationalInternational422,640 379,528 11.4 16.1 International441,865 422,640 4.5 9.4 
Total revenueTotal revenue$903,647 $842,708 7.2 %9.3 %Total revenue$915,698 $903,647 1.3 %3.6 %

For the three-month period ended March 31, 2022,2023, approximately 46.8%48.3% of our revenue was derived from our operations located outside the U.S., compared to 45.0%46.8% for the three-month period ended March 31, 2021.2022. We have generally seen strong revenue growth across all our international regions, particularly in the Asia Pacific region.regions. No single country outside the U.S. accounted for 10% or more of revenue during either of these periods. Changes in foreign currency exchange rates impacted our revenue by aan unfavorable $17.7$20.8 million during the three-month period ended March 31, 2022,2023, as compared to the same period in 2021. We expect to continue to be impacted by the significant strengthening of the U.S. dollar in 2022.

Cost of Revenue

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

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021% Change 20232022% Change
Bandwidth feesBandwidth fees$51,082 $53,230 (4.0)%Bandwidth fees$55,716 $51,082 9.1 %
Co-location feesCo-location fees48,498 42,543 14.0 Co-location fees56,919 48,498 17.4 
Network build-out and supporting servicesNetwork build-out and supporting services42,919 36,434 17.8 Network build-out and supporting services53,781 42,919 25.3 
Payroll and related costsPayroll and related costs74,481 68,249 9.1 Payroll and related costs81,197 74,481 9.0 
Acquisition-related costsAcquisition-related costs175 — 100.0 Acquisition-related costs1,461 175 734.9 
Stock-based compensation, including amortization of prior capitalized amountsStock-based compensation, including amortization of prior capitalized amounts13,458 14,329 (6.1)Stock-based compensation, including amortization of prior capitalized amounts16,477 13,458 22.4 
Depreciation of network equipmentDepreciation of network equipment61,386 51,896 18.3 Depreciation of network equipment52,176 61,386 (15.0)
Amortization of internal-use softwareAmortization of internal-use software40,753 40,006 1.9 Amortization of internal-use software43,589 40,753 7.0 
Total cost of revenueTotal cost of revenue$332,752 $306,687 8.5 %Total cost of revenue$361,316 $332,752 8.6 %
As a percentage of revenueAs a percentage of revenue36.8 %36.4 %As a percentage of revenue39.5 %36.8 %

The increase in cost of revenue for the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was primarily due to increased investment in our network to support current and anticipated future traffic growth, which resulted in higher depreciation costs of our network equipment, increases in payroll and related costs, increases to amounts paid for to:

network build-out and supporting services, and increases to expensesparticularly related to increased supporting services for third-party cloud applications use for some of our operations;
co-location facilities.fees as a result of investment in the Akamai Connected Cloud, particularly as we build-out our compute infrastructure; and
payroll and related costs as a result of increased headcount from 2022 hiring, and from our acquisition of Linode, to support our network.

These increases were partially offset by lower depreciation expense of network equipment due to software and hardware initiatives we have implemented to manage our global network more efficiently. We increased the expected average useful life of our servers from five to six years effective January 1, 2023, which resulted in a reduction to depreciation expense of $16.7 million for the three months ended March 31, 2023.
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During the remainder of 2022,2023, we anticipateexpect our cost of revenuesrevenue to increase as compared to 2022, in particular amortization of internal-use software, depreciation of network equipment and payroll and relatedco-location costs, due to continued investments in our network as well asto support the continued growth of our recent acquisitions.compute solutions. Additionally, stock-based compensation will increase in 2023 due to the expected achievement of our performance-based compensation plans and the shift in one of our programs from cash-based to stock-based. We plan to continue to focus our efforts on managing our operating margins, including continuing to manage our bandwidth co-location and network build-out costs.
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In particular, we are taking steps to shift workloads to our own cloud solutions, which we expect will reduce third-party cloud application expense.

Research and Development Expenses

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

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021% Change 20232022% Change
Payroll and related costsPayroll and related costs$122,248 $113,420 7.8 %Payroll and related costs$124,633 $122,248 2.0 %
Stock-based compensationStock-based compensation20,232 18,369 10.1 Stock-based compensation21,844 20,232 8.0 
Capitalized salaries and related costsCapitalized salaries and related costs(48,670)(52,491)(7.3)Capitalized salaries and related costs(61,755)(48,670)26.9 
Acquisition-related costsAcquisition-related costs76 — 100.0 Acquisition-related costs(31)76 (140.8)
Other expensesOther expenses6,049 2,747 120.2 Other expenses7,172 6,049 18.6 
Total research and developmentTotal research and development$99,935 $82,045 21.8 %Total research and development$91,863 $99,935 (8.1)%
As a percentage of revenueAs a percentage of revenue11.1 %9.7 %As a percentage of revenue10.0 %11.1 %

The increasedecrease in research and development expenses during the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was primarily due to increased payrollcapitalized salaries and related costs including stock-based compensation, primarily dueas we focused resources to headcount growth to support our strategic initiatives and from our recent acquisitions. This increase was also impacted by an increase in other expenses which was mainlywork on development activities related to increased computer services.our platform.

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 periods ended March 31, 20222023 and 2021,2022, we capitalized $7.2$13.2 million and $8.7$7.2 million, respectively, of stock-based compensation. These capitalized internal-use software development costs are amortized to cost of revenue over their estimated useful lives, which is generallyranging from two years, but can be up to seven years based on the software developed and its expected useful life.

WeDuring the remainder of 2023, we expect our research and development costs to increase in the remainder of 2022 to support the continued growth of our innovation initiativescompute and incremental headcountsecurity solutions. Additionally, stock-based compensation will increase in 2023 due to hiring forthe expected achievement of our strategic investmentsperformance-based compensation plans and the shift in one of our employees acquired through our recent acquisitions.programs from cash-based to stock-based.

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Sales and Marketing Expenses

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

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021% Change 20232022% Change
Payroll and related costsPayroll and related costs$94,861 $93,559 1.4 %Payroll and related costs$95,126 $94,861 0.3 %
Stock-based compensationStock-based compensation12,326 12,478 (1.2)Stock-based compensation13,545 12,326 9.9 
Marketing programs and related costsMarketing programs and related costs11,558 8,450 36.8 Marketing programs and related costs13,840 11,558 19.7 
Acquisition-related costsAcquisition-related costs76 — 100.0 Acquisition-related costs635 76 735.5 
Other expensesOther expenses3,898 1,867 108.8 Other expenses5,961 3,898 52.9 
Total sales and marketingTotal sales and marketing$122,719 $116,354 5.5 %Total sales and marketing$129,107 $122,719 5.2 %
As a percentage of revenueAs a percentage of revenue13.6 %13.8 %As a percentage of revenue14.1 %13.6 %

The increase in sales and marketing expenses during the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was due to increased marketing programs and related costs due to increased marketing and advertising spend in anticipation forof upcoming events.events and increased travel expenses such as airfare, lodging and other costs related to in-person customer events and meetings.

WeDuring the remainder of 2023, we expect our sales and marketing costsexpenses to increase as compared to 2022, due to our continued investment in the remainder of 2022.go-to-market efforts. However, we plan to continue to carefully manage costs in an effort to manageimprove our operating margins and to refine and optimize our go-to-market efforts.
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margins.

General and Administrative Expenses

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

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021% Change 20232022% Change
Payroll and related costsPayroll and related costs$53,317 $56,450 (5.6)%Payroll and related costs$57,690 $53,317 8.2 %
Stock-based compensationStock-based compensation17,436 16,362 6.6 Stock-based compensation17,165 17,436 (1.6)
Depreciation and amortizationDepreciation and amortization19,678 20,909 (5.9)Depreciation and amortization16,721 19,678 (15.0)
Facilities-related costsFacilities-related costs26,579 24,347 9.2 Facilities-related costs23,989 26,579 (9.7)
Provision (benefit) for doubtful accounts1,288 (260)595.4 
(Benefit) provision for doubtful accounts(Benefit) provision for doubtful accounts(83)1,288 (106.4)
Acquisition-related costsAcquisition-related costs10,616 64 16,487.5 Acquisition-related costs4,703 10,616 (55.7)
Software and related service costsSoftware and related service costs13,871 11,024 25.8 
Other expensesOther expenses24,348 18,843 29.2 Other expenses12,083 13,324 (9.3)
Total general and administrativeTotal general and administrative$153,262 $136,715 12.1 %Total general and administrative$146,139 $153,262 (4.6)%
As a percentage of revenueAs a percentage of revenue17.0 %16.2 %As a percentage of revenue16.0 %17.0 %

The increasedecrease in general and administrative expenses for the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was primarily due to acquisition-related costs fromrelated to our acquisition of Linode in the first quarter of 2022 and other expenses due to an increasefacilities-related costs as a result of growth in professional service fees.sublease income from the execution of our FlexBase strategy.

These decreases were partially offset by increased payroll and related costs as a result of headcount growth and increased software-related costs to support our operations.

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General and administrative expenses for the three-month periods ended March 31, 20222023 and 20212022 are broken out by category as follows (in thousands):

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021% Change20232022% Change
Global functionsGlobal functions$56,131 $55,799 0.6 %Global functions$56,950 $56,131 1.5 %
As a percentage of revenueAs a percentage of revenue6.2 %6.6 %As a percentage of revenue6.2 %6.2 %
InfrastructureInfrastructure85,199 81,109 5.0 Infrastructure84,569 85,199 (0.7)
As a percentage of revenueAs a percentage of revenue9.4 %9.6 %As a percentage of revenue9.2 %9.4 %
OtherOther11,932 (193)6,282.4 Other4,620 11,932 (61.3)
Total general and administrativeTotal general and administrative$153,262 $136,715 12.1 %Total general and administrative$146,139 $153,262 (4.6)%
As a percentage of revenueAs a percentage of revenue17.0 %16.2 %As a percentage of revenue16.0 %17.0 %

Global functions expenseexpense 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 facilityfacility- and IT-related assets, software and software-relatedrelated service 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, and provision for doubtful accounts.accounts and legal settlements.

