UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________

FORM 10-Q

____________________________

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

For the quarterly period ended ~~March 31,~~June 30, 2020

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

For the transition period from to

Commission File Number: 001-38897

____________________________

FASTLY, INC.

(Exact name of registrant as specified in its charter)

____________________________



Delaware						27-5411834
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

475 Brannan Street, Suite 300

San Francisco,, CA94107

(Address of principal executive offices) (Zip code)

(~~844~~) (844) 432-7859

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address, or former fiscal year, if changed since last report)

____________________________

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.00002 par value

FSLY

The New York Stock Exchange

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	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 ☒

As of ~~May 5,~~July 31, 2020, ~~72.7~~90.4 million shares of the registrants’ Class A common stock were outstanding and ~~23.6~~14.8 million shares of registrant's Class B common stock were outstanding.

TABLE OF CONTENTS


				Page
			~~Page~~
	Part I - Financial Information
Item 1.		Financial Statements (unaudited)		5
		Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30 , 2020 and December 31, 2019		5
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~March 31,~~June 30 , 2020 and 2019		6
		Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended ~~March 31,~~ June 30 , 2020 and 2019		7
		Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) for the Three and Six Months Ended ~~March 31,~~June 30 , 2020 and 2019		8
		Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~J un e 30 , 2020 and 2019		910
		Notes to Condensed Consolidated Financial Statements		1112
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		3133
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		4549
Item 4.		Controls and Procedures		4549
		Part II - Other Information		4751
Item 1.		Legal Proceedings		4751
Item 1A.		Risk Factors		4751
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		7883
Item 3.		Defaults Upon Senior Securities		7883
Item 4.		Mine Safety Disclosures		7983
Item 5.		Other Information		7983
Item 6.		Exhibits		8084
		Signatures		8185

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "anticipate," "believe," "continue," "could," "design," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "project," "should," "will," or the negative of these terms or other similar expressions.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:

•our ability to attract and retain customers;

•our ability to increase the usage of our platform by existing customers;

•defects, interruptions, security breaches, delays in performance, or similar problems with our platform;

•the potential impact of the COVID-19 pandemic on our business, operations, and the markets and communities in which we, our partners, and our customers operate;

•our financial performance, including our revenue, cost of revenue, operating expenses, and our ability to attain and sustain profitability;

•our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements, or preferences;

•the growth of our relevant markets;

•our platform’s functionality, scalability, performance, ease of use, reliability, and cost effectiveness relative to that of our competitors’ products and services;

•our ability to compete effectively with existing competitors and new market entrants;

•our ability to attract and retain qualified employees and key personnel;

•our ability to maintain, protect, and enhance our intellectual property; and

•our ability to comply with laws and regulations that currently apply or may become applicable to our business or our customers both in the United States and internationally.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (www.investors.fastly.com), our filings with the Securities and Exchange Commission, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FASTLY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


	As of June 30, 2020		As of December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	257,418	$	16,142
Marketable securities	126,607		114,967
Accounts receivable, net of allowance for doubtful accounts of $2,654 and $1,816 as of June 30, 2020 and December 31, 2019, respectively	58,331		37,136
Restricted cash	70,087		70,087
Prepaid expenses and other current assets	12,974		10,991
Total current assets	525,417		249,323
Property and equipment, net	65,836		60,037
Goodwill	347		372
Intangible assets, net	2,864		1,125
Other assets	13,400		10,112
Total assets	$	607,864	$	320,969
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,087	$	4,602
Accrued expenses	22,631		19,878
Current portion of long-term debt	5,188		4,472
Other current liabilities	4,402		8,169
Total current liabilities	38,308		37,121
Long-term debt, less current portion	24,858		25,158
Other long-term liabilities	2,533		1,038
Total liabilities	65,699		63,317
Commitments and contingencies (Note 8)
Stockholders’ equity:
Class A and Class B common stock	2		2
Additional paid-in capital	760,237		449,463
Accumulated other comprehensive income	385		196
Accumulated deficit	(218,459)		(192,009)
Total stockholders’ equity	542,165		257,652
Total liabilities and stockholders’ equity	$	607,864	$	320,969

As of
March 31, 2020 As of
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents $ 22,501
$ 16,142
Marketable securities 94,084
114,967
Accounts receivable, net of allowance for doubtful accounts of $1,821 and $1,816 as of March 31, 2020 and December 31, 2019, respectively
43,017
37,136
Restricted cash 70,087
70,087
Prepaid expenses and other current assets 12,139
10,991
Total current assets 241,828
249,323
Property and equipment, net 69,069
60,037
Goodwill 348
372
Intangible assets, net 1,089
1,125
Other assets 11,512
10,112
Total assets $ 323,846
$ 320,969
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 9,457
$ 4,602
Accrued expenses 20,218
19,878
Current portion of long-term debt 5,291
4,472
Other current liabilities 5,430
8,169
Total current liabilities 40,396
37,121
Long-term debt, less current portion 26,043
25,158
Other long-term liabilities 1,357
1,038
Total liabilities 67,796
63,317
Commitments and contingencies (Note 9)

Stockholders’ equity:
Class A and Class B common stock 2
2
Additional paid-in capital 459,360
449,463
Accumulated other comprehensive income 687
196
Accumulated deficit (203,999 ) (192,009 )
Total stockholders’ equity 256,050
257,652
Total liabilities and stockholders’ equity $ 323,846
$ 320,969

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Revenue	$	74,663	$	46,173	$	137,587	$	91,729
Cost of revenue	29,697		20,784		56,962		40,502
Gross profit	44,966		25,389		80,625		51,227
Operating expenses:
Research and development	16,655		11,244		30,953		21,420
Sales and marketing	24,680		16,906		43,848		31,945
General and administrative	18,069		8,920		32,238		17,620
Total operating expenses	59,404		37,070		107,039		70,985
Loss from operations	(14,438)		(11,681)		(26,414)		(19,758)
Interest income	378		861		1,097		1,277
Interest expense	(371)		(2,989)		(687)		(4,224)
Other income (expense), net	(53)		(1,696)		349		(2,472)
Loss before income taxes	(14,484)		(15,505)		(25,655)		(25,177)
Income taxes	(24)		82		795		137
Net loss	$	(14,460)	$	(15,587)	$	(26,450)	$	(25,314)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.14)	$	(0.26)	$	(0.27)	$	(0.59)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	99,835		59,781		97,618		42,599

Three months ended
March 31,
2020 2019
Revenue $ 62,924
$ 45,556
Cost of revenue 27,265
19,718
Gross profit 35,659
25,838
Operating expenses:
Research and development 14,298
10,176
Sales and marketing 19,168
15,039
General and administrative 14,169
8,700
Total operating expenses 47,635
33,915
Loss from operations (11,976 ) (8,077 )
Interest income 719
416
Interest expense (316 ) (1,235 )
Other income (expense), net 402
(776 )
Loss before income taxes (11,171 ) (9,672 )
Income taxes 819
55
Net loss $ (11,990 ) $ (9,727 )
Net loss per share attributable to common stockholders, basic and diluted $ (0.13 ) $ (0.38 )
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 95,401
25,290

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Net loss	$	(14,460)	$	(15,587)	$	(26,450)	$	(25,314)
Other comprehensive income:
Foreign currency translation adjustment	$	(94)	$	(21)	$	(81)	$	7
Gain (loss) on investments in available-for-sale-securities, net of tax	(208)		14		270		42
Total other comprehensive income (loss)	$	(302)	$	(7)	$	189	$	49
Comprehensive loss	$	(14,762)	$	(15,594)	$	(26,261)	$	(25,265)

Three months ended
March 31,
2020 2019
Net loss $ (11,990 ) $ (9,727 )
Other comprehensive income:
Foreign currency translation adjustment $ 13
$ 27
Income on investments in available-for-sale-securities 478
29
Total other comprehensive income $ 491
$ 56
Comprehensive loss $ (11,499 ) $ (9,671 )

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share ~~amounts)~~amounts; unaudited)

~~(unaudited)~~


	Three months ended June 30, 2020
	Common Stock—Class A				Common Stock—Class B						Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit	Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of March 31, 2020	71,789,279	$	1	24,171,714	$	1	$	459,360	$	687	$	(203,999)	$	256,050
Issuance of Class A common stock issued in connection with the follow-on public offering, net of underwriting discounts	6,900,000	—		—	—		274,177		—		—		274,177
Vesting of early exercised stock options	—	—		28,728	—		128		—		—		128
Vesting of restricted stock units	60,458	—		—	—		—		—		—		—
Shares issued under ESPP	226,288	—		—	—		4,247		—		—		4,247
Exercise of vested stock options	1,716,673	—		—	—		5,657		—		—		5,657
Exercise of common stock warrants	—	—		145	—		—		—		—		—
Stock-based compensation	—	—		—	—		16,668		—		—		16,668
Conversion of Class B to Class A Stock	9,628,764	—		(9,628,764)	—		—		—		—		—
Net loss	—	—		—	—		—		—		(14,460)		(14,460)
Other comprehensive loss	—	—		—	—		—		(302)		—		(302)
Balance as of June 30, 2020	90,321,462	$	1	14,716,313	$	1	$	760,237	$	385	$	(218,459)	$	542,165


	Three months ended June 30, 2019
	Convertible Preferred Stock				Common Stock—Class A					Common Stock—Class B						Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
Balance at March 31, 2019	53,630,213	$	219,584	—	—		25,521,408	$	1	18,676		$	(2,109)	$	20	$	(150,186)	$	(133,598)
Conversion of convertible preferred stock to Class B common stock	(53,630,213)	(219,584)		—	—		53,630,213	1		219,583		—		—		—		219,584
Conversion of convertible preferred stock warrants into Class B common stock warrants	—	—		—	—		—	—		5,665		—		—		—		5,665
Issuance of Class A common stock in connection with the IPO, net of underwriting discounts	—	—		12,937,500	—		—	—		186,912		—		—		—		186,912
Exercise of stock options	—	—		57,658	—		761,479	—		1,893		—		—		—		1,893
Exercise of common stock warrants	—	—		—	—		172,380	—		—		—		—		—		—
Vesting of early exercised stock options	—	—		—	—		40,530	—		155		—		—		—		155
Stock-based compensation	—	—		—	—		—	—		2,243		—		—		—		2,243
Repayment of stockholder note	—	—		—	—		26,642	—		62		—		—		—		62
Net loss	—	—		—	—		—	—		—		—		—		(15,587)		(15,587)
Other comprehensive loss	—	—		—	—		—	—		—		—		(7)		—		(7)
Balance as of June 30, 2019	—	$	—	12,995,158	$	—	80,152,652	$	2	$	435,189	$	(2,109)	$	13	$	(165,773)	$	267,322

Three months ended March 31, 2020
Common Stock—Class A Common Stock—Class B
Additional Paid-in
Capital
Accumulated Other Comprehensive Income
Accumulated
Deficit
Total Stockholders’ Equity
Shares Amount Shares Amount
Balance as of December 31, 2019 60,954,694
$ 1
33,863,021
$ 1
$ 449,463
$ 196
$ (192,009 ) $ 257,652
Exercise of stock options 1,106,688
—
—
—
3,174
—
—
3,174
Vesting of early exercised stock options —
—
36,590
—
146
—
—
146
Stock-based compensation —
—
—
—
6,577
—

6,577
Conversion of Class B to Class A Stock 9,727,897
—
(9,727,897 ) —
—
—
—
—
Net loss —
—
—
—
—
(11,990 ) (11,990 )
Other comprehensive income —
—
—
—
—
491
—
491
Balance as of March 31, 2020 71,789,279
$ 1
24,171,714
$ 1
$ 459,360
$ 687
$ (203,999 ) $ 256,050

FASTLY, INC.

Three months ended March 31, 2019
Convertible Preferred Stock Common Stock
Additional
Paid-in
Capital

Treasury
Stock

Accumulated
Other
Comprehensive
Income (Loss)

Accumulated
Deficit

Total
Stockholders’
Deficit
Shares Amount Shares Amount
Balance at December 31, 2018 53,630,213
$ 219,584
25,025,836
$ 1
$ 16,403
$ (2,109 ) $ (36 ) $ (146,186 ) $ (131,927 )
Impact of change in accounting policy —
—
—
—
—
—
—
5,727
5,727
Exercise of stock options —
—
449,751
—
639
—
—
—
639
Vesting of early exercised stock options —
—
40,524
—
155
—
—
—
155
Stock-based compensation —
—
—
—
1,467
—
—
—
1,467
Repayment of stockholder note —
—
5,297
—
12
—
—
—
12
Net loss —
—
—
—
—
—
—
(9,727 ) (9,727 )
Other comprehensive income —
—
—
—
—
—
56
—
56
Balance as of March 31, 2019 53,630,213
$ 219,584
25,521,408
$ 1
$ 18,676
$ (2,109 ) $ 20
$ (150,186 ) $ (133,598 )
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share amounts; unaudited)


	Six months ended June 30, 2020
	Common Stock—Class A				Common Stock—Class B						Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit	Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of December 31, 2019	60,954,694	$	1	33,863,021	$	1	$	449,463	$	196	$	(192,009)	$	257,652
Issuance of Class A common stock issued in connection with the follow-on public offering, net of underwriting discounts	6,900,000	—		—	—		274,177		��		—		274,177
Vesting of early exercised stock options	—	—		65,318	—		274		—		—		274
Vesting of restricted stock units	60,458	—		—	—		—		—		—		—
Shares issued under ESPP	226,288	—		—	—		4,247		—		—		4,247
Exercise of vested stock options	2,823,361	—		—	—		8,831		—		—		8,831
Cashless exercise of common stock warrants	—	—		144,635	—		—		—		—		—
Stock-based compensation	—	—		—	—		23,245		—		—		23,245
Conversion of Class B to Class A Stock	19,356,661	—		(19,356,661)	—		—		—		—		—
Net loss	—	—		—	—		—		—		(26,450)		(26,450)
Other comprehensive income	—	—		—	—		—		189		—		189
Balance as of June 30, 2020	90,321,462	$	1	14,716,313	$	1	$	760,237	$	385	$	(218,459)	$	542,165


	Six months ended June 30, 2019
	Convertible Preferred Stock				Common Stock—Class A					Common Stock—Class B						Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2018	53,630,213	$	219,584	—	—		25,025,836	1		16,403		(2,109)		(36)		(146,186)		(131,927)
Impact of change in accounting policy	—	—		—	—		—	—		—		—		—		5,727		5,727
Conversion of convertible preferred stock to Class B common stock	(53,630,213)	(219,584)		—	—		53,630,213	1		219,583		—		—		—		219,584
Conversion of convertible preferred stock warrants into Class B common stock warrants	—	—		—	—		—	—		5,665		—		—		—		5,665
Issuance of Class A common stock in connection with the IPO, net of underwriting discounts	—	—		12,937,500	—		—	—		186,912		—		—		—		186,912
Exercise of stock options	—	—		57,658	—		1,211,230	—		2,532		—		—		—		2,532
Exercise of common stock warrants					—		172,380	—		—		—		—		—		—
Vesting of early exercised stock options	—	—		—	—		81,054	—		310		—		—		—		310
Stock-based compensation	—	—		—	—		—	—		3,710		—		—		—		3,710
Repayment of stockholder note	—	—		—	—		31,939	—		74		—		—		—		74
Net loss	—	—		—	—		—	—		—		—		—		(25,314)		(25,314)
Other comprehensive income	—	—		—	—		—	—		—		—		49		—		49
Balance as of June 30, 2019	—	$	—	12,995,158	$	—	80,152,652	$	2	$	435,189	$	(2,109)	$	13	$	(165,773)	$	267,322

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three months ended March 31,							Six months ended June 30,
	2020			2019				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net loss	$	(11,990	)	$	(9,727	)	Net loss	$	(26,450)	$	(25,314)
Adjustments to reconcile net loss to net cash used in operating activities:							Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	4,715			3,738			Depreciation and amortization	9,444		7,624
Amortization of deferred rent	204			17			Amortization of deferred rent	1,491		3,985
Amortization of debt issuance costs	19			159			Amortization of debt issuance costs	38		1,816
Stock-based compensation	6,329			1,467			Stock-based compensation	22,610		3,710
Provision for doubtful accounts	150			602			Provision for doubtful accounts	1,016		69
Change in fair value of preferred stock warrant liabilities	—			706			Change in fair value of preferred stock warrant liabilities	—		2,404
Other adjustments	(39		)	(224		)	Other adjustments	(20)		(400)
Interest paid on capital leases	(119		)	(77		)	Interest paid on capital leases	(268)		(171)
Loss on disposals of property and equipment	—			36			Loss on disposals of property and equipment	—		39
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable	(6,031		)	(4,586		)	Accounts receivable	(22,211)		(3,882)
Prepaid expenses and other current assets	(1,148		)	(931		)	Prepaid expenses and other current assets	(1,983)		(3,209)
Other assets	(1,400		)	(1,860		)	Other assets	(3,288)		(4,966)
Accounts payable	3,112			1,686			Accounts payable	1,364		3,270
Accrued expenses	(1,495		)	(507		)	Accrued expenses	2,626		287
Other liabilities	507			(582		)	Other liabilities	(336)		(910)
Net cash used in operating activities	(7,186		)	(10,083		)	Net cash used in operating activities	(15,967)		(15,648)
Cash flows from investing activities:							Cash flows from investing activities:
Purchases of marketable securities	—			(20,088		)	Purchases of marketable securities	(56,187)		(32,662)
Sales of marketable securities	—			3,578			Sales of marketable securities	—		3,578
Maturities of marketable securities	21,400			17,700			Maturities of marketable securities	44,901		44,056
Purchases of property and equipment	(10,221		)	(4,025		)	Purchases of property and equipment	(12,550)		(7,522)
Capitalized internal-use software	(1,437		)	(759		)	Capitalized internal-use software	(2,181)		(1,707)
Purchases of intangible assets							Purchases of intangible assets	(1,811)		(636)
Net cash provided by (used in) investing activities	9,742			(3,594		)	Net cash provided by (used in) investing activities	(27,828)		5,107
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting fees							Proceeds from initial public offering, net of underwriting fees	—		192,510
Payments of costs related to initial public offering							Payments of costs related to initial public offering	—		(3,653)
Proceeds from follow-on public offering, net of underwriting fees							Proceeds from follow-on public offering, net of underwriting fees	274,896		—
Payments of costs related to follow-on public offering							Payments of costs related to follow-on public offering	(173)		—
Repayments of notes payable	—			(2,488		)	Repayments of notes payable	—		(4,988)
Repayments of capital leases	(1,541		)	(336		)	Repayments of capital leases	(2,591)		(676)
Proceeds from employee stock purchase plan	2,133			—			Proceeds from employee stock purchase plan	4,164		810
Proceeds from exercise of vested stock options	3,174			639			Proceeds from exercise of vested stock options	8,831		2,530
Proceeds from early exercise of stock options	—			250			Proceeds from early exercise of stock options	—		520
Proceeds from payment of stockholder note	—			12			Proceeds from payment of stockholder note	—		74
Net cash provided by (used in) financing activities	3,766			(1,923		)
Net cash provided by financing activities							Net cash provided by financing activities	285,127		187,127
Effects of exchange rate changes on cash, cash equivalents, and restricted cash	37			(8		)	Effects of exchange rate changes on cash, cash equivalents, and restricted cash	(56)		1
Net increase in cash, cash equivalents, and restricted cash	6,359			(15,608		)	Net increase in cash, cash equivalents, and restricted cash	241,276		176,587
Cash, cash equivalents, and restricted cash at beginning of period	86,229			36,963			Cash, cash equivalents, and restricted cash at beginning of period	86,229		36,963
Cash, cash equivalents, and restricted cash at end of period	$	92,588		$	21,355		Cash, cash equivalents, and restricted cash at end of period	$	327,505	$	213,550

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued

(in thousands)

(unaudited)


	Six months ended June 30,
	2020		2019
Supplemental disclosure of cash flow information:
Cash paid for interest	$	348	$	4,435
Cash paid for income taxes, net of refunds received	$	910	$	13
Property and equipment additions not yet paid in cash	$	3,885	$	8,035
Vesting of early-exercised stock options	$	274	$	310
Capital lease outstanding from current year addition	$	2,969	$	3,740
Change in other assets from change in accounting principle	$	—	$	5,727
Conversion of convertible preferred stock warrants to convertible common stock warrants	$	—	$	5,665
Cashless exercise of common stock warrants	$	1,557	$	—
Costs related to the initial public offering, accrued but not yet paid	$	—	$	1,945
Stock-based compensation capitalized to internal-use software	$	635	$	—
Costs related to the follow-on public offering, accrued but not yet paid	$	546	$	—

Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows
Cash and cash equivalents	$	257,418	$	213,463
Restricted cash	70,087		87
Total cash, cash equivalents, and restricted cash	$	327,505	$	213,550

Three months ended
March 31,
2020 2019
Supplemental disclosure of cash flow information:
Cash paid for interest $ 155
$ 1,446
Cash paid for income taxes, net of refunds received $ 814
$ 2
Property and equipment additions not yet paid in cash $ 5,628
$ 32
Vesting of early-exercised stock options $ 146
$ 155
Capital lease outstanding from current year addition $ 3,226
$ 4,082
Change in other assets from change in accounting principle $ —
$ 5,727
Stock-based compensation capitalized to internal-use software $ 248
$ —

Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows
Cash and cash equivalents $ 22,501
$ 21,355
Restricted cash 70,087
—
Total cash, cash equivalents, and restricted cash $ 92,588
$ 21,355

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

1. Nature of Business

Fastly, Inc. has built an edge cloud platform that can process, serve, and secure its customer’s applications as close to their end users as possible. As of ~~March 31,~~June 30, 2020, our edge network spans 72 Points-of-Presence ("POPs") across 55 markets around the world. We were incorporated in Delaware in 2011 and are headquartered in San Francisco, California.