During the remainder of 2022,2023, we expect payroll and related costs of our general and administrative functionsexpenses to increase as compared to 20212022 as a result of payroll and related costs due to headcount growth and annual merit increases. Additionally, we expect stock-based compensation to supportincrease due to the operationsexpected achievement of our performance-based compensation plans and the business, but we planshift in one of our programs from cash-based to continuestock-based. We expect these increases to carefully managebe partially offset by a decrease in facility-related costs in an effort to managefrom reduced real estate expenses from our operating margins.FlexBase program.

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Amortization of Acquired Intangible Assets

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands)(in thousands)20222021% Change(in thousands)20232022% Change
Amortization of acquired intangible assetsAmortization of acquired intangible assets$13,644 $11,427 19.4 %Amortization of acquired intangible assets$15,912 $13,644 16.6 %
As a percentage of revenueAs a percentage of revenue1.5 %1.4 %As a percentage of revenue1.7 %1.5 %

The increase in amortization of acquired intangible assets for the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was the result of amortization of acquired intangible assets related to our recent acquisitions. Based on ouracquired intangible assets at March 31, 2022,2023, we expect amortization of acquired intangible assets to be $50.4approximately $48.0 million for the remainder of 2022, and $61.3 million, $65.8 million, $66.2 million2023, and $59.9 million, $62.4 million, $58.0 million and $44.8 million for 2023, 2024, 2025, 2026 and 2026,2027, respectively. We expect amortization expense to increase in future periods as a result of our acquisition of Neosec, which closed in May 2023.

Restructuring Charge

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands)(in thousands)20222021% Change(in thousands)20232022% Change
Restructuring chargeRestructuring charge$8,016 $7,116 12.6 %Restructuring charge$44,723 $8,016 457.9 %
As a percentage of revenueAs a percentage of revenue0.9 %0.8 %As a percentage of revenue4.9 %0.9 %

The restructuring charge for the three-month period ended March 31, 2023 was primarily the result of management's commitment to an action to restructure certain parts of the company to enable the prioritization of investments in the fastest
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growing areas of the business. The restructuring charge for this action includes severance and related expenses for certain headcount reductions. We do not expect to incur material additional charges related to this action.

In addition, in connection with our FlexBase program, we identified certain facilities that were no longer needed, resulting in impairments of right-of-use-assets and leasehold improvements. We are continuing to evaluate our facility footprint, including our plans and ability to sublease space, but we do not currently believe such charges will materially impact our financial condition or results of operation.

The restructuring charge for the three-month period ended March 31, 2022 was primarily related to software impairment charges related to the suspension of Global Open Network, Inc., or GO-NET. See Note 8 to the condensed consolidated financial statements for additional information. We do not expect to incur any material additional restructuring charges related to these actions.

The restructuring charge for the three-month period ended March 31, 2021 was primarily the result of management actions initiated in late 2020 to better position us to become more agile in delivering our solutions. The restructuring charge for this 2020 action predominately consists of certain severance and related benefits. We do not expect to incur any material additional restructuring charges related to these actions.action.

Non-Operating Income (Expense) Income

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands)(in thousands)20222021% Change(in thousands)20232022% Change
Interest and marketable securities (loss) income, net$(211)$4,578 (104.6)%
Interest and marketable securities income (loss), netInterest and marketable securities income (loss), net$5,292 $(211)(2,608.1)%
As a percentage of revenueAs a percentage of revenue— %0.5 %As a percentage of revenue0.6 %— %
Interest expenseInterest expense$(2,695)$(17,834)(84.9)%Interest expense$(2,681)$(2,695)(0.5)%
As a percentage of revenueAs a percentage of revenue(0.3)%(2.1)%As a percentage of revenue(0.3)%(0.3)%
Other expense, netOther expense, net$(9,565)$(817)1,070.7 %Other expense, net$(2,363)$(9,565)(75.3)%
As a percentage of revenueAs a percentage of revenue(1.1)%(0.1)%As a percentage of revenue(0.3)%(1.1)%

Interest and marketable securities income (loss) income,, net consists of interest earned on invested cash balances,and marketable securities balances and income and losses on mutual funds that are associated with our employee non-qualified deferred compensation plan. The decreaseincrease for the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was due to increased lossesgains associated with the non-qualified deferred compensation plan which was partially offset byand higher interest earned on invested cash balances and marketable securities.securities as a result of increased interest rates.

Interest expense is related to our debt transactions, which are described in Note 7 to the interim condensed consolidated financial statements. The decrease in interest expense for the three-month period ended March 31, 2022, as compared to the same period in 2021, was primarily the result of the adoption of the new guidance for accounting for convertible senior notes on January 1, 2022 which resulted in the elimination of the amortization of debt discounts.
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Other expense, net primarily represents net foreign exchange gains and losses mainly due to foreign exchange rate fluctuations on intercompany transactions and other non-operating expense and income items.items as well as gains and losses on equity investments. The decrease in other expense, net for the three-month period ended March 31, 2022,2023, as compared to the same period in 2021, includes a2022, was primarily due to an $8.9 million impairment from an equity investment induring the three-month period ended March 31, 2022, partially offset by a favorablean unfavorable impact of changes in foreign currency exchange rates.

Provision for Income Taxes

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands)(in thousands)20222021% Change(in thousands)20232022% Change
Provision for income taxesProvision for income taxes$(34,050)$(11,898)186.2 %Provision for income taxes$(29,780)$(19,837)50.1 %
As a percentage of revenueAs a percentage of revenue(3.8)%(1.4)%As a percentage of revenue(3.3)%(2.2)%
Effective income tax rateEffective income tax rate(21.2)%(7.1)%Effective income tax rate(23.5)%(12.3)%

For the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, our provision for income taxes increased due to a decrease in the excess tax benefit related to stock-based compensation, an increase in the valuation allowance recorded against tax on global intangible low taxed income, ancredits and foreign NOLs and a decrease in the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by a decrease in profitability, a decrease in intercompany salesales of intellectual property and a decreasean increase in foreign income taxed at lower rates. These amounts were partially offset by equity method earnings and a decrease in profitability.

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For the three-month period ended March 31, 2022,2023, our effective income tax rate was higher than the federal statutory tax rate due to an intercompany sale of intellectual property, tax on global intangible low taxed income, non-deductible stock-based compensation, a shortfall related to stock-based compensation and non-deductible stock based compensation.an increase to the valuation allowance recorded against tax credits and foreign NOLs. These amounts were partially offset by 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.

For the three-month period ended March 31, 2021,2022, our 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 the revaluation of certain foreign income tax liabilities due to foreign exchange rate fluctuations and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by an intercompany sale of intellectual property, the impact of the valuation allowance recorded against deferred tax assets related to state tax credits,on global intangible low taxed income and non-deductible stock-based compensation and state taxes.compensation.

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 March 31,
For the Three Months
Ended March 31,
(in thousands)(in thousands)20222021% Change(in thousands)20232022% Change
Loss from equity method investmentLoss from equity method investment$(7,635)$(698)993.8 %Loss from equity method investment$— $(7,635)(100.0)%
As a percentage of revenueAs a percentage of revenue(0.8)%(0.1)%As a percentage of revenue— %(0.8)%

The amounts reflected in loss from equity method investment relate to recognition of our share of losses from our investment with Mitsubishi UFJ Financial Group ("MUFG") in a joint venture, GO-NET. GO-NET intended to operate a blockchain-based online payment network. In February 2022, MUFG, the majority owner of GO-NET, announced it was preparing to suspend the operations of GO-NET and to ultimately liquidate it. The increase in the loss from equity method investments duringinvestment for the three-month period ended March 31, 2022 iswas the result of our impairment of our investment in GO-NET in the first quarter of 2022 since the operations are planning to wind down andwill no longer generate future income.cash flows. We do not expect additional material impacts related to this investment.

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Non-GAAP Financial Measures

In addition to providing financial measurements based on GAAP, we provide additional financial metrics that are not prepared in accordance with GAAP or ("non-GAAP financial measures.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, for planning and forecasting purposes, to measure executive compensation and to evaluate our financial performance. These non-GAAP financial measures 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 allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparison of financial results across accounting periods and to those of our peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate our operating results and future prospects in the same manner as management. These non-GAAP financial measures may 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.

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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 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.

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, as well as certain additional compensation costs payable to employees acquired from the Linode acquisition if employed for a certain period of time. The additional compensation cost was initiated by and determined by the seller and is in addition to normal levels of compensation, including retention programs, offered by Akamai. Acquisition-related costs are impacted by the timing and size of the acquisitions, and we exclude acquisition-related costs from our non-GAAP financial measures to provide a useful comparison of operating results to prior periods and to peer companies because such amounts vary significantly based on the magnitude of our acquisition transactions and do not reflect our core operations.

Restructuring chargescharge – We have incurred restructuring charges from programs that have significantly changed either the scope of the business undertaken by us or the manner in which that business is conducted. These charges include severance and related expenses for workforce reductions, impairments of long-lived assets that will no longer be used in operations (including right-of-use assets, other facility-related property and equipment and internal-use software) and termination fees for any contracts cancelled as part of these programs. 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.