As used herein, "Fastly," "we," "our," "the Company," and similar terms include Fastly, Inc. and its subsidiaries, unless the context indicates otherwise.

Stock Split

On May 3, 2019, we implemented a 1-for-2 reverse stock split of our stock. All shares of common stock, stock-based instruments, and per-share data included in these financial statements give effect to the stock split and the changes in authorized shares have been adjusted retroactively for all periods presented.

Initial Public Offering ("IPO")

On May 21, 2019, we completed an IPO in which we sold 12,937,500 shares of our newly authorized Class A common stock, which included 1,687,500 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at the public offering price of $16.00 per share. We received net proceeds of $192.5 million, after deducting underwriting discounts and commissions, from sales of our shares in the IPO. The net proceeds include additional proceeds of $25.1 million, net of underwriters' discounts and commissions, from the exercise of the underwriters' option to purchase an additional 1,687,500 shares of our Class A common stock. Prior to the closing of the IPO, all shares of common stock then outstanding were reclassified as Class B common stock.

Immediately upon the closing of the IPO, all shares of convertible preferred stock then outstanding were converted into 53,630,213 shares of Class B common stock on a 1-to-one basis. Prior to the IPO, we had 7 outstanding series of convertible preferred stock each with a par value of $0.00002 per share, convertible at the option of the holder, that was classified as temporary equity on our consolidated balance sheet. On May 17, 2019, immediately upon closing of the IPO, our convertible preferred stock was automatically converted to shares of our Class B common stock. As of both June 30, 2020 and December 31, 2019, we had 0 convertible preferred stock issued or outstanding.

Follow-on Public Offering

On May 26, 2020, we completed a follow-on public offering in which we sold 6,900,000 shares of Class A common stock, which included 900,000 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at the public offering price of $41.50 per share. We received net proceeds of $274.9 million, after deducting underwriting discounts and commissions, from sales of our shares in the public offering.

2. Summary of Significant Accounting Policies

Basis of Presentation

The interim unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") along with instructions to Form 10-Q and Article 10 of Securities and Exchange Commission ("SEC") Regulation S-X.

Certain changes in presentation have been made to conform the prior period presentation to the current period reporting. We have made certain presentation changes to distinguish and disclose as separate line items, the sales proceeds from marketable securities and the sales proceeds from our maturities of marketable securities in the Condensed Consolidated Statements of Cash Flows. We have also made certain presentation changes to distinguish and disclose as separate line items, the cash flows from purchases of property and equipment from the cash flows associated with capitalized internal-use software in the Condensed Consolidated Statements of Cash Flows.

Principles of Consolidation

The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Unaudited Interim Financial Statements

The accompanying interim condensed consolidated balance sheet as of ~~March 31,~~June 30, 2020, the related interim condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss, and the condensed consolidated statements of convertible preferred stock and stockholders' equity (deficit) for the three and six months ended ~~March 31,~~June 30, 2020 and 2019, the condensed consolidated statements of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, and the related footnote disclosures are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments necessary for the fair presentation of our financial position as of ~~March 31,~~June 30, 2020. The results for the three and six months ended ~~March 31,~~June 30, 2020 are not necessarily indicative of the results expected for the full fiscal year or any other periods.

Use of Estimates

The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. Actual results and outcomes could differ significantly from our estimates, judgments, and assumptions. Significant estimates, judgments, and assumptions used in these financial statements include, but are not limited to, those related to revenue, accounts receivable and related reserves, useful lives and realizability of long-lived assets, income tax reserves, and accounting for stock-based compensation. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates are reflected in the condensed consolidated financial statements in the period of change and prospectively from the date of the change in ~~estimate.The~~estimate.

The ongoing global COVID-19 pandemic has impacted many operational aspects of our business and may continue to do so in the future. We assessed the impact that COVID-19 had on our results of operations, including, but not limited to an assessment of our allowance for doubtful accounts, the carrying value of short-term and long-term investments, the carrying value of goodwill and other long-lived assets, and the impact to revenue recognition and cost of revenues. While the COVID-19 pandemic has not had a material adverse impact on our financial operations to date, the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. We will continue to actively monitor the impact that COVID-19 has on the results of our business operations, and may make decisions required by federal, state or local authorities, or that are determined to be in the best interests of our employees, customers, partners, suppliers and stockholders. As a result our estimates and judgments may change materially as new events occur or additional information becomes available to us.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. The primary focus of our investment strategy is to preserve capital and meet liquidity requirements. Our investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating. To manage the risk exposure, we invest cash equivalents and marketable securities in a variety of fixed income securities, including government and investment-grade debt securities and money market funds. We place our cash primarily in checking and money market accounts with reputable financial institutions. Deposits held with these financial institutions may exceed the amount of insurance provided on such deposits, if any.

Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which we make substantial sales. Our customer base consists of a large number of geographically dispersed customers diversified across several industries. To reduce risk, we routinely assess the financial strength of our customers. Based on such assessments, we believe that our accounts receivable credit risk exposure is limited.

One customer accounted for ~~10.5%~~13% and 12% of revenue for the three and six months ended ~~March 31,~~June 30, 2020, and ~~14.6%~~20% of the total accounts receivable balance as of ~~March 31,~~June 30, 2020. No customer accounted for more than 10% of revenue for the three and six months ended ~~March 31,~~June 30, 2019, or more than 10% of the total accounts receivable balance as of December 31, 2019.

Significant Accounting Policies

There have been no material changes to our significant accounting policies as compared to those described in “Note 2 – Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

New Accounting Pronouncements to be Adopted

We are currently an emerging growth company as defined in Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various public company reporting requirements, including delaying adoption of new or revised accounting standards until those standards apply to private companies. InBased on the ~~event that~~market value of our common stock held by non-affiliates as of June 30, 2020, we will cease to be an emerging growth company as of December 31, 2020. Once we no longer qualify as an emerging growth company, we will no longer be permitted to use these reporting exemptions.

In February 2016, the FASB issued new guidance, Accounting Standard Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Accordingly, this new standard introduces a lessee model that brings most operating leases on the balance sheet and also aligns certain of the underlying principles of the new lessor model with those in the new revenue recognition standard. We ~~are currently evaluating~~intend to elect the ~~appropriate~~modified transition method ~~and impact~~discussed in ASU 2018-11. With the election, the effect of ~~this guidance on our~~

~~condensed consolidated financial statements and related disclosures. We expect the~~initially applying the standard can be recognized as a cumulative-effect adjustment to retained earnings in the period of adoption and an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with “Leases (Topic 840)”, including the associated disclosure requirements. The standard is effective for ~~our~~public entities' interim and annual periods beginning after December 15, 2018. As we will cease to be an emerging growth company as of December 31, 2020, we expect to adopt the standard on December 31, 2020, presenting the initial application of ASC 842 beginning on January 1, 2020, in our annual financial statements included in our Form 10-K for year ended December 31, 2020.

In June 2016, FASB issued new guidance, ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities. The guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. We are currently evaluating the impact of this guidance on our condensed consolidated financial statements and related disclosures. ~~We expect the the~~The standard ~~to be~~is effective for ~~our~~public entities' interim and annual periods beginning after December 15, 2018. As we will cease to be an emerging growth company as of December 31, 2020, we expect to adopt the standard on December 31, 2020, presenting the initial application of ASC 326 beginning on January 1, 2020, in our annual financial statements included in our Form 10-K for year ended December 31, 2020.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (ASC 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement ("ASU 2018-15"). This guidance provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. We are currently evaluating the impact of this guidance on our condensed consolidated financial statements and related disclosures. ~~We expect the the~~The standard ~~to be~~is effective for ~~our~~public entities' interim and annual periods beginning after December 15, 2018. As we will cease to be an emerging growth company as of December 31, 2020, we expect to adopt the standard on December 31, 2020, presenting the initial application of ASC 350 beginning on January 1, 2020, in our annual financial statements included in our Form 10-K for year ended December 31, 2020.

On December 18, 2019, the FASB released ASU 2019-12 which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU is being issued as part of its Simplification Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of generally accepted accounting principles (GAAP) without compromising information provided to users of financial statements. We are currently evaluating the impact of this guidance on our condensed consolidated financial statements and related disclosures. ~~We expect the the~~The standard ~~to be~~is effective for ~~our~~public entities' interim and annual periods beginning after December 15, 2020. We expect to adopt this standard on January 1, 2021 for our fiscal year 2021 audited financial statements.

3. Revenue

Revenue recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, each of which are distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606. Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our estimate of the standalone selling price ("SSP") of each distinct good or service in the contract.

Judgment is required to determine the SSP for each distinct performance obligation. We analyze separate sales of our products and services as a basis for estimating the SSP of our products and services. We then use that SSP as the basis for allocating the transaction price when our product and services are sold together in a contract with multiple performance obligations. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information, such geographic region and distribution channel, in determining the SSP.