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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%. The imputed interest rates of these convertible senior notes were 3.10% and 4.26%, respectively. This is a result of the debt discounts recorded for the conversion features that, prior to January 1, 2022, were required to be separately accounted for as equity under GAAP, thereby reducing the carrying values of the convertible debt instruments. The debt discounts were amortized as interest expense. On January 1, 2022, we adopted the new guidance for accounting for convertible instruments, which eliminated separate accounting for the equity portion, and thus the amortization of the debt discount that was recorded as interest expense. Prior to January 1, 2022, we excluded this non-cash interest expense from our non-GAAP results because it was not representative of ongoing operating performance. After January 1, 2022, this interest expense is no longer included in or excluded from GAAP or non-GAAP results. Additionally, the issuance costs of the convertible senior notes are amortized asto interest expense and are also excluded from our non-GAAP results because management believes the non-cash amortization 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 these gains and losses 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 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 – We have incurred expenses to endow the Akamai Foundation, a private corporate foundation dedicated to encouraging the next generation of technology innovators by supporting math and science education. Our first endowment was in 2018 to enable a permanent endowment for the Akamai Foundation to allow it to expand its reach. In the fourth quarter of 2020 we supplemented the endowment to enable specific initiatives to increase diversity in the technology industry. We believe excluding these amounts from non-GAAP financial measures is useful to investors as these infrequent expenses are not representative of our core business operations.

Income and losses from equity method investment – We record income or losses on our share of earnings and losses from our equity method investment. We exclude such income and losses because we do not have direct 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
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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.


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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 March 31,
For the Three Months
Ended March 31,
20222021 2023
2022 (1)
Income from operationsIncome from operations$173,319 $182,364 Income from operations$126,638 $173,319 
Amortization of acquired intangible assetsAmortization of acquired intangible assets13,644 11,427 Amortization of acquired intangible assets15,912 13,644 
Stock-based compensationStock-based compensation56,227 54,305 Stock-based compensation61,883 56,227 
Amortization of capitalized stock-based compensation and capitalized interest expenseAmortization of capitalized stock-based compensation and capitalized interest expense7,947 8,598 Amortization of capitalized stock-based compensation and capitalized interest expense7,913 7,947 
Restructuring chargeRestructuring charge8,016 7,116 Restructuring charge44,723 8,016 
Acquisition-related costsAcquisition-related costs10,943 64 Acquisition-related costs6,768 10,943 
Non-GAAP income from operationsNon-GAAP income from operations$270,096 $263,874 Non-GAAP income from operations$263,837 $270,096 
GAAP operating marginGAAP operating margin19 %22 %GAAP operating margin13.8 %19.2 %
Non-GAAP operating marginNon-GAAP operating margin30 %31 %Non-GAAP operating margin28.8 %29.9 %

(1) Net income and income tax effect of above non-GAAP adjustments and certain discrete tax items for the three months ended March 31, 2022 have been revised to reflect the correction of an error of provision for income taxes related to an intercompany sale of intellectual property that occurred in 2022.

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

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
20222021 2023
2022 (1)
Net incomeNet income$119,163 $155,695 Net income$97,106 $133,376 
Amortization of acquired intangible assetsAmortization of acquired intangible assets13,644 11,427 Amortization of acquired intangible assets15,912 13,644 
Stock-based compensationStock-based compensation56,227 54,305 Stock-based compensation61,883 56,227 
Amortization of capitalized stock-based compensation and capitalized interest expenseAmortization of capitalized stock-based compensation and capitalized interest expense7,947 8,598 Amortization of capitalized stock-based compensation and capitalized interest expense7,913 7,947 
Restructuring chargeRestructuring charge8,016 7,116 Restructuring charge44,723 8,016 
Acquisition-related costsAcquisition-related costs10,943 64 Acquisition-related costs6,768 10,943 
Amortization of debt discount and issuance costs1,119 16,257 
Loss on investments8,901 — 
Amortization of debt issuance costsAmortization of debt issuance costs1,098 1,119 
(Gain) loss on investments(Gain) loss on investments(174)8,901 
Loss from equity method investmentLoss from equity method investment7,635 698 Loss from equity method investment— 7,635 
Income tax effect of above non-GAAP adjustments and certain discrete tax itemsIncome tax effect of above non-GAAP adjustments and certain discrete tax items(8,800)(26,346)Income tax effect of above non-GAAP adjustments and certain discrete tax items(16,915)(23,013)
Non-GAAP net incomeNon-GAAP net income$224,795 $227,814 Non-GAAP net income$218,314 $224,795 


(1) Net income and income tax effect of above non-GAAP adjustments and certain discrete tax items for the three months ended March 31, 2022 have been revised to reflect the correction of an error of provision for income taxes related to an intercompany sale of intellectual property that occurred in 2022.
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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 March 31,
For the Three Months
Ended March 31,
20222021 2023
2022 (1)
GAAP net income per diluted shareGAAP net income per diluted share$0.73 $0.94 GAAP net income per diluted share$0.62 $0.82 
Amortization of acquired intangible assetsAmortization of acquired intangible assets0.08 0.07 Amortization of acquired intangible assets0.10 0.08 
Stock-based compensationStock-based compensation0.34 0.33 Stock-based compensation0.40 0.34 
Amortization of capitalized stock-based compensation and capitalized interest expenseAmortization of capitalized stock-based compensation and capitalized interest expense0.05 0.05 Amortization of capitalized stock-based compensation and capitalized interest expense0.05 0.05 
Restructuring chargeRestructuring charge0.05 0.04 Restructuring charge0.29 0.05 
Acquisition-related costsAcquisition-related costs0.07 — Acquisition-related costs0.04 0.07 
Amortization of debt discount and issuance costs0.01 0.10 
Loss on investments0.05 — 
Amortization of debt issuance costsAmortization of debt issuance costs0.01 0.01 
(Gain) loss on investments(Gain) loss on investments— 0.05 
Loss from equity method investmentLoss from equity method investment0.05 — Loss from equity method investment— 0.05 
Income tax effect of above non-GAAP adjustments and certain discrete tax itemsIncome tax effect of above non-GAAP adjustments and certain discrete tax items(0.05)(0.16)Income tax effect of above non-GAAP adjustments and certain discrete tax items(0.11)(0.14)
Adjustment for shares(1)(2)
Adjustment for shares(1)(2)
0.02 0.01 
Adjustment for shares(1)(2)
— 0.02 
Non-GAAP net income per diluted share (2)(3)
Non-GAAP net income per diluted share (2)(3)
$1.39 $1.38 
Non-GAAP net income per diluted share (2)(3)
$1.40 $1.39 
Shares used in GAAP per diluted share calculationsShares used in GAAP per diluted share calculations163,637 165,688 Shares used in GAAP per diluted share calculations156,135 163,637 
Impact of benefit from note hedge transactions(1)(2)
Impact of benefit from note hedge transactions(1)(2)
(1,822)(954)
Impact of benefit from note hedge transactions(1)(2)
— (1,822)
Shares used in non-GAAP per diluted share calculations(1)(2)
Shares used in non-GAAP per diluted share calculations(1)(2)
161,815 164,734 
Shares used in non-GAAP per diluted share calculations(1)(2)
156,135 161,815 

(1) Net income and income tax effect of above non-GAAP adjustments and certain discrete tax items for the three months ended March 31, 2022 have been revised to reflect the correction of an error of provision for income taxes related to an intercompany sale of intellectual property that occurred in 2022.
(2) Shares used in non-GAAP per diluted share calculations have been adjusted for the periods presentedthree-months ended March 31, 2022 for the benefit of our note hedge transactions. During the periods presented Akamai'sthis period, 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 definition below.
(2)(3) 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 diluted common shares outstanding. GAAP dilutedDiluted 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 issuanceissuances of our$1,150 million of convertible senior notes.notes due 2027 and 2025, respectively. 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. Unlessoperating performance. With respect to the convertible senior notes due in each of 2027 and 2025, unless our weighted average stock price is greater than $116.18 and $95.10, respectively, 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;and marketable securities income and losses; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; income and losses on equity method investment; 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.


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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 March 31,
For the Three Months
Ended March 31,
20222021 20232022
Net incomeNet income$119,163 $155,695 Net income$97,106 $133,376 
Interest and marketable securities (loss) income, net211 (4,578)
Interest and marketable securities (income) loss, netInterest and marketable securities (income) loss, net(5,292)211 
Provision for income taxesProvision for income taxes34,050 11,898 Provision for income taxes29,780 19,837 
Depreciation and amortizationDepreciation and amortization121,188 111,484 Depreciation and amortization111,887 121,188 
Amortization of capitalized stock-based compensation and capitalized interest expenseAmortization of capitalized stock-based compensation and capitalized interest expense7,947 8,598 Amortization of capitalized stock-based compensation and capitalized interest expense7,913 7,947 
Amortization of acquired intangible assetsAmortization of acquired intangible assets13,644 11,427 Amortization of acquired intangible assets15,912 13,644 
Stock-based compensationStock-based compensation56,227 54,305 Stock-based compensation61,883 56,227 
Restructuring chargeRestructuring charge8,016 7,116 Restructuring charge44,723 8,016 
Acquisition-related costsAcquisition-related costs10,943 64 Acquisition-related costs6,768 10,943 
Interest expenseInterest expense2,695 17,834 Interest expense2,681 2,695 
Loss on investments8,901 — 
(Gain) loss on investments(Gain) loss on investments(174)8,901 
Loss from equity method investmentLoss from equity method investment7,635 698 Loss from equity method investment— 7,635 
Other expense, netOther expense, net664 817 Other expense, net2,537 664 
Adjusted EBITDAAdjusted EBITDA$391,284 $375,358 Adjusted EBITDA$375,724 $391,284 
Net income marginNet income margin13 %18 %Net income margin10.6 %14.8 %
Adjusted EBITDA marginAdjusted EBITDA margin43 %45 %Adjusted EBITDA margin41.0 %43.3 %

Impact of Foreign Currency Exchange Rates

Revenue and earnings from our international operations have historically been important 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 March 31, 2022,2023, our cash, cash equivalents and marketable securities, which primarily consisted of commercial paper, corporate bonds and U.S. government agency obligations, totaled $1.3$1.1 billion. 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 repayments and issuances, purchases and sales of marketable securities, cash paid for acquisitions and similar events. We believe our strong balance sheet and cash position are important competitive
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important competitive differentiators that provide the financial stability and flexibility 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 March 31, 2022,2023, we had cash and cash equivalents of $264.9$220.2 million held in accounts outside the U.S. The TCJAU.S. Tax Cuts and Jobs Act 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. As a result, our liquidity is not expected to be materially impacted by the amount of cash and cash equivalents held in accounts outside the U.S.

Cash Provided by Operating Activities

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands)(in thousands)20222021(in thousands)20232022
Net incomeNet income$119,163 $155,695 Net income$97,106 $133,376 
Non-cash reconciling items included in net incomeNon-cash reconciling items included in net income215,496 205,023 Non-cash reconciling items included in net income224,791 201,283 
Changes in operating assets and liabilitiesChanges in operating assets and liabilities(112,208)(110,925)Changes in operating assets and liabilities(88,398)(112,208)
Net cash provided by operating activitiesNet cash provided by operating activities$222,451 $249,793 Net cash provided by operating activities$233,499 $222,451 

The decreaseincrease in cash provided by operating activities for the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was primarily due to timinglower annual bonus payouts in the first quarter of 2023 due to lower attainment and an increase in collections from customers. These increases were partially offset by lower profitability and higher income tax payments.

Cash Used in Investing Activities

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands)(in thousands)20222021(in thousands)20232022
Cash paid for acquisitions, net of cash acquiredCash paid for acquisitions, net of cash acquired$(872,099)$(15,638)Cash paid for acquisitions, net of cash acquired$(20,070)$(872,099)
Purchases of property and equipment and capitalization of internal-use software development costsPurchases of property and equipment and capitalization of internal-use software development costs(131,359)(164,719)Purchases of property and equipment and capitalization of internal-use software development costs(222,245)(131,359)
Net marketable securities activityNet marketable securities activity691,802 143,870 Net marketable securities activity142,695 691,802 
Other investing activity(5,242)179 
Other, netOther, net(20,268)(5,242)
Net cash used in investing activitiesNet cash used in investing activities$(316,898)$(36,308)Net cash used in investing activities$(119,888)$(316,898)

The increasedecrease in cash used in investing activities during the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was driven by cash paid for the acquisition of Linode in March 2022, which was partially offset by net marketable securities activity as we sold marketable securities during the three-month period ended March 31, 2022 to fund the acquisition. These decreases were partially offset by an increase in net marketable securities activities in anticipationpurchases of needingproperty and equipment related to fund our acquisition of Linode, partially in March 2022.compute infrastructure build-out.

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Cash Used in Financing Activities

For the Three Months
Ended March 31,
For the Three Months
Ended March 31,
(in thousands)(in thousands)20222021(in thousands)20232022
Proceeds from borrowings under revolving credit facility$75,000 $— 
Net proceeds from borrowings and repayments under revolving credit facilityNet proceeds from borrowings and repayments under revolving credit facility$— $75,000 
Activity related to stock-based compensationActivity related to stock-based compensation(32,878)(42,536)Activity related to stock-based compensation(8,637)(32,878)
Repurchases of common stockRepurchases of common stock(102,853)(58,241)Repurchases of common stock(348,600)(102,853)
Other financing activities(104)— 
Other, netOther, net(52)(104)
Net cash used in financing activitiesNet cash used in financing activities$(60,835)$(100,777)Net cash used in financing activities$(357,289)$(60,835)

The decreaseincrease in cash used in financing activities during the three-month period ended March 31, 2022,2023, as compared to the same period in 2021,2022, was primarily the result of borrowings under the revolving credit facility, which was partially offset by increases in share repurchases. Effective January 2022, our board of directors
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authorized a new $1.8 billion share repurchase program through December 31, 2024. As of March 31, 2022, $1.72023, $0.8 billion remained available for future share repurchases under the priorthis authorization. Our goal for the share repurchase program is to offset the dilution created by our employee equity compensation programs over time and provide the flexibility to return capital to shareholdersstockholders as business and market conditions warrant, while still preserving our ability to pursue other strategic opportunities.

During the three-month period ended March 31, 2022,2023, we repurchased 0.94.6 million shares of common stock at a weighted average price of $111.25$76.52 per share for an aggregate of $102.9$348.6 million. 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 principal amount of convertible senior notes due 2027 and entered into related convertible note hedge and warrant transactions. 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 principal amount of convertible senior notes due 2025 and entered into related convertible note hedge and warrant transactions. We used a portion of the net proceeds to repay at maturity all of our $690.0 million outstanding aggregate principal amount of convertible senior notes due in 2019.

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

Revolving Credit Facility

In May 2018, we entered into a $500.0 million, five-year revolving credit agreement or the("2018 Credit Agreement.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 the2018 Credit Agreement bearbore 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 2018 Credit Agreement. Regardless of what amounts, if any, arewere outstanding under the 2018 Credit Agreement, we arewere 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 2018 Credit Agreement.

In November 2022, we entered into a $500.0 million, five-year revolving credit agreement ("2022 Credit Agreement"). The 2022 Credit Agreement replaces the 2018 Credit Agreement. Borrowings under the 2022 Credit Agreement may be used to finance working capital needs and for general corporate purposes. The 2022 Credit Agreement provides for an initial $500.0 million revolving loans. Under specified circumstances, the facility can be increased to up to $1.0 billion in aggregate principal amount.

Borrowings under the 2022 Credit Agreement bear interest, at our option, and subject to a credit spread adjustment, at a term benchmark rate plus a spread of 0.75% to 1.125%, a reference rate plus a spread of 0.75% to 1.125%, or a base rate plus a spread of 0.00% to 0.125%, in each case with such spread being determined based on our consolidated leverage ratio specified in the 2022 Credit Agreement. Regardless of what amounts, if any, are outstanding under the 2022 Credit Agreement, we are also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.07% to 0.125%, with such rate being based on our consolidated leverage ratio specified in the 2022 Credit Agreement.

The 2022 Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. PrincipalThe negative covenants include restrictions on subsidiary indebtedness, liens and fundamental changes. These covenants are subject to a number of important exceptions and qualifications. The principal financial covenant requires a maximum consolidated leverage ratioratio. The 2022 Credit Facility expires, and a minimum consolidated interest coverage ratio.any amounts outstanding thereunder will become due and payable, in November 2027, subject to up to two one-year extensions at our request and with the consent of the lenders party thereto. As of March 31, 2023, we had no outstanding borrowings under the 2022 Credit Agreement. In March 2022,April 2023, we borrowed $75.0$90.0 million under the 2022 Credit Agreement, and as of March 31, 2022, $75.0 million remains outstanding. We plan to repay amounts outstanding in less than 12 months.Agreement.

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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
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in information technology, otherpotential strategic acquisitions, anticipated share repurchases, lease and purchase commitments repayment of amounts outstanding under our Credit Agreement and settlements of other long-term liabilities.

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, obligations under leases for office space and open vendor purchase orders. Our minimum commitments related to bandwidth usage and co-location leases may vary from period to period depending on the timing and length of contract renewals with our vendors.vendors, and on our plans for network expansion, including our expansion plans related to our compute business. As of March 31, 2022,2023, 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, 2021,2022, other than normal period-to-period variations.variations and increases to our co-location commitments related to our expansions plans for our compute business.

Off-Balance Sheet Arrangements

We have entered into indemnification agreements with third parties, including vendors, customers, landlords, our officers and directors, shareholdersstockholders 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 partythird-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 13 to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 20212022 for further discussion of these indemnification agreements. The fair value of guarantees issued or modified during the three months ended March 31, 20222023 was determined to be immaterial.

As of March 31, 2022,2023, we did not have any additional material off-balance sheet arrangements.

Significant Accounting Policies and Estimates

See Note 1 to the interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for information regarding significant accounting policy updates, including our expected average useful life increase of our servers. See also Note 2 to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2021. There2022. Other than the expected average useful life change of our servers, there have been no material changes to our significant accounting policies and estimates from those reported in our annual report on Form 10-K for the year ended December 31, 2021.2022.

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, commercial paper and high-quality corporate debt securities.bonds. 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. If market interest rates were to increase by 100 basis points from March 31, 20222023 levels, the fair value of our available-for-sale portfolio would decline by approximately $13.8$7.2 million.

In August 2019, we issued $1,150.0 million aggregate principal amount of 0.375% convertible senior notes due 2027. In May 2018, we issued $1,150.0 million aggregate principal amount of 0.125% convertible senior notes due 2025. These notes have a fixed annual interest rate, so they do not give rise to financial or economic interest exposure associated with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value can be affected when the market price of our common stock fluctuates. We carry the notes at face value less an unamortized discount on our interim condensed consolidated balance sheet, and we present the fair value for required disclosure purposes only.

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In March 2022, we borrowed $75.0 millionOur exposure to risk for changes in interest rates relates primarily to any borrowings under our 2022 Credit Agreement, which has a variable rate of interest. A hypothetical 100 basis point increase in interest rates would increase interest expense on this borrowing by an insignificant amount forThere were no outstanding borrowings under the three months ended2022 Credit Agreement as of March 31, 2022.2023.

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. Due to the strengthening U.S. dollar, our revenue results have been negatively impacted and we expect them to continue to be negatively impacted during the remainder of 2022.impacted. The strengthening U.S. dollar has the opposite effect on expenses that are denominated in foreign currencies, but only partially offsets the impact to our revenue. A hypothetical 10% strengthening or weakening in the value of the U.S. dollar relative to the foreign currencies in which our revenues and expenses are denominated would not result in a material impact to our results of operations on a net basis.interim condensed consolidated financial statements.

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 interim condensed 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 interim condensed consolidated statements of income within other expense, net. Foreign currency transaction gains and losses from these forward contracts were determined to be immaterial during the three months ended March 31, 2022.2023. 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 interim condensed 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 March 31, 20222023 and December 31, 2021,2022, there was one customer with an accounts receivable balance greater than 10% of our accounts receivable. We believe that at March 31, 2022,2023, the concentration of credit risk related to accounts receivable was insignificant.