The transaction price in a contract is typically equal to the minimum commit price in the contract less any discounts provided. Because our typical contracts represent distinct services delivered over time with the same pattern of transfer to the customer, usage-based consideration primarily related to actual consumption over the minimum commit levels is allocated to the period to which it relates. The amount of consideration recognized for usage above the minimum commit price is limited to the amount we expect to be entitled to receive in exchange for providing services. We have elected to apply the practical

expedient for estimating and disclosing the variable consideration when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation from our remaining performance obligations under these contracts.

Performance obligations represent stand-ready obligations that are satisfied over time as the customer simultaneously receives and consumes the benefits provided by us. These obligations can be content delivery, security, professional services, support, edge cloud platform services, and others. Accordingly, our revenue is recognized over time, consistent with the pattern of benefit provided to the customer over the term of the agreement.

At times, customers may request changes that either amend, replace, or cancel existing contracts. Judgment is required to determine whether the specific facts and circumstances within the contracts should be accounted for as a separate contract or as a modification.

Nature of products and services

We primarily derive revenue from the sale of services to customers executing contracts in which the standard contract term is one year, although terms may vary by contract. Most of our contracts are non-cancelable over the contractual term. These contracts commit the customer to a minimum monthly level of usage and specify the rate at which the customer must pay for actual usage above the monthly minimum.

~~Revenue~~

Our revenue by geography is based on the billing address of the customer. Aside from the United States, one other country, Singapore, accounted for 13% and 12% of revenue for the three and six months ended June 30, 2020, respectively. Aside from the United States, no other single country accounted for more than 10% of revenue for the three and six months ended June 30, 2019.

The following table presents our net revenue by geographic region:


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)						(in thousands)
United States	$	46,046	$	32,521	$	87,054	$	65,943
Asia Pacific	14,057		4,462		23,851		8,140
Europe	7,993		6,437		15,546		12,782
All other	6,567		2,753		11,136		4,864
Total revenue	$	74,663	$	46,173	$	137,587	$	91,729

Three months ended March 31,
2020 2019
(in thousands)
United States $ 41,008
$ 33,422
All other countries 21,916
12,134
Total revenue $ 62,924
$ 45,556

The majority of our revenue is derived from enterprise customers, which are defined as customers with revenue in excess of $100,000 over the previous 12-month period. The following table presents our net revenue for enterprise and non-enterprise customers:


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)						(in thousands)
Enterprise customers	$	67,330	$	39,421	$	123,137	$	78,465
Non-enterprise customers	7,333		6,752		14,450		13,264
Total revenue	$	74,663	$	46,173	$	137,587	$	91,729

Three months ended March 31,
2020 2019
(in thousands)
Enterprise customers $ 55,806
$ 39,044
Non-enterprise customers 7,118
6,512
Total revenue $ 62,924
$ 45,556

Contract balances

The timing of revenue recognition may differ from the timing of invoicing to customers. We have an unconditional right to consideration when we invoice our customers and record a receivable. We record a contract asset when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue is recognized subsequent to invoicing.

Deferred revenue includes amounts billed to customers for which revenue has not been recognized and consists of the unearned portions of edge cloud platform usage. Our payment terms and conditions vary by contract type, but our standard terms are that payments are due within 15 days from the date of invoice.

The following ~~tables present~~table presents our contract assets and contract liabilities ~~and certain information related to these balances~~ as of June 30, 2020 and ~~for the three months ended March 31, 2020,~~ as of December 31, ~~2019, and for~~2019:


	As of June 30, 2020		As of December 31, 2019
	(in thousands)
Contract assets	$	322	$	271
Contract liabilities	$	48	$	317

The following table presents the revenue recognized during the three and six months ended ~~March 31, 2019:~~June 20, 2020 and 2019 from amounts included in the contract liability at the beginning of the period:


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	834	$	1,069	$	301	$	2,006

As of March 31, 2020 As of December 31, 2019
(in thousands)
Contract assets $ 305
$ 271
Contract liabilities $ 852
$ 317

Three months ended March 31,
2020 2019
(in thousands)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period $ 178
$ 936

Remaining performance obligations

As of ~~March~~June 30, 2020 and December 31, ~~2020~~,2019, we had ~~$71.0~~$76.7 million and $70.7 million, of remaining performance obligations, which includes deferred revenue and amounts that will be invoiced and recognized in future ~~periods.~~periods, respectively. We apply the practical expedient of ASC 606, which gives us the optional exemption from disclosing certain information about our remaining performance obligations for our service contracts for which the original contract duration is one year or less, such as the aggregate transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period. The typical contract term is one year, although terms may vary by contract. WeAs of June 30, 2020, we expect to recognize ~~88%~~87% of this balance over the next 12 months and the remainder within the following year.

Costs to obtain a contract

We capitalize incremental costs associated with obtaining customer contracts, specifically for sales commissions. These costs are deferred on our Condensed Consolidated Balance Sheets and amortized over the expected period of benefit on a straight-line basis. Based on the nature of our unique technology and services, the rate at which we continually enhance and update our technology, and our historical customer retention, the expected period of benefit is determined to be approximately five years. Amortization is recorded within the sales and marketing line item on the accompanying Condensed Consolidated Statements of Operations. The incremental costs associated with obtaining customer contracts, the majority of which are deferred commissions, are included in other assets on the accompanying Condensed Consolidated Balance Sheets.

As of ~~March 31,~~June 30, 2020 and December 31, 2019, our costs to obtain contracts were as follows:


	As of June 30, 2020		As of December 31, 2019
	(in thousands)
Deferred commissions	$	9,698	$	6,804

As of March 31, 2020 As of December 31, 2019
(in thousands)
Deferred commissions $ 7,944
$ 6,804

During the three months ended ~~March 31,~~June 30, 2020 and 2019, we recognized ~~$0.7~~$0.8 million and ~~$0.5~~$0.6 million of amortization related to deferred commissions. During the six months ended June 30, 2020 and 2019, we recognized $1.5 million and $1.1 million of amortization related to deferred commissions. These costs are recorded within the sales and marketing line item on the accompanying Condensed Consolidated Statements of Operations.

4. Investments and Fair Value Measurements

Our total cash, cash equivalents and marketable securities consisted of the following:


	As of June 30,		As of December 31,
	2020		2019
	(in thousands)
Cash and cash equivalents:
Cash	$	5,782	$	11,623
Money market funds	248,637		2,020
Commercial paper	2,999		2,499
Total cash and cash equivalents	$	257,418	$	16,142
Marketable securities:
Corporate notes and bonds	$	17,448	$	17,470
Commercial paper	47,841		5,481
U.S. Treasury securities	50,439		78,160
Asset-backed securities	10,879		13,856
Total marketable securities	$	126,607	$	114,967

As of March 31, As of December 31,
2020 2019
(in thousands)
Cash and cash equivalents:
Cash $ 8,503
$ 11,623
Money market funds 13,998
2,020
Commercial paper —
2,499
Total cash and cash equivalents $ 22,501
$ 16,142
Marketable securities:
Corporate notes and bonds $ 9,024
$ 17,470
Commercial paper 2,498
5,481
U.S. Treasury securities 68,713
78,160
Asset-backed securities 13,849
13,856
Total marketable securities $ 94,084
$ 114,967

Available-for-Sale Investments

The following table summarizes adjusted cost, gross unrealized gains and losses, and fair value related to available-for-sale securities classified as marketable securities on the accompanying Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2020 and December 31, 2019:

As of March 31, 2020
Amortized
Cost Gross
Unrealized
Gain Gross
Unrealized
Loss Fair
Value
(in thousands)
Corporate notes and bonds $ 9,051
$ —
$ (27 ) $ 9,024
Commercial paper 2,498
—
—
2,498
U.S. Treasury securities 68,106
607
—
68,713
Asset-backed securities 13,854
—
(5 ) 13,849
Total available-for-sale investments $ 93,509
$ 607
$ (32 ) $ 94,084

As of December 31, 2019

Amortized
Cost

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Fair
Value
(in thousands)
Corporate notes and bonds $ 17,462
$ 9
$ (1 ) $ 17,470
Commercial paper 5,481
—
—
5,481
U.S. Treasury securities 78,075
85
—
78,160
Asset-backed securities 13,852
4
—
13,856
Total available-for-sale investments $ 114,870
$ 98
$ (1 ) $ 114,967


	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in thousands)
Corporate notes and bonds	$	17,383	$	65	$	—	$	17,448
Commercial paper	47,841		—		—		47,841
U.S. Treasury securities	50,097		342		—		50,439
Asset-backed securities	10,855		24		—		10,879
Total available-for-sale investments	$	126,176	$	431	$	—	$	126,607

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in thousands)
Corporate notes and bonds	$	17,462	$	9	$	(1)	$	17,470
Commercial paper	5,481		—		—		5,481
U.S. Treasury securities	78,075		85		—		78,160
Asset-backed securities	13,852		4		—		13,856
Total available-for-sale investments	$	114,870	$	98	$	(1)	$	114,967

The majority of our securities classified as available-for-sale as of ~~March 31,~~June 30, 2020 have contractual maturities of one year or less. Certain securities held and classified as available-for-sale as of ~~March 31,~~June 30, 2020 have contractual maturities greater than one year; however, we do not intend to hold these securities to maturity. Consistent with our intentions to hold the securities for less than 12 months we classify all securities as short-term. As of December 31, 2019, all securities classified as available-for-sale had contractual maturities of one year or less. There were 0 securities in a continuous loss position for 12

months or longer as of ~~March 31,~~June 30, 2020 and December 31, 2019. Investments are reviewed periodically to identify possible other-than-temporary impairments. No impairment loss has been recorded on the securities included in the tables above, as we believe that the decrease in fair value of these securities is temporary.

Fair Value of Financial Instruments

For certain of our financial instruments, including cash held in banks, accounts receivable, and accounts payable, the carrying amounts approximate fair value due to their short maturities, and are therefore excluded from the fair value tables below.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3—Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation.

We measure our cash equivalents, marketable securities, and restricted cash at fair value. We classify our cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because we value these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The fair value of our Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair value of our Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily available pricing sources for the identical underlying security that may not be actively traded.