Item 4. Controls and Procedures

Evaluation of Disclosure 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 March 31, 2022.2023. 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,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
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possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2022,2023, our Chief Executive Officer and Chief Financial
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Officer concluded that, as of such date, our disclosure controls and procedures were not effective atdue to a material weakness in internal control over financial reporting as described below.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the reasonable assurance level.Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

A material weakness in internal control over financial reporting related to income taxes was identified in the Company’s internal control over financial reporting as of December 31, 2022, which continues to exist as of March 31, 2023. Specifically, the Company did not design and maintain effective controls over the adoption and application of new accounting standards related to income taxes.

This material weakness resulted in immaterial errors to net deferred tax assets and provision for income taxes for the interim periods ended March 31, 2022, June 30, 2022 and September 30, 2022. These immaterial errors also resulted in a revision to previously issued quarterly financial statements for each of these periods. Additionally, this material weakness could result in misstatements of the aforementioned account balances or disclosures that would result in a material misstatement to the Company's annual or interim consolidated financial statements that would not be prevented or detected.

Remediation Plan for the Material Weakness

The Company’s management, under the oversight of the Audit Committee, is in the process of designing and implementing changes in processes and controls to remediate the material weakness. We have taken steps to enhance the design and precision of our process for evaluating the adoption and application of new accounting standards in the area of income taxes. Our enhanced design includes the involvement of external tax advisors, as applicable.

The material weakness will not be considered remediated until management completes its remediation plan and the enhanced control operates for a sufficient period of time and management has concluded, through testing, that the related control is effective. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate.

Changes in Internal Control over Financial Reporting

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 March 31, 20222023 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 various litigation matters, governmental proceedings, investigations, claims and disputes 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.


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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 quarterlyannual report on Form 10-Q10-K or presented elsewhere by management from time to time.

Financial and Operational Risks

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

The revenue growth rate we have enjoyed in recent years may not continue in future periods and could decline, which could negatively impact our profitability and stock price. Our revenue depends on the amount of services we deliver, continued growth in demand for our delivery, compute and security solutions and our ability to maintain the prices we charge for them. In particular, varying levels of the amount of traffic on our network can have a more significant impact on our short termshort-term revenue growth rate.

We experienced a significant increase in revenue from our delivery solutions in 2020 due in large part to greater consumption of online media and games during the onset of the COVID-19 pandemic and associated stay-at-home orders across the globe. In 2021 and the first quarter of 2022, our revenue growth from delivery solutions declined as stay-at-home orders were lifted. Numerous factors impact our revenue, traffic and sales growth including:

our ability to build on recurring revenue commitments for our security, compute and performancedelivery offerings;
our ability to develop new products;
factors that influence traffic growth, such as the pace of introduction of over-the-top video delivery initiatives by our customers and the imposition or lifting of restrictions related to the COVID-19 pandemic;customers;
the popularity of our customers’ streaming offerings as compared to those offered by companiesother companies;
factors that do not useimpact the pricing and unit pricing we can obtain for our solutions;offerings;
variation in the popularity of online gaming;
media and other customers utilizing their own data centers and implementing delivery approachessolutions that limit or eliminate reliance on third-party providers like us;
the adoption of permanent hybrid or work from home policies by employees; and
general macro-economic,macroeconomic, regulatory and geopolitical conditions, including the war in Ukraine, and industry pressures.

We have experienced significant growth in revenue from our security and compute solutions in recent years. To maintain or accelerate growth in security revenue,If we mustdo not increase our industry recognition as a security and compute solutions provider, and develop or acquire new solutions in a rapidly-changing environment where security threats are constantly evolving. We must alsoevolving or ensure that our solutions operate effectively and are competitive with products offered by others.others, our security or compute revenue, or both, may decline.

We are dependent upon the overall economic health of our current and prospective customers and the continued growth and evolution of information technology.We have experienced revenue declines in recent quarters from our delivery-based solutions for portions of our business that include our delivery-based solutions and expect this trend to continue because of increasingcontinued pricing pressure due to competition and fluctuations in traffic growth rates. For example, approximately 1% of our 2021 revenue hashad been generated from traffic we serve into Russia, Belarus and Ukraine, and we have experienced a decline in revenue in 2022 related to the war in Ukraine
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due to a decrease in traffic in these countries since the war began.countries. In addition, in 2021 and the first quarter of 2022, some of our customers continued to experience disruptions to their businesses following the emergence of COVID-19 variants.These disruptions or changes in international, national, regional and local economic conditions such as inflation, increasing energy prices, supply constraints, increasing interest rates, foreign currency exchange rate fluctuations, securities market and monetary supply fluctuations, recessionary economic cycles, protracted economic slowdowns or any deterioration in the economy could adversely affect our business. Any of these circumstances would negatively impact our revenues.

Our ability to increase our overall revenue also depends on many other factors including how well we can:

retain existing customers, including by maintaining the levels of existing services they buy and by delivering consistent and quality performance levels;
upsell new solutions to existing customers;
expand our customer base;
develop and sell innovative and appealing new solutions;
continue to expand our sales internationally;
successfully integrate our recent acquisitions into our business;
address potential commoditization of certain of our delivery-based solutions, which can lead to lower prices and loss of customers to competitors;
maintain pricing and make decisions on pricing strategy;
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successfully manage the sales cycle, including improving the ability of or pace at which our customers or prospects purchase new services and solutions;
counteract multi-vendor policies that could cause customers to reduce their reliance on us;
handle other competitive threats to our business;
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, or from traditional overage billing models to ones that do not incorporate surcharges for usage above committed levels; and
manage the impact of changes in general economic conditions, geopolitical conditions, and industry pressures, public health issues, natural disasters and public unrest on our ability to sell, market and provide our solutions.

If we are unable to increase revenues, our profitability and stock price could suffer.

Global economic and geopolitical conditions may harm our industry, business and results of operations.

We operate globally and as a result, our business, revenues and profitability are impacted by global macroeconomic conditions. The success of our activities is affected by general economic and market conditions, including, among others, inflation, interest rates, tax rates, economic uncertainty, political instability, warfare, changes in laws, trade barriers, the actual or perceived failure or financial difficulties of additional financial institutions, reduced consumer confidence and spending and economic and trade sanctions. The U.S. capital markets experienced and continue to experience extreme volatility and disruption following the global outbreak of COVID-19 in 2020 and the Russian invasion of Ukraine in 2022. Furthermore, inflation rates in the U.S. have recently increased to levels not seen in decades. Such economic volatility could adversely affect our business, financial condition, results of operations and cash flows, and future market disruptions could negatively impact us. These unfavorable economic conditions could increase our operating costs, which could negatively impact our profitability. Geopolitical destabilization and warfare have impacted and could continue to impact global currency exchange rates, resources from our suppliers, and ability to operate or grow our business. For example, as a result of the recent uncertain macroeconomic environment, we have experienced elongated sales cycles with our customers and prospects and customers are delaying purchases of our solutions.

Additionally, we have offices and employees located in regions that historically have and may experience periods of political instability, warfare, changes in laws, trade barriers, and economic and trade sanctions. Adverse conditions in these countries directly affect our operations. As a result, our operations and employees could be disrupted and may not be able to function at full capacity, which could adversely affect our business, results of operations, financial condition, and cash flows.

Failure to control expenses could reduce our profitability, which would negatively impact our stock price.

Maintaining or improving our profitability 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 rates of growth; however, many of our expenses are fixed costs for a certain 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. In addition, we have seen our costs increase and our costs may continue to increase due to rising inflation, increasing cost of labor, interest rates, supply chain disruptions or other market conditions. For example, we have experienced rising energy costs in areas in which we operate, particularly in Europe. If we are unable to increase revenue through traffic growth, growth of sales of our products and services or otherwise and limit expenses, our results of operations will suffer. We may take certain steps to reduce expenses, but there are no assurances that we will be able to effectively reduce our expenses. If we are required to significantlyfurther reduce expenses to maintain or improve profitability, such actions may negatively affect our ability to invest in our business for innovation, systems improvements and other initiatives.

If we do not develop or acquire new solutions that are attractive to our customers, our revenue and operating results could be adversely affected.

Innovation is important to our future success. In particular, as security and compute solutions have become, and are expected to continue to be, an increasingly important part of our business, we must be particularly adept at developing new security and compute services that meet the constantly-changing threat landscape. In addition, we must continue to develop compute and compute-to-edge solutions that meet the needs of professional users and enterprises looking to increase the utility of the internet for their business.

The process of developing new solutions and product enhancements is complex, lengthy and uncertain;uncertain and has become increasingly complex due to the sophistication and the addressing of our customers’ needs. The development timetable to
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commercial release is uncertain and 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. For example, with the acquisition of Linode, we are focused on investing in our suite of cloud computing products. We have invested significant resources toward integrating Linode into our edge platform, including connecting Linode’s existing locations into our private backbone, working on expanding the capacity of these facilities and adding additional sites. Success in these efforts is not guaranteed and will largely depend on our ability to create products that are competitive in the enterprise market, source additional co-location facilities and manage an uncertain supply chain for server related hardware. In addition, we have also experienced, and may in the future experience, delays in developing and releasing new products and product enhancements. This could cause our expenses to grow more rapidly than our revenue.

Trying to innovate through acquisition can be costly and with uncertain prospects for success; we may find that attractive acquisition targets are too expensive for us to pursue which could cause us to pursue more time-consuming internal development.

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With the recent acquisition of Linode, we are focused on investing in our suite of compute products to expand our customer base, global presence and technological capabilities in this area. Success in these efforts will largely depend on our ability to create products that are competitive in the enterprise market and manage an uncertain supply chain for server related hardware. Failure to develop, on a cost-effective basis, innovative new or enhanced solutions that are attractive to customers and profitable to us could have a material detrimental effect on our business, results of operations, financial condition and cash flows.

If we are unable to compete effectively and adapt to changing market conditions, 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.

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;
leverage better name recognition, particularly in the security and compute markets;
enter new markets more easily;easily or better manage the impact of changes in general economic conditions, geopolitical conditions and industry pressures;
gain greater market acceptance for their products and services;
enter into long-term contracts with our potential customers;
increase their points of presence and proximity to enterprise data centers and end users faster than us;
expand their offerings more efficiently and more rapidly;
bundle their products that are competitive with ours with other solutions they offer in a way that makes our offerings less appealing to, or more costly for, current and potential customers;
more quickly adapt to new or emerging technologies and changes in customer requirements;
take advantage of acquisition, investment and other opportunities more readily;
offer lower prices than ours, including at levels that may not be profitable for us to match;
spend more money on the promotion, marketing and sales of their products and services; and
spend more money on research and development, including offering higher salaries to talented professionals which may impact our ability to hire or retain engineering and other personnel.personnel; and
implement shorter sales cycles with customers and prospects.

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 public securities 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.

Ultimately, any type of increased competition could result in price and revenue reductions, loss of customers and loss of market share or inability to penetrate new markets, each of which could materially impact our business, profitability, financial condition, results of operations and cash flows.

We and other companies that compete in this industry and these markets experience continually shifting business relationships, reputations, 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 or other developments could harm our business.

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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 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 proprietary and open-source software that underlies our platform that have given rise to service incidents, outages and disruptions or otherwise impacted our operations. For example, during the summer of 2021, we experienced service incidents that interrupted the availability of some of our customers' websites. We could face the loss of customers as a result of recent and any future incidents as they seek alternative or supplemental providers. We have also periodically experienced customer dissatisfaction with the quality of some of our media delivery, security, compute and other services, which has led to a loss of business and could lead to a loss of customers in the future. Furthermore, most of our customer agreements contain service level commitments. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid amounts, which could harm our business.

While we have robust quality control processes in place, there may be additional errors and defects in our hardware, software and open-source softwarecomponents that we leverage that may adversely affect our operations. We may not have in place adequate quality assurance procedures to ensure that we detect errors in our hardware, software and open-source softwarecomponents we use in a timely manner, and we may have insufficient resources to efficiently address multiple service incidents happening simultaneously or in rapid succession. We continue to invest in improving our processes and systems. If we are unable to efficiently and cost-effectively fix errors or other problems that we identify 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 litigation, the need to issue credits to customers, loss of revenue and market share, damage to our reputation, diversion of management attention, increased expenses and reduced profitability.

An increasing portion of our revenue is derived from sales of security solutions. Defects in our security solutions could lead to negative publicity, loss of business, damages payments to customers and other negative consequences. As our solutions are adopted by an increasing number of enterprises and governments, it is possible that the individuals and organizationsadversaries behind advanced malware attacksmalicious actions will specifically focus on finding ways to defeat our products and services. If they are successful, we could experience a serious impact on our reputation as a provider of security solutions.

An increasing portion of our revenue is also derived from the sales of compute solutions. We are devoting significant resources to develop and deploy our own competing cloud-based and SaaS software and services strategies. While we believe our expertise and infrastructure provides us with a strong foundation to compete, it is uncertain whether our strategies will attract the customers or generate the revenue required to be successful. These costs may reduce the gross and operating margins we have previously achieved. Failure to adequately and rapidly deploy additional points of presence, increased proximity to enterprise data centers and end users and develop competitive offerings could result in negative publicity, loss of business, diminishing customer appeal and other negative consequences which could harm our business.
Our business relies on our data systems, traffic measurement systems, billing systems, ordering processes and other operational and financial reporting and control systems. We also rely on third-party software for certain essential operational services and a failure or disruption in these services could materially and adversely affect our ability to manage our business effectively. All of these systems have become increasingly complex due to the complexity of our business, use of third-party software and services, 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 or other parts of our business. We will need to continue to upgrade and improve our data systems,
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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. In addition, we could face strains on, or failures of, our internal IT systems if governmental restrictions or vaccinedue to health or other mandates due to the ongoing COVID-19 pandemicemergencies 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.

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

We regularly face attempts to gain unauthorized access or deliver malicious software to the Akamai Intelligent Edge PlatformConnected Cloud and our internal IT systems, with the goal of stealing proprietary information related to our business, products, employees and customers; disrupting our systems and services or those of our customers or others; or demanding ransom to return control of such systems and services. These attempts take a variety of forms, including Distributed Denial of Service attacks, infrastructure attacks, botnets, malicious file uploads, application abuse, credential abuse, ransomware, bugs, viruses, worms and malicious software programs. There could be attempts to infiltrate our systems through our supply chain and contractors. Malicious actors are known to attempt to fraudulently induce employees and suppliers to disclose sensitive information through illegal electronic spamming, phishing or other tactics. Other parties may attempt to gain unauthorized physical access to our facilities in order to infiltrate our internal-use information systems. Furthermore, nation state attacks against us or our customers may intensify during periods of heightened geopolitical tensions or armed conflict, such as the ongoing war in Ukraine. While we have taken and continue to take actions to mitigate against attacks by state actors and others, we may not be able to anticipate the techniques used in such attacks, as they change frequently and may not be recognized until launched. To date, cyber threats and other attacks have not resulted in any material adverse impact to our business or
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operations, but such threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them.

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. We have discovered vulnerabilities in software used in our technology, such as the vulnerability in Apache Log4j 2 referred to as “Log4Shell” identified in late 2021 that impacted a large portion of the internet ecosystem, and may have other undiscovered vulnerabilities. TheseWhile the impact to date of Log4Shell on our systems was relatively modest, these vulnerabilities, resident in either software or configurations, may require significant operational efforts to mitigate and may persist for extended periods of time and the effects of any such vulnerability could be exacerbated. Our ability to detect vulnerabilities could be particularly limited during extraordinary events, such as the ongoing COVID-19 pandemic, where more staff 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 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. See also the risk factor captioned We utilize third-party technology in our business, and failures or vulnerabilities, and/or litigation, related to these technologies may adversely affect our business below.

To protect our corporate and deployed networks, 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 and services. This is frequently costly, with a negative impact on near-term profitability. We may need to increase our related spending in the future; these costsfuture, which could reduce our operating margin.

Any actual, alleged or perceived breach of network security in our systems or networks, or any other actual, alleged or perceived data security incident we, our customers or our third-party suppliers suffer, can result in damage to our reputation; negative publicity; loss of channel partners, customers and sales; loss of competitive advantages; increased costs to remedy any problems and otherwise respond to any incident; regulatory investigations and enforcement actions; costly litigation; and other liabilities. With the recent acquisition of Linode, we are adapting procedures for mitigating harms that may arise from abuse of our compute products. If we fail to mitigate these or if there is a significant cybersecurity event using our compute products or our compute products are perceived to be less reliable than our competitors, it could result in loss of customers and reputational damage. In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating and putting in place additional tools and devices designed to prevent actual or perceived security breaches and other security incidents, as well as the costs to comply with any notification obligations resulting from any security incidents. Any of these negative outcomes could adversely impact the market perception of our solutions and customer and investor confidence in our company and otherwise seriously harm our business and operating results.

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If we cannot maintain compatibility with our customers’ IT infrastructure, including their chosen third-party applications, our business will be harmed.

Our products interoperate with our customers' IT infrastructure that often has different specifications, utilizes diverse technology, and requires compatibility with multiple communication protocols. Therefore, the functionality of our technology often needs to have, and maintain, compatibility with our customers' technology environment, including their chosen third-party technology. Customers, and in particular these chosen third-party applications, may change features, restrict our access to, or alter their applications in a manner that causes incompatibilities or causes us significant costs to maintain compatibility, and as a result our business could be adversely affected. Such changes could functionally limit or prevent the compatibility of our products with our customers’ IT infrastructure, which would negatively affect adoption of our products and harm our business. If we fail to update our products to achieve compatibility with new third-party applications that our customers use, we may not be able to offer the functionality that our customers need, which would harm our business.

We face risks associated with global operations that could harm our business.

A significant portion of our employee increases, customer additions and revenue growth in recent quarters has been attributable to revenue gainsour business outside the U.S. Our operations in foreign countries subject us to risks that may increase our costs, impact our financial results, disrupt our operations or make our operations less efficient and require significant management attention. These risks include:

foreign exchange rate risks;
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uncertainty regarding liability for content or services, including uncertainty as a result of local laws and lack of legal precedent;
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 different regulations governing such relationships;
becoming subject to regulatory oversight;
corporate and personal liability for alleged or actual violations of laws and regulations;
difficulty in staffing, training, developing and managing foreign operations as a result of distance, language, cultural differences or regulations;
theft of intellectual property in high-risk countries where we operate;
difficulties in enforcing contracts, collecting accounts and longer payment cycles in certain countries;
difficulties in transferring funds from, or converting currencies in, certain countries;
managing the costs and processes necessary to comply with export control, sanctions, such as the sanctions imposed in connection with the Russian invasion of Ukraine, anti-corruption, data protection and competition laws and regulations or other regulatory or contractual limitations on our ability to sell or develop our products and services in certain foreign markets;
macroeconomic developments and changes in the labor markets in which we operate;
geopolitical developments, including any that impact our or our customers’ ability to operate or deliver content to a country;
other circumstances outside of our control such as trade disputes, political unrest, the imposition of sanctions, export controls, warfare, military or armed conflict, such as the Russian invasion of Ukraine, terrorist attacks, public health emergencies such as the ongoing COVID-19 pandemic, energy crises and natural disasters that could disrupt our ability to provide services or limit customer purchases of them;
reliance on one or more channel partners over which we have limited control or influence on a day-to-day basis; and
potentially adverse tax consequences.