Financial assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments:


	As of June 30, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents:
Money market funds	$	248,637	$	—	$	—	$	248,637
Commercial paper	—		2,999		—		2,999
Total cash equivalents	248,637		2,999		—		251,636
Marketable securities:
Corporate notes and bonds	—		17,448		—		17,448
Commercial paper	—		47,841		—		47,841
U.S. Treasury securities	—		50,439		—		50,439
Asset-backed securities	—		10,879		—		10,879
Total marketable securities	—		126,607		—		126,607
Restricted cash:
Money market funds	70,087		—		—		70,087
Total restricted cash	70,087		—		—		70,087
Total financial assets	$	318,724	$	129,606	$	—	$	448,330

As of March 31, 2020
Level 1 Level 2 Level 3 Total
(in thousands)
Cash equivalents:
Money market funds $ 13,998
$ —
$ —
$ 13,998
Total cash equivalents 13,998
—
—
13,998
Marketable securities:
Corporate notes and bonds —
9,024
—
9,024
Commercial paper —
2,498
—
2,498
U.S. Treasury securities —
68,713
—
68,713
Asset-backed securities —
13,849
—
13,849
Total marketable securities —
94,084
—
94,084
Restricted cash:
Money market funds 70,087
—
—
70,087
Total restricted cash 70,087
—
—
70,087
Total financial assets $ 84,085
$ 94,084
$ —
$ 178,169

As of December 31, 2019
Level 1 Level 2 Level 3 Total
(in thousands)
Cash equivalents:
Money market funds $ 2,020
$ —
$ —
$ 2,020
U.S. Treasury securities —
2,499
—
2,499
Total cash equivalents 2,020
2,499
—
4,519
Marketable securities:
Corporate notes and bonds —
17,470
—
17,470
Commercial paper —
5,481
—
5,481
U.S. Treasury securities —
78,160
—
78,160
Asset-backed securities —
13,856
—
13,856
Total marketable securities —
114,967
—
114,967
Restricted cash:
Money market funds 70,087
—
—
70,087
Total restricted cash 70,087
—
—
70,087
Total financial assets $ 72,107
$ 117,466
$ —
$ 189,573


	As of December 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents:
Money market funds	$	2,020	$	—	$	—	$	2,020
U.S. Treasury securities	—		2,499		—		2,499
Total cash equivalents	2,020		2,499		—		4,519
Marketable securities:
Corporate notes and bonds	—		17,470		—		17,470
Commercial paper	—		5,481		—		5,481
U.S. Treasury securities	—		78,160		—		78,160
Asset-backed securities	—		13,856		—		13,856
Total marketable securities	—		114,967		—		114,967
Restricted cash:
Money market funds	70,087		—		—		70,087
Total restricted cash	70,087		—		—		70,087
Total financial assets	$	72,107	$	117,466	$	—	$	189,573

There were no transfers of assets and liabilities measured at fair value between Level 1 and Level 2, or between Level 2 and Level 3, during the three and six months ended ~~March 31,~~June 30, 2020 and 2019.

5. Balance Sheet Information

Property and equipment, net

Property and equipment, net consisted of the following:

As of March 31, As of December 31,
2020 2019
(in thousands)
Computer and networking equipment $ 101,593
$ 89,830
Leasehold improvements 3,278
3,285
Furniture and fixtures 679
681
Office equipment 616
579
Internal-use software 15,586
13,901
Property and equipment, gross $ 121,752
$ 108,276
Accumulated depreciation and amortization (52,683 ) (48,239 )
Property and equipment, net $ 69,069
$ 60,037


	As of June 30,		As of December 31,
	2020		2019
	(in thousands)
Computer and networking equipment	$	101,508	$	89,830
Leasehold improvements	3,307		3,285
Furniture and fixtures	679		681
Office equipment	620		579
Internal-use software	16,717		13,901
Property and equipment, gross	$	122,831	$	108,276
Accumulated depreciation and amortization	(56,995)		(48,239)
Property and equipment, net	$	65,836	$	60,037

Depreciation and amortization expense on property and equipment for the three months ended ~~March 31,~~June 30, 2020 and 2019 was approximately $4.7 million and ~~$3.7~~$3.9 million, respectively. Included in these amounts was amortization expense for capitalized internal-use software costs of approximately $0.6 million and ~~$0.8~~$0.5 million for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively.

Depreciation and amortization expense on property and equipment for the six months ended June 30, 2020 and 2019 was approximately $9.4 million and $7.6 million, respectively. Included in these amounts was amortization expense for capitalized internal-use software costs of approximately $1.2 million and $1.0 million for the six months ended June 30, 2020 and 2019, respectively.

As of ~~March 31,~~June 30, 2020 and December 31, 2019, the unamortized balance of capitalized internal-use software costs on our Condensed Consolidated Balance Sheets was approximately ~~$9.6~~$10.1 million and $8.5 million, respectively.

Accrued expenses

Accrued expenses consisted of the following:


	As of June 30,		As of December 31,
	2020		2019
	(in thousands)
Accrued compensation and related benefits	$	9,176	$	8,734
Sales and use tax payable	4,792		3,938
Accrued colocation and bandwidth costs	4,059		3,237
Other accrued liabilities	4,604		3,969
Total accrued expenses	$	22,631	$	19,878

As of March 31, As of December 31,
2020 2019
(in thousands)
Accrued compensation and related benefits $ 9,666
$ 8,734
Sales and use tax payable 4,500
3,938
Accrued colocation and bandwidth costs 2,519
3,237
Other accrued liabilities 3,533
3,969
Total accrued expenses $ 20,218
$ 19,878

Other Current Liabilities

Other current liabilities consisted of the following:

As of March 31, As of December 31,
2020 2019
(in thousands)
Liability for early-exercised stock options (see Note 11) $ 385
$ 467
Deferred revenue 852
317
Accrued computer and networking equipment 3,896
7,060
Other current liabilities 297
325
Total other current liabilities $ 5,430
$ 8,169


	As of June 30,		As of December 31,
	2020		2019
	(in thousands)
Liability for early-exercised stock options	$	321	$	467
Deferred revenue	48		317
Accrued computer and networking equipment	3,775		7,060
Other current liabilities	258		325
Total other current liabilities	$	4,402	$	8,169

Other Long-Term Liabilities

Other long-term liabilities consisted of the following:


	As of June 30,		As of December 31,
	2020		2019
	(in thousands)
Deferred rent	$	2,256	$	634
Other long-term liabilities	277		404
Total other long-term liabilities	$	2,533	$	1,038

As of March 31, As of December 31,
2020 2019
(in thousands)
Deferred rent $ 1,016
$ 634
Other long-term liabilities 341
404
Total other long-term liabilities $ 1,357
$ 1,038

6. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the ~~three~~six months ended ~~March 31,~~June 30, 2020 are as follows:

Three months ended
March 31, 2020
(in thousands)
Balance as of December 31, 2019 $ 372
Foreign currency translation (24 )
Balance as of March 31, 2020 $ 348

Intangible assets are comprised of internet protocol address costs and domain name costs that are subject to amortization. We did not purchase additional internet protocol addresses and domain names during the three months ended March 31, 2020 and 2019.


	Six months ended June 30, 2020
	(in thousands)
Balance as of December 31, 2019	$	372
Foreign currency translation	(25)
Balance as of June 30, 2020	$	347

As of ~~March 31,~~June 30, 2020 and December 31, 2019, our intangible assets consisted of the following:


	As of June 30, 2020										As of December 31, 2019
	Gross carrying value		Accumulated amortization		Net carrying value		Gross carrying value		Accumulated amortization		Net carrying value
	(in thousands)
Intangible assets:
In-process research and development ("IPR&D")	$	368	$	—	$	368	$	—	$	—	$	—
Internet protocol addresses	2,891		(434)		2,457		1,448		(362)		1,086
Domain name	39		—		39		39		—		39
Total intangible assets	$	3,298	$	(434)	$	2,864	$	1,487	$	(362)	$	1,125

As of March 31, 2020 As of December 31, 2019
Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value
(in thousands)
Finite-lived intangible assets
Internet protocol addresses $ 1,448
$ (398 ) $ 1,050
$ 1,448
$ (362 ) $ 1,086
Domain name 39
—
39
39
—
39
Total finite-lived intangible assets $ 1,487
$ (398 ) $ 1,089
$ 1,487
$ (362 ) $ 1,125
Our intangible assets are comprised of internet protocol address costs, domain name costs and IPR&D. Internet protocol addresses and Domain name intangible assets are subject to amortization. During the three and six months ended June 30, 2020, we acquired certain IPR&D assets for $0.4 million, which is not subject to amortization.

During the three and six months ended June 30, 2019, we purchased additional internet protocol addresses and domain names for a gross carrying value of $0.6 million and $0.1 million, respectively. During both the three and six months ended June 30, 2020, we purchased additional internet protocol addresses and domain names for a gross carrying value of $1.4 million.

The annual expected amortization expense of intangible assets subject to amortization as of ~~March 31,~~June 30, 2020 is as follows:

As of March 31, 2020
(in thousands)
Remainder of 2020 $ 119
2021 158
2022 158
2023 148
2024 145
Thereafter 361
Total $ 1,089


	As of June 30, 2020
	(in thousands)
Remainder of 2020	$	151
2021	302
2022	302
2023	296
2024	289
Thereafter	1,156
Total	$	2,496

We perform tests for impairment of goodwill and long-lived assets on an annual basis as of October 31 or more frequently if events or changes in circumstances indicate that the long-lived assets might be impaired. We did not record any impairment charges during both the three and six months ended ~~March 31,~~June 30, 2020 and 2019.

The aggregate expense related to amortization of intangible assets for both the three months ended ~~March 31,~~June 30, 2020 and the three months ended ~~March 31,~~June 30, 2019 were each less than $0.1 million.

7. Debt Instruments

Capital Lease Agreement

In June 2017, we entered into a Capital Lease Agreement with an equipment ~~provider for $5.0 million in network equipment, at an annual interest rate of 5.24% over a term of four years.~~

In March 2018, we entered into an additional agreement with the equipment provider for $0.5 million in network equipment at an annual interest rate of 5.38% over a term of four years. In February 2019 and March 2019, we entered into additional agreements with the equipment provider for $2.9 million and $1.3 million, respectively, in network equipment, at an annual interest rate of 5.38% over terms of three years.

In August 2019, we entered into an additional agreement with the equipment provider for $1.3 million in network equipment at an annual interest rate of 6.33% over a term of three years. In November 2019, we entered into an additional capital lease agreement with the equipment provider for $2.2 million in network equipment at an annual interest rate of 5.69% over a term of three years. In December 2019, we entered into an additional agreement with the equipment provider for $1.0 million, at an annual interest rate of 5.42% over terms of three years. The additional agreement for December 2019, incorporates the same terms and conditions as those under the Capital Lease Agreement entered into in June 2017.