We are subject to laws and regulations worldwide that differ among jurisdictions, affecting our operations in areas such as intellectual property ownership and infringement; tax; anti-corruption; internet and technology regulations; so-called "fair share" or internet content taxes; foreign exchange controls and cash repatriation; data privacy; cyber security; competition; consumer protection; and employment. Compliance with such requirements can be onerous and expensive and may otherwise impact our business operations negatively. Although we have policies, controls and procedures designed to help ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers or agents will not violate such laws or our policies. Violations of these laws and regulations can result in fines; criminal sanctions against us, our officers or our employees; prohibitions on the conduct of our business; and damage to our reputation. See also the risk factor captioned Other regulatory developments could negatively impact our business below.

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

To operate and grow our network, we are dependent in part upon transmission capacity provided by third-party telecommunications network providers, the availability of co-location facilities to house our servers and equipment to support our operations. We may be unable to purchase the bandwidth and space we need from these providers due to limitations on their resources, increasing energy costs or other reasons outside of our control. In particular, following our acquisition of Linode, our plans to increase the size and scale of our cloud computing offerings will require procuring significant additional space in co-location facilities. Inability to access facilities where we would like to install servers, or perform maintenance on existing servers becausefor any reason, such as the imposition of governmental restrictions on access due to stay-at-home orders or social distancing requirements due toimposed in connection with the ongoing COVID-19 pandemic or other eventsemergencies, 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 bandwidthcapacity demands by our customers, particularly those under cyber-attack or impacted by pandemic-related events.geopolitical conditions. 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 PlatformConnected Cloud relies on hardware equipment, including hundreds of thousands of servers deployed around the world. Global supply chain constraints in the wake of the COVID-19 pandemic continue to increase lead times for equipment components, which adds risk to our ability to flex to meet future business needs and expand our global compute presence.Disruptions in our supply chain could prevent us from purchasing needed equipment at attractive prices or at all. For example, from time to time, it has been, and may continue to be, more difficult to purchase equipment that is manufactured in areas that face disruptions to operations due to unrest, trade sanctions or other political activity, public health issues (such as the ongoing COVID-19 pandemic), safety issues, natural disasters or general economic conditions. Failure to have adequate equipment, including server equipment, could harm the quality of our services, which could lead to the loss of customers and revenue.

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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 of risks, including the following:

difficulty integrating the technologies, operations and personnel of acquired businesses;
potential disruptions of our ongoing business;
potential distraction of management;
diversion of business resources from core operations;
financial consequences, such as increased operating expenses, incurrence of material post-closing liabilities, incurrence of additional debt and other dilutive effects on our earnings, particularly in the current environment where we have generally seen escalating valuations of many technology companies and increasing allocation of risk to acquirors;
assumption of legal risks related to compliance with laws, including privacy and anti-corruption regulations;
failure to realize synergies or other expected benefits;
lawsuits resulting from an acquisition or disposition;
retention of the acquired company's key talent;
there may be unexpected regulatory changes resulting in operating difficulties and expenditures;
acquisition of IT systems that expose us to cybersecurity risks and additional costs to remedy such 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.

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 balance sheet and limit our flexibility to pursue other opportunities without having enjoyed the intended benefits of the acquisition. As we complete any future 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.

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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 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 our 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 are unable to recruit and retain key employees and qualified sales, research and development, 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, research and development, marketing and support personnel who have critical industry experience and relationships. Like other companies in our industry, we have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications, and, if we fail to attract new personnel or fail to retain and motivate our current personnel or effectively train our current employees to support our business needs, our business and future growth prospects could suffer. For example, none of our officers or key employees is bound by an employment agreement for any specific term, and members of our senior management have left our company over the years for a variety of reasons. In addition, effective succession planning is important to our long-term success and our failure to ensure effective transfer of knowledge and smooth transitions involving our officers and other key personnel could hinder our strategic planning and execution.

In addition, our future success will depend upon our ability to attract, train and retain employees.employees, particularly in our expected areas of growth such as security and cloud computing. Such efforts will require time, expense and attention by our employees as there is significant competition for talented individuals in the regions in which our
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primary offices are located, which affects both our ability to retain key employees and hire new ones and new hires require significant training. This competition results in increased costs in the form of cash and stock-based compensation and can have a dilutive impact on our stock. In addition, we are retasking certain of our employees to work on our compute solutions which will require the use of our resources and if we are unable to successfully retrain our employees, our compute business may suffer. The loss of the services of a significant number of our employees or any of our key employees or our inability to attract and retain new talent in a timely fashion may be disruptive to our operations and overall business.

Our failure to effectively manage our operations and maintain our company culture as our business evolves and our work practices change could harm us.

Our future operating results will depend on our ability to manage our operations and we believe our culture has been a key contributor to our success to date. As a result of the diversification of our business, personnel growth, increased usage of alternative working arrangements, including the designation of over 90%95% of roles as flexible and able to work remotely, including after the pandemic, 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 unable to appropriately increase management depth, enhance succession planning 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 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.

Due to the ongoing COVID-19 pandemic, nearly all of our employees worldwide have been working remotely since the first quarter of 2020. As of May 2022, all of our offices are open for employees who would prefer to work from one of our offices. We rolled out our FlexBase program in May 2022, which allows the more than 90%95% of our workforce designated as flexible to choose whether they want to work from an Akamai office, or their home office.office or a combination of both. Although we believe a flexible working policy will help us attract and retain talent, the long-term continuation of pandemic-based restrictions and implementation of our FlexBase program could, among other things, negatively impact employee morale and productivity, inhibit our ability to hire and train new employees and impede our ability to support customers at the levels they expect. In addition, certain security systems in homes or other remote workplaces may be less secure than those used in our offices, which may subject us to increased security risks, including cybersecurity-related events, and expose us to risks of data or financial loss and associated disruptions to our business operations. Members of our
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workforce who access company data and systems remotely may not have access to technology that is as robust as that in our offices, which could cause the networks, information systems, applications and other tools available to those remote workers to be more limited or less reliable than in our offices. We may also be exposed to risks associated with the locations of remote workers, including compliance with local laws and regulations or exposure to compromised internet infrastructure. Allowing members of our workforce to work remotely may create intellectual property risk if employees create intellectual property on our behalf while residing in a jurisdiction with unenforced or uncertain intellectual property laws. Further, if employees fail to inform us of changes in their work location, we may be exposed to additional risks without our knowledge. If we are unable to effectively transition to a hybrid workforce, manage the cybersecurity and other risks of remote work, and maintain our corporate culture and workforce morale, our business could be harmed or otherwise negatively impacted.

Our restructuring and reorganization activities may be disruptive to our operations and harm our business.

Over the past several years, we have implemented internal restructurings and reorganizations designed to reduce the size and cost of our operations, improve operational efficiencies, enhance our ability to pursue market opportunities and accelerate our technology development initiatives. In February 2021, we announced a significant reorganization to create two new business groups linked to our security and edge delivery technologies as well as establishing a unified global sales force. We may take similar steps 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 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 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 adversely affect our operating results.

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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. In particular, in October 2021, a global consortium of countries agreed to establishingestablish a new framework for international tax reform;reform, including the general rules for redefined jurisdictional taxation rights and a global minimum tax of 15% (Pillar 2). In December 2022, the European Union member states voted unanimously to adopt a Directive implementing the Pillar 2 (global minimum tax) rules giving member states until December 31, 2023 to implement the Directive into national legislation. Further details regarding implementation of these rules are expected and if implemented, such reform may increase our tax liabilities and compliance costs and reduce our profitability. 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; however the Massachusetts Department of Revenue has appealed the decision.jurisdictions. If the ultimate outcome of the appeal and otherany tax 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.

On August 16, 2022, President Joseph R. Biden signed into law the Inflation Reduction Act of 2022 (“IRA”). The IRA includes a 15% corporate alternative minimum tax for companies with modified GAAP net income in excess of $1 billion, a 1% excise tax on certain stock repurchases, and numerous environmental and green energy tax credits. Currently, we are not subject to the corporate alternative minimum tax. The impacts of the excise tax on our stock repurchase program was immaterial for the three months ended March 31, 2023.

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

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.

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If the accounting estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual reported 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, capitalization of internal-use software development costs, investments, contingent obligations, allowance for current expected credit losses, 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. Errors in our financial statements have occurred in the past and may occur in the future. For example, see Note 1 for a description of an error identified in January 2023. 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.

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 and we may in the future increase sales to government entities. Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. 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 and demand and payment for our services may be impacted by public sector budgetary cycles and funding authorizations. These factors may 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.

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We utilize third-party technology in our business, and failures or vulnerabilities, and/or litigation, related to these technologies may adversely affect our business.

We utilize third partythird-party technology software, services, and other technology in order to operate critical functions of our business, including the integration of certain of these technologies into our network, products and services. If these software, services, or other technology become unavailable or contain vulnerabilities, our expenses could increase and our ability to operate our network, provide our products, and our results of operations could be impaired until equivalent software, technology, or services are purchased or developed or any identified vulnerabilities are remedied. If we are unable to procure the necessary third-party technology we may need to acquire or develop alternative technology, or we may have to resort to utilizing alternative technology of lower quality. This could limit and delay our ability to offer new or competitive products and increase our costs of production. As a result, our business could be significantly harmed. In addition, the use of third-party technology may expose us to third-party claims of intellectual property infringement which could cause us to incur significant costs in defense or alternative sourcing.

We rely on certain “open-source” software, which may contain security flaws or other deficiencies, and the use of which could result in our having to distribute our proprietary software, including our source code, to third parties on unfavorable terms, either of 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 and have not been interpreted by U.S.
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courts. 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 generally available at no cost. We could also be subject to similar conditions or restrictions should there be any changes in the licensing terms of the open sourceopen-source software incorporated into our products. In either event, we could be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely or successful basis, any of which could adversely affect our business, operating results and financial condition. Furthermore, open-source software may have security flaws and other deficiencies that could make our solutions less reliable and damage our business.