In January 2020 and March 2020, we entered into additional agreements with the equipment provider for $1.0 million, and $2.3 million, respectively, at an annual interest rate of 5.42% over terms of three years for both agreements. Both the additional agreements incorporate the same terms and conditions as those under the Capital Lease Agreement entered into in June 2017.

~~As of March 31, 2020 and December 31, 2019, $11.2 million and $9.5 million was outstanding under the Capital Lease Agreement.~~provider. The agreement provides for a bargain purchase price at the end of the term. The following table reflects the Capital Lease agreements under our single master Capital Lease agreement entered into in June 2017:


Date of Signed Agreement	Date of Commencement, per Signed Agreement	Amount of Network Equipment (in millions)		Annual Interest Rate		Term of Agreement (in years)
June 2017	June 2017	$	5.0	5.24	%	4.0
March 2018	March 2018	$	0.5	5.38	%	4.0
February 2019	February 2019	$	2.9	5.38	%	3.0
March 2019	March 2019	$	1.3	5.38	%	3.0
August 2019	August 2019	$	1.3	6.33	%	3.0
November 2019	November 2019	$	2.2	5.69	%	3.0
December 2019	December 2019	$	1.0	5.42	%	3.0
January 2020	February 2020	$	1.0	5.42	%	3.0
March 2020	April 2020	$	2.3	5.42	%	3.0
June 2020	July 2020	$	3.6	4.95	%	3.0

As of June 30, 2020 and December 31, 2019, $9.9 million and $9.5 million was outstanding under the Capital Lease Agreement. We recognize the amortization of ~~leased~~the underlying capital lease assets ~~is included in~~as depreciation and amortization expense.

Cash Collateralized Revolving Credit Agreement

In November 2019, we entered into a Revolving Credit Agreement for an aggregate commitment amount of $70.0 million with a maturity date of November 3, 2022. The amount of borrowings available under the Revolving Credit Agreement at any time are collateralized by our cash, which is classified as restricted cash on our balance sheets.

The interest rate associated with each advance under the Revolving Credit Agreement is equal to the sum of LIBOR for the applicable interest period plus 1.50% which is a per annum rate based on outstanding borrowings. As such, for the initial interest period ending in November 2020, the interest rate is set at 3.46%. The commitment fee is 0.20% per annum based on the average daily unused amount of the commitment amount. Interest payments on outstanding borrowings are due on the last day of each interest period and payments for the commitment fee are due at the end of each calendar quarter. As of both ~~March 31,~~June 30, 2020 and December 31, 2019, the outstanding balance on the Revolving Credit Agreement was $20.3 million.

The following table reflects the carrying values of the debt and capital lease agreements as of ~~March 31,~~June 30, 2020 and December 31, 2019:

As of March 31, As of December 31,
2020 2019
(in thousands)
Liability component:
Principal amount—Cash Collateralized Revolving Credit Agreement $ 20,300
$ 20,300
Less: unamortized debt issuance costs (200 ) (219 )
Less: current portion of long-term debt —
—
Long-term debt, less current portion—Cash Collateralized Revolving Credit Agreement $ 20,100
$ 20,081
Principal amount—Capital Lease Agreement 11,234
9,549
Less: current portion of long-term debt (5,291 ) (4,472 )
Long-term debt, less current portion—Capital Lease Agreement $ 5,943
$ 5,077
Total long-term debt, less current portion $ 26,043
$ 25,158


	As of June 30,		As of December 31,
	2020		2019
	(in thousands)
Liability component:
Principal amount—Cash Collateralized Revolving Credit Agreement	$	20,300	$	20,300
Less: unamortized debt issuance costs	(180)		(219)
Less: current portion of long-term debt	—		—
Long-term debt, less current portion—Cash Collateralized Revolving Credit Agreement	$	20,120	$	20,081
Principal amount—Capital Lease Agreement	9,926		9,549
Less: current portion of long-term debt	(5,188)		(4,472)
Long-term debt, less current portion—Capital Lease Agreement	$	4,738	$	5,077
Total long-term debt, less current portion	$	24,858	$	25,158

Contractual future repayments for our debt and capital lease obligations as of ~~March 31,~~June 30, 2020 are as follows:

Principal Interest Total
(in thousands)
Remainder of 2020 $ 3,704
$ 1,867
$ 5,571
2021 4,838
2,072
6,910
2022 22,758
21,140
43,898
2023 234
2
236
2024 —
—
—
Thereafter —
—
—
Total $ 31,534
$ 25,081
$ 56,615


	Principal		Interest		Total
	(in thousands)
Remainder of 2020	$	3,176	$	1,083	$	4,259
2021	5,795		1,216		7,011
2022	23,966		904		24,870
2023	868		11		879
2024	—		—		—
Thereafter	—		—		—
Total	$	33,805	$	3,214	$	37,019

Interest expense related to debt for the three months ended ~~March 31,~~June 30, 2020 and 2019 was ~~$0.3~~$0.4 million and ~~$1.2~~$3.0 million, respectively. Interest expense related to debt for the six months ended June 30, 2020 and 2019 was $0.7 million and $4.2 million, respectively.

8. ~~Common Stock Warrant Liabilities~~

Prior to the IPO, we issued convertible preferred stock warrants in conjunction with prior the issuances of debt. We recorded these warrants to purchase convertible preferred stock as a liability on the consolidated balance sheets at fair value upon issuance as the warrants were exercisable for contingently redeemable preferred stock which was classified outside of stockholders' equity (deficit). The liability associated with these warrants were subject to remeasurement at each balance sheet date, with changes in fair value recorded in the consolidated statement of operations and comprehensive Loss as other expense, net.

On May 17, 2019, immediately upon closing of the IPO, our warrants to purchase convertible preferred stock were automatically converted to warrants to purchase an equal number of shares of our Class B common stock. As a result, the warrant was remeasured a final time, immediately prior to the closing of the IPO, and reclassified to additional paid-in capital within stockholders' equity. Changes in the fair value were recorded within other expense, net on the consolidated statement of operations.

In the three months ended March 31, 2020 there were no exercises of Class B common stock warrants. In the three months ended March 31, 2019, there were no exercises of preferred stock warrants. As of March 31, 2020 and December 31, 2019, the warrants are classified and recorded as additional paid-in capital on the condensed consolidated balance sheets.

9. Commitments and Contingencies

Operating Lease Commitments

We lease our facilities under non-cancelable operating leases. These operating leases expire at various dates through July 2027 and generally require the payment of real estate taxes, insurance, maintenance, and operating costs. There have been no material changes to our operating lease commitments as compared to those described in our most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

We recognize rent expense on a straight-line basis over the lease period and have accrued for any rent expense incurred but not ~~paid.~~paid at each reporting period end. Rent expense for the three months ended ~~March 31,~~June 30, 2020 and 2019 was ~~$2.3~~$2.0 million and $1.8 million, respectively. Rent expense for the six months ended June 30, 2020 and 2019 was $4.3 million and $3.5 million, respectively.

During the three and six months ended ~~March 31,~~June 30, 2020 and 2019, we also had sublease agreements with tenants of various properties vacated by us. The amount earned from our sublease tenants was approximately $0.3 million and $0.3 million during the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively. The amount earned from our sublease tenants was approximately $0.6 million and $0.6 million during the six months ended June 30, 2020 and 2019, respectively.

Purchase Commitments

As of ~~March 31,~~June 30, 2020, we had long-term commitments for cost of revenue related agreements (i.e., bandwidth usage, colocation, peering and other managed services with various networks, internet service providers ("ISPs") and other third-party vendors). Our minimum future commitments related to cost of revenue related agreements as of ~~March 31,~~June 30, 2020 were as follows:

Cost of Revenue Commitments
(in thousands)
Remainder of 2020 $ 33,184
2021 13,290
2022 4,790
2023 284
2024 72
Thereafter —
Total $ 51,620


	Cost of Revenue Commitments
	(in thousands)
Remainder of 2020	$	27,606
2021	22,664
2022	9,732
2023	1,756
2024	245
Thereafter	73
Total	$	62,076

We also have long-term commitments for various non-cancelable software as a service ("SaaS") agreements. There have been no material changes to our purchase commitments related to SaaS agreements as compared to those described in our most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Legal Matters

We are party to various disputes that management considers routine and incidental to its business. Management does not expect the results of any of these routine actions to have a material effect on our business, results of operations, financial condition, or cash flows.

Indemnification

We enter into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, we agree to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners or customers, in connection with our provision of its services. Generally, these obligations are limited to claims relating to infringement of a patent, copyright, or other intellectual property right, breach of the Company’s security or data protection obligations, or the Company’s negligence, willful misconduct, or violation of law. Subject to applicable statutes of limitation, the term of these indemnification agreements is generally for the duration of the agreement.

The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we carry insurance that covers certain third-party claims relating to our services and could limit our exposure in that respect.

We have agreed to indemnify each of our officers and directors during his or her lifetime for certain events or occurrences that happen by reason of the fact that the officer or director is, was, or has agreed to serve as an officer or director of the Company. We have director and officer insurance policies that may limit our exposure and may enable us to recover a portion of certain future amounts paid.

To date, we have not encountered material costs as a result of such indemnification obligations and have not accrued any related liabilities in our financial statements. In assessing whether to establish an accrual, we consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

~~10. Convertible Preferred Stock~~

Prior to the IPO, we had 7 outstanding series of Convertible Preferred Stock each with a par value of $0.00002 per share, convertible at the option of the holder, that was classified as temporary equity on our consolidated balance sheet.

On May 17, 2019, immediately upon closing of the IPO, our convertible preferred stock was automatically converted to shares of our Class B common stock. As of both March 31, 2020 and December 31, 2019, we had 0 convertible preferred stock issued or outstanding.

~~11.~~9. Stockholders' Equity

Common Stock

Our Amended and Restated Certificate of Incorporation, as amended and restated in May 2019, authorizes the issuance of 1.0 billion shares of Class A common stock and 94.1 million shares of Class B common stock, and 10.0 million shares of preferred stock, each at a par value per share of $0.00002. Holders of Class A common stock are entitled to 1 vote per share and holders of Class B common stock are entitled to 10 votes per share. Preferred stockholders, do not have voting rights.

As of ~~March 31,~~June 30, 2020 and December 31, 2019, ~~24.2~~14.7 million and 33.9 million shares of Class B common stock were issued and outstanding, respectively. As of ~~March 31,~~June 30, 2020 and December 31, 2019, ~~71.8~~90.3 million and 61.0 million shares of Class A common stock were issued and outstanding, respectively. As of both ~~March 31,~~June 30, 2020 and December 31, 2019, 0 shares of preferred stock were issued and outstanding.

Equity Incentive Plans

In March 2011, our stockholders approved our 2011 Equity Incentive Plan ("2011 Plan") which allows for the issuance of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards ("RSUs") to employees, directors, and consultants of the Company. Options granted under our 2011 Plan are exercisable for shares of our Class B common stock.

As of both ~~March 31,~~June 30, 2020 and December 31, 2019, there were 23.6 million shares of Class B common stock reserved for issuance under the 2011 Plan. As of both ~~March 31,~~June 30, 2020 and December 31, 2019, there were 0 shares of Class B common stock available for issuance pursuant to future grants under the 2011 Plan.

In May 2019, in conjunction with our IPO, our Board and stockholders approved our 2019 Equity Incentive Plan (the "2019 Plan") which allows for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, RSUs, performance-based stock awards, and other forms of equity compensation, which are collectively referred to as stock awards. Additionally, the 2019 Plan provides for the grant of performance cash awards. Options are exercisable for shares of our Class A common stock. No further awards will be issued under the 2011 Plan.

As of ~~March 31,~~June 30, 2020 and December 31, 2019, there were 19.2 million shares and 14.4 million shares of Class A common stock reserved for issuance under the 2019 Plan, respectively. As of ~~March 31,~~June 30, 2020 and December 31, 2019, there were ~~16.0~~13.5 million and 12.4 million Class A common stock available for issuance under the 2019 Plan, respectively.

In May 2019, in conjunction with our IPO, our Board and stockholders approved the Employee Stock Purchase Plan ("ESPP"). The ESPP allows eligible employees to purchase shares of our Class A common stock through payroll deductions of up to 15% of their eligible compensation, subject to a maximum of $25,000 per calendar year.

As of ~~March 31,~~June 30, 2020 and December 31, 2019, there were 3.5 million shares and 2.5 million shares of Class A common stock reserved for issuance under the ESPP, respectively. As of ~~March 31,~~June 30, 2020 and December 31, 2019, there were 3.1 million shares and 2.2 million shares of Class A common stock available for future issuance under the ESPP, respectively.

Stock Options

Options granted under the 2011 Plan are exercisable for Class B common stock and generally expire within 10 years from the date of grant and generally vest over four years, at the rate of 25% on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter based on continued service.

Options granted under the 2019 Plan are exercisable for Class A common stock and generally expire within 10 years from the date of grant and generally vest over four years, at the rate of 25% on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter based on continued service. Forfeitures are recognized as they occur.

The following table summarizes stock option activity during the ~~three~~six months ended ~~March 31,~~June 30, 2020:

Shares
Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term

Aggregate
Intrinsic Value
(in thousands) (in years) (in thousands)
Outstanding at December 31, 2019 11,269
$ 4.68
7.3 $ 173,471
Granted —
—

Exercised (1,107 ) 2.68

Cancelled/forfeited (61 ) 6.94

Outstanding at March 31, 2020 10,101
$ 4.89
7.2 $ 142,692
Vested and exercisable at March 31, 2020 6,443
$ 3.00
6.4 $ 102,947


	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)			(in years)	(in thousands)
Outstanding at December 31, 2019	11,269	$	4.68	7.3	$	173,471
Granted	—	—
Exercised	(2,823)	3.06
Cancelled/forfeited	(116)	7.81
Outstanding at June 30, 2020	8,330	$	5.19	7.0	$	665,911
Vested and exercisable at June 30, 2020	4,799	$	3.14	6.1	$	393,468

The total pre-tax intrinsic value of options exercised during the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 was ~~$20.2~~$76.3 million and ~~$3.2~~$10.9 million, respectively.

The total grant date fair value of employee options vested for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 was ~~$2.3~~$4.6 million and ~~$1.4~~$2.8 million, respectively.

The weighted average grant-date fair value for options granted to employees during the ~~three~~six months ended ~~March 31,~~June 30, 2019 was ~~$5.10.~~$5.36. There were no options granted during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

We estimate the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. Each of the Black-Scholes inputs is subjective and generally requires significant judgments to determine. We estimated the fair value of stock option awards using the Black-Scholes option pricing model with the following weighted-average assumptions:

Three months ended March 31,
2020 2019
Fair value of common stock N/A $10.32
Expected term (in years) N/A 6.02
Risk-free interest rate N/A 2.50%
Expected volatility N/A 40.0%
Dividend yield N/A —%

Six months ended June 30,

2020

2019

Fair value of common stock

N/A

$11.14

Expected term (in years)

N/A

6.02

Risk-free interest rate

N/A

2.50%

Expected volatility

N/A

40.0%

Dividend yield

N/A

—%

During the three months ended ~~March 31,~~June 30, 2020 and 2019, we recorded stock-based compensation expense from stock options of approximately ~~$1.8~~$2.0 million and ~~$1.5~~$1.9 million, respectively. During the six months ended June 30, 2020 and 2019, we recorded stock-based compensation expense from stock options of approximately $3.8 million and $3.3 million, respectively.

As of ~~March 31,~~June 30, 2020, total unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest was ~~$16.2~~$14.2 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately ~~2.58~~2.36 years.

Early Exercise of Stock Options

Certain stock options granted by the Company are exercisable at the date of grant, with unvested shares subject to repurchase by the Company in the event of voluntary or involuntary termination of employment of the stockholder. Such exercises are recorded as a liability on the accompanying Condensed Consolidated Balance Sheets and reclassified into equity as the options vest. As of ~~March 31,~~June 30, 2020 and December 31, 2019, a total of ~~163,305~~134,577 and 199,895 shares of Class B Common Stock were subject to repurchase by the Company at the lower of (i) the fair market value of such shares on the date of

repurchase, or (ii) the original exercise price of such shares. The corresponding exercise value of approximately ~~$0.7~~$0.6 million and $0.9 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively, is recorded in other current liabilities and other liabilities on the accompanying Condensed Consolidated Balance Sheets.

The activity of non-vested shares as a result of early exercise of options granted to employees and non-employees, is as follows:



	~~Three~~Six months ended ~~March 31,~~June 30,
	2020
	(in thousands)
Beginning balance as of December 31, 2019	200
Early exercise of options	—
Vested	~~(37~~(65)	)
Repurchased	—
Ending balance as of ~~March 31,~~June 30, 2020	~~163~~135

RSUs

We began granting RSUs under the 2019 Plan during the fiscal year ended December 31, 2019. The fair value of RSUs is based on the grant date fair value and is expensed on a straight-line basis over the applicable vesting period. RSUs typically vest over four years, at the rate of 25% on the first anniversary of the vest date and ratably on a quarterly basis over the remaining 36-month period thereafter, based on continued service. Forfeitures are recognized as they occur.

The following table summarizes RSU activity during the ~~three~~six months ended ~~March 31,~~June 30, 2020:

Shares
Weighted-
Average
Grant Date Fair Value Per Share
(in thousands)
Nonvested RSUs as of December 31, 2019 1,641
$ 20.07
Granted 1,072
20.03
Vested —

Cancelled/forfeited (11 ) 20.04
RSUs outstanding as of March 31, 2020 2,702
$ 20.04


	Shares	Weighted-Average Grant Date Fair Value Per Share
	(in thousands)
RSUs outstanding as of December 31, 2019	1,641	$	20.07
Granted	3,673	23.84
Vested	(60)	13.50
Cancelled/forfeited	(88)	20.83
RSUs outstanding as of June 30, 2020	5,166	$	22.81

During the three and six months ended ~~March 31,~~June 30, 2020, we recognized stock-based compensation expense related to RSUs of ~~$4.1 million.~~$13.4 million and $17.4 million, respectively. There was no stock-based compensation expense recognized related to RSUs during the three and six months ended ~~March 31,~~June 30, 2019.

During the three and six months ended June 30, 2020, the Company modified the terms of its RSUs awarded to an employee to allow for the remainder unvested awards to be fully vested upon their change in employment status. As a result, the Company recorded incremental stock-based compensation expense in relation to the modification of $4.8 million for both the three and six months ended June 30, 2020. Included in this expense, is the incremental fair value resulting from the modifications of the RSUs of $0.1 million.

As of ~~March 31,~~June 30, 2020, total unrecognized stock-based compensation cost related to non-vested RSUs was ~~$47.9~~$99.1 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately ~~3.16~~3.34 years.

Performance-based Stock Units ("PSUs")

In March 2020, the Company granted a maximum total of 87,918 shares of performance-based restricted stock unit awards ("PSUs") to certain employees of the company, pursuant to the Company’s 2019 Equity Incentive Plan. The PSUs

represents the right of the employees to be issued on a future date, one (1) share of Class A common stock for each RSU received that will vest on the applicable vesting date.

The issuance of the underlying shares occurs upon approval by the Compensation Committee of the Board of Directors based on the level of achievement of certain Company and individual performance goals set by the Compensation Committee for year ending December 31, 2020 and their continued service with the Company. Subject to employees’ continuous service with the Company through each vesting date, 25% of the number of RSUs credited to them upon certification of achievement will vest on February 15, 2021, May 15, 2021, August 15, 2021, and November 15, 2021, respectively.

As of the ~~three~~six months ended ~~March 31,~~June 30, 2020, none of these performance conditions have been set or met. We expect to record stock-based compensation related to these PSUs once it is considered probable that the performance conditions will be met.

ESPP

The ESPP allows eligible employees to purchase shares of our common stock through payroll deductions of up to 15% of their eligible compensation. The ESPP provides for six-month offering periods, commencing in May and November of each year. At the end of each offering period employees are able to purchase shares at 85% of the lower of the fair market value of our Class A common stock on the first trading day of the offering period or on the date of purchase.

We estimate the fair value of shares to be issued under the ESPP on the first day of the offering period using the Black-Scholes valuation model. The inputs to the Black-Scholes option pricing model are our stock price on the first date of the offering period, the risk-free interest rate, the estimated volatility of our stock price over the term of the offering period, the expected term of the offering period and the expected dividend rate. Stock-based compensation expense related to the ESPP is recognized on a straight-line basis over the offering period. Forfeitures are recognized as they occur.