Legal and Regulatory Risks

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

Laws and regulations that apply to the internet related to privacy and international data localizationtransfer restrictions could pose risks to our revenues, intellectual property and customer relationships, as well as increase expenses or create other disadvantages to our business.

Privacy laws are rapidly proliferating, changing and evolving globally. Governments, private citizens and privacy advocates andwith class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. Laws,Numerous laws, such as the European UnionUnion's General Data Protection Regulation or GDPR,("GDPR"), and the California Consumer Privacy Act of 2018 or CCPA,("CCPA"), 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 or improper practice, whether or not consistent with current regulations and industry practices, may subject us to public criticism or boycotts, class action lawsuits, reputational harm, or actions by regulators, or claims by industry groups or other third parties, all of which could disrupt our business and expose us to liability.

Engineering efforts to build new capabilities to facilitate compliance with increasing international data localization requirementstransfer restrictions and new and changing privacy laws and related customer demands could require us to take on substantial expense and divert engineering resources from other projects. We might experience reduced 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 security and delivery networks 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
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may require changes in services, business practices or internal systems that result in increased costs, lower revenue, reduced efficiency or greater difficulty in competing with other 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 privacy, 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.process. Improper disclosure or misuse of personal data could harm our reputation, lead to legal exposure to customers or end users, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue.

Other regulatory developments could negatively impact our business.

Local and foreign laws and regulations that apply to the internet related to, among other things, content liability, security requirements, law enforcement access to information, critical infrastructure, so-called "fair share" or internet content taxes, international data localization requirementstransfer restrictions, sanctions, export controls 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. Section 230 of the U.S. Communications Decency Act, often referred to as Section 230, gives websites that host user-generated content broad protection from legal liability for content posted on their sites. Proposals to repeal or amend Section 230 could expose us to greater legal liability in the conduct of our business. Our Acceptable Use Policy prohibits customers from using our network to deliver illegal or inappropriate content; if customers violate that policy, we may
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nonetheless face reputational damage, enforcement actions or lawsuits related to their content. Regulations have been enacted or proposed in a number of countries that limit the delivery of certain types of content into those countries. Enactment and expansion of such laws and regulations would negatively impact our revenues. For example, restrictions were adopted in India in 2020 prohibiting access to identified Chinese applications which caused a reduction in revenue to us. In addition, such laws and regulations could cause internet service providers, or others, to block our products in order to enforce content blockingcontent-blocking efforts.In addition, efforts to block a single product or domain name may end up blocking a number of other products or domain names in an overbroad manner that could affect our business. Interpretations of laws or regulations that would subject us to regulatory enforcement actions, 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. As noted with privacy compliance above, engineering efforts to build new capabilities to facilitate compliance with law enforcement access requirements, content access restrictions or other regulations could require us to take on substantial expense and divert engineering resources from other projects. These circumstances could harm our profitability.

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 have become increasingly subject to intellectual property infringement and other claims 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; as a result, we have been and could again become involved in litigation or claims brought against customers or channel or strategic partners if 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, particularly in some regions
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outside the United States.U.S. 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.

Litigation may adversely impact our business.

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
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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.

In addition, from time to time, we use various contractual, technical and expert resources to reduce the likelihood of end user activity that is illegal, fraudulent or harmful to third parties. There can be no assurance that any of these initiatives will be successful or reduce such illegal, fraudulent or harmful content on our platform. Furthermore, such initiatives may also result in negative interactions with end users, negative perceptions of our policies or increased onboarding time for new customers.

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

The long-term effects of climate change on the global economy and our industry in particular remain unknown. For example, changes in weather where we operate may increase the costs of powering and cooling computer hardware we use to develop software and provide cloud-based services. In addition, catastrophic natural disasters, such as an earthquake, fire, flood or other act of God, catastrophic event or pandemic, and any similar disruption, as well as any derivative disruption, such as those to services provided through localized physical infrastructure, including utility or telecommunication outages, or any to the continuity of our, our partners’, suppliers’ and our customers’ workforce, could have a material adverse impact on our business and operating results. Our global operations are dependent on our network infrastructure, technology systems and website, including the supply of servers from our third partythird-party partners, as well as our intellectual property and personnel and any disruption to these dependencies may negatively impact our ability to respond to customers, provide services and maintain local and global business continuity. Furthermore, some of our products and business functions are hosted or carried out by third parties that may be vulnerable to these same types of disruptions, the response to or resolution of which may be beyond our control. Any disruption to our business could cause us to incur significant costs to repair damages to our facilities, equipment, infrastructure and business relationships.

In addition, 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 which could adversely impact our business. 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 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.

Investment-Related Risks

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;
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activism by any single large stockholder or combination of stockholders or rumors about such activity;
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-economicmacroeconomic factors, such as inflationary pressures, foreign currency exchange rate fluctuations, energy prices, reduced consumer spending, increasing interest rates, recessionary economic cycles, protracted economic slowdowns and overall market volatility;
repurchases of shares of our common stock;
successful cyber-attacks affecting our network or systems;
changes in the composition of company management, including company executives and the board of directors;
entry into, or termination of, relationships with material customers and partners;
performance by other companies in our industry; and
geopolitical conditions such as acts of terrorism, military or armed conflicts, such as the Russian invasion of Ukraine, or global pandemics.
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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. In the future, our customer contracting models may change to move away from a committed revenue structure to a “pay-as-you-go” approach, which could 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 forecasting processes. Because a significant portion of our cost structure is largely fixed in the short-term, revenue shortfalls tend 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 to future operating results, our stock price may decrease significantly as a result.

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.

Any failure to meet our debt obligations or obtain financing would damage our business.

As of the date of this report, we had total principal amount of $1,150.0 million of convertible senior notes outstanding due in 2025, and we had total principal amount of $1,150.0 million of convertible senior notes outstanding due in 2027. We also entered into a credit facility in May 2018November 2022 that provides for an initial $500.0 million in revolving loans;credit facility, and under specified circumstances, we wouldthe credit facility can be ableincreased to borrow an additional $500.0 million thereunder.up to $1 billion in aggregate principal amount. As of March 31, 2022, $75.0 million of2023, there were no outstanding borrowings was outstanding under the credit facility. 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. If we do not have sufficient cash upon conversion of the notes or 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. If we incur significantly more debt, this could intensify the risks described above. In addition, if we are unable to obtain financing to fund additional capital expenditures, acquisitions, and general corporate and other purposes on reasonable terms, or at all, then our business, operations and financial condition may be harmed.

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.

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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.

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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:

our board of directors 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 needing to provide advance notice, additional disclosures and representations and warranties 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 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.

We have identified a material weakness in our internal control over financial reporting, and our management has concluded that our disclosure controls and procedures are not effective. While we are working to remediate the identified material weakness, we cannot assure you that additional material weaknesses or significant deficiencies will not occur in the future. 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 theThe Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. As disclosed in this Form 10-K, in the course of 2002 by assessing, strengthening and testing our system of internal controls. Even thoughaudit for fiscal 2022, we concluded ouridentified a material weakness in the Company’s internal control over financial reporting and disclosure controls and procedures were effective as of December 31, 2022 related to income taxes. The material weakness was caused by an inadequate control over the endadoption and application of new accounting standards related to income taxes and resulted in immaterial errors to net deferred tax assets and provision for income taxes for the interim periods ended March 31, 2022, June 30, 2022 and September 30, 2022. We are in the process of designing and implementing changes in processes and controls to remediate the material weakness. We cannot assure you that the measures we may take in the future will be sufficient to remediate the control deficiencies that led to a material weakness in our internal controls over financial reporting or that they will prevent or avoid potential future material weaknesses. The material weakness in the Company’s internal control over financial reporting will not be considered remediated until the controls operate for a sufficient period covered by thisof time and management has concluded, through testing that these controls operate effectively. If we do not successfully remediate the material weakness, or if other material weaknesses or other deficiencies arise in the future, we may be unable to accurately report weour financial results, which could cause our financial results to be materially misstated and require restatement.

We need to continue to enhance and 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 in the future adequate control over our financial processes and reporting and ensure compliance with Section 404. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results, may result in a restatement of our financial statements for prior periods, cause us to fail to meet our reporting obligations, and could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in the periodic reports we will file with the Securities and Exchange Commission. 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 willmay 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 additional 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.

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

(c) Issuer Purchases of Equity Securities
 
The following is a summary of our repurchases of our common stock in the first quarter of 20222023 (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)
January 1, 2022 – January 31, 2022261,013 $113.34 261,013 $1,770,417 
February 1, 2022 – February 28, 2022309,475 108.85 309,475 1,736,731 
March 1, 2022 – March 31, 2022354,004 111.82 354,004 1,697,147 
Total924,492 $111.25 924,492 
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)
January 1, 2023 – January 31, 2023444,296 $87.25 444,296 $1,153,226 
February 1, 2023 – February 28, 2023530,267 82.71 530,267 1,109,366 
March 1, 2023 – March 31, 20233,580,978 74.27 3,580,978 843,390 
Total4,555,541 $76.52 4,555,541 

(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.paid, but excludes any estimated excise taxes payable on share repurchases.
(4)Effective January 1, 2022, our board of directors authorized a $1.8 billion share repurchase program through December 31, 2024.

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Item 6. Exhibits
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1  
Exhibit 31.2  
Exhibit 32.1  
Exhibit 32.2  
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*
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101.INS)
*Submitted electronically herewith

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at March 31, 20222023 and December 31, 2021,2022, (ii) Condensed Consolidated Statements of Income for the three months ended March 31, 20222023 and 2021,2022, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 20222023 and 2021,2022, (iv) Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 20222023 and 2021,2022, (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20222023 and 20212022 and (vi) Notes to Unaudited Condensed 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.
May 9, 20222023By:/s/ Edward McGowan
Edward McGowan
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

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