We estimated the fair value of shares granted under the ESPP on the first date of the offering period using the Black-Scholes option pricing model with the following assumptions:

Three months ended March 31,
2020 2019
Fair value of common stock $6.02 N/A
Expected term (in years) 0.50 N/A
Risk-free interest rate 1.59% N/A
Expected volatility 43.0% N/A
Dividend yield —% N/A


	Six months ended June 30,
	2020			2019
Fair value of common stock	$	14.09		$	6.92
Expected term (in years)	0.50			0.50
Risk-free interest rate	0.63		%	2.35		%
Expected volatility	54.0		%	36.4		%
Dividend yield	—		%	—		%

During the three and six months ended ~~March 31,~~June 30, 2020, we withheld ~~$2.2~~$1.9 million and $4.1 million in contributions from employees, respectively, and recognized ~~$0.7~~$1.3 million and $2.0 million in stock-based compensation expense related to the ~~ESPP. NaN~~ESPP, respectively. During the three and six months ended June 30, 2019, we recognized $0.8 million in contributions ~~were withheld,~~from employees, and 0recognized $0.4 million in stock-based compensation expense ~~was recognized~~ related to the ~~ESPP in~~ESPP.

During the three and six months ended ~~March 31,~~June 30, 2020, 0.2 million shares of our Class A common stock was purchased under the offering period that commenced on November 21, 2019. NaN common stock was issued under the ESPP in the three and six months ended ~~March 31, 2020.~~June 30, 2019.

Stock-based Compensation Expense

The following table summarizes the components of total stock-based compensation expense included in the accompanying Condensed Consolidated Statements of Operations:


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)
Stock-based compensation expense by caption:
Cost of revenue	$	1,090	$	293	$	1,705	$	437
Research and development	4,053		714		5,724		1,146
Sales and marketing	7,076		596		8,559		965
General and administrative	4,062		640		6,622		1,162
Total	$	16,281	$	2,243	$	22,610	$	3,710

Three months ended March 31,
2020 2019
(in thousands)
Stock-based compensation expense by caption:
Cost of revenue $ 615
$ 144
Research and development 1,671
432
Sales and marketing 1,483
369
General and administrative 2,560
522
Total $ 6,329
$ 1,467
For the three and six months ended June 30, 2020, we capitalized $0.4 million and $0.6 million of stock-based compensation expense. For the three and six months ended June 30, 2019, we did 0t capitalize any stock-based compensation expense.

Common Stock Warrant Liabilities

Prior to the IPO, we issued convertible preferred stock warrants in conjunction with the issuances of debt. We recorded these warrants to purchase convertible preferred stock as a liability on the consolidated balance sheets at fair value upon issuance as the warrants were exercisable for contingently redeemable preferred stock which was classified outside of stockholders' equity (deficit). The liability associated with these warrants were subject to remeasurement at each balance sheet date, with changes in fair value recorded in the consolidated statement of operations and comprehensive loss as other expense, net.

In the three and six ended June 30, 2020, certain Class B common stock warrants related to the previously outstanding subordinated debt and loan agreements were exercised under the cashless exercise method pursuant to the corresponding warrant agreements. As a result of such exercises, we issued 144,635 shares of our Class B common stock. In the three and six months ended June 30, 2019, the Class B common stock warrants related to the Facility, the Class B common stock warrants related to the Prior Loan Agreement, the Class B common stock warrants related to a previously outstanding term loan agreement and the Class B common stock warrants related to the Mezzanine Loan Agreement were exercised under the cashless exercise method pursuant to the corresponding warrant agreements. As a result of such exercises, we issued 172,380 shares of our Class B common stock.

~~12.~~10. Net Loss Per Share Attributable to Common Stockholders

We compute net loss per share using the two-class method required for multiple classes of common stock and participating securities. Class A and Class B common stock are the only outstanding equity of the Company. The rights of the holders of the Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to 1 vote per share and each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder on a 1-for-one basis, and are automatically converted into Class A common stock upon sale or transfer, subject to certain limited exceptions. Shares of Class A common stock are not convertible. Accordingly, the Class A common stock and Class B common stock share equally in our net losses. Prior to the IPO, our participating securities also included convertible preferred stock. The holders of convertible preferred stock did not have a contractual obligation to share in our losses, and as a result, net losses were not allocated to these participating securities.

The following table sets forth the calculation of basic and diluted net loss per share attributable to common stockholders during the periods presented. The shares issued in the IPO, the shares issued pursuant to the exercise by the underwriters of an option to purchase additional shares, and the shares of Class A and Class B common stock issued upon conversion of the outstanding shares of convertible preferred stock in the IPO are included in the table below weighted for the period outstanding:


	Three months ended June 30,
	2020						2019
	Class A⁽¹⁾		Class B⁽²⁾		Class A⁽¹⁾		Class B⁽²⁾
	(in thousands, except per share amounts)
Net loss attributable to common stockholders	$	(11,595)	$	(2,685)	(1,685)		$	(13,902)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	80,056		19,779		6,464		53,317
Net loss per share attributable to common stockholders, basic and diluted	$	(0.14)	$	(0.14)	$	(0.26)	$	(0.26)


	Three months ended March 31,											Six months ended June 30,
	2020						2019					2020						2019
	Class A⁽¹⁾			Class B⁽²⁾			Class A	Class B⁽²⁾				Class A⁽¹⁾		Class B⁽²⁾		Class A⁽¹⁾		Class B⁽²⁾
	(in thousands, except per share amounts)											(in thousands, except per share amounts)
Net loss attributable to common stockholders	$	(8,196	)	$	(3,794	)	N/A	$	(9,727	)	Net loss attributable to common stockholders	$	(19,680)	$	(6,770)	$	(1,931)	$	(23,383)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	65,210			30,191			N/A	25,290			Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	72,633		24,985		3,250		39,349
Net loss per share attributable to common stockholders, basic and diluted	$	(0.13	)	$	(0.13	)	N/A	$	(0.38	)	Net loss per share attributable to common stockholders, basic and diluted	$	(0.27)	$	(0.27)	$	(0.59)	$	(0.59)

(1)Class A common stock includes the issuance of 12.9 million shares of Class A common stock issued by us in connection with our IPO and shares issued upon the exercise of options and vesting of RSUs subsequent to our IPO. It also includes the shares issued in connection with our follow-on offering on May 26, 2020.

(2)Class B common stock includes, for all periods presented, the conversion of all of our preferred stock into an aggregate of 53.6 million shares of our Class B common stock upon closing of the IPO.

Since we were in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share, as the inclusion of all potential common shares outstanding would have been anti-dilutive. The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive are as follows:


	Number of Shares
	As of June 30,
	2020	2019
	(in thousands)
Stock options	8,330	12,343
RSUs	5,166	—
Early exercised stock options	135	281
Common stock warrants	—	259

Shares issuable pursuant to the ESPP	28	60
PSUs	88	—
Total	13,747	12,943

Number of Shares
As of March 31,
2020 2019
(in thousands)
Convertible preferred stock —
53,630
Stock options 10,101
8,073
RSUs 2,702
—
Early exercised stock options 163
260
Common stock warrants 183
—
Convertible preferred stock warrants —
519
Shares issuable pursuant to the ESPP 185
—
Performance-based Stock Units 88
—
Total 13,422
62,482

Our provision for income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, we update our estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period.

In the three months ended ~~March 31,~~June 30, 2020 and 2019, we recorded income tax benefit of $(0.0) million and expenses of $0.1 million, respectively. In the six months ended June 30, 2020 and 2019, we recorded income tax expenses of $0.8 million and $0.1 ~~million, respectively.~~ million.

We continue to maintain a full valuation allowance on our U.S. Federal and state net deferred tax assets. The tax expense for the three and six months ended ~~March 31,~~June 30, 2020 and 2019 was primarily due to foreign and state income tax expense.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law (the "CARES Act"). The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

~~We intend to utilize~~ During the second quarter of 2020, we utilized the provision to defer payment of certain of our payroll ~~taxes beginning in the second quarter of 2020.~~taxes. Any deferred payments will be accrued for as a liability and included in our condensed consolidated balance sheet for the applicable period.

We are continuing to evaluate the other provisions of the CARES Act, but do not expect them to have a material impact on our consolidated financial statements.

12. Information About Revenue and Geographic Areas

We consider operating segments to be components of the Company in which separate financial information is available and is evaluated regularly by our Chief Operating Decision Maker ("CODM") in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer ("CEO"). The CEO reviews financial information presented on a consolidated basis, accompanied by information about revenue, customer size, and industry vertical for purposes of allocating resources and evaluating financial performance.

We have determined that we operate under 1 business ~~activity~~unit with no segment managers who are held accountable for operations, operating results, or plans for levels or components below the consolidated unit level. Accordingly, we have determined that we have a single reporting segment and operating unit structure.

Revenue by geography is based on the billing address of the customer. Refer to Note 3, "Revenue" for more information on net revenue by geographic region.

The following table presents long-lived assets by geographic region:


	As of June 30,		As of December 31,
	2020		2019
	(in thousands)
United States	$	40,805	$	40,747
All other countries	25,031		19,290
Total long-lived assets	$	65,836	$	60,037

As of March 31, As of December 31,
2020 2019
(in thousands)
United States $ 43,818
$ 40,747
All other countries 25,251
19,290
Total long-lived assets $ 69,069
$ 60,037

13. Related Party Transactions

In July 2016, a stockholder borrowed approximately $0.1 million to exercise stock options for 53,125 shares of common stock pursuant to a promissory note from the stockholder. The note bears interest at a rate of 1.77%. In June 2019, the promissory note was repaid in full. Prior to repayment, for the purposes of the financial statements, the shares were not reported as exercised, issued, or outstanding. This stockholder is not one of our executive officers or directors. There were 0 outstanding balances as of both ~~March 31,~~June 30, 2020 and December 31, 2019.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q. Our fiscal year ends on December 31.

As used herein, "Fastly," "we," "our," "the Company" and similar terms include Fastly, Inc. and its subsidiaries, unless the context indicates otherwise.

Developers are reinventing the way we live, work, and play online. Yet they repeatedly encounter innovation barriers when delivering modern digital experiences. Expectations for digital experiences are at an all-time high; they must be fast, secure, and highly personalized. If they aren’t reliable, end-users simply take their business elsewhere. The challenge today is enabling developers to deliver a modern digital experience while simultaneously providing scale, security, and performance. We built our edge cloud platform to solve this problem.

The edge cloud is a new category of Infrastructure as a Service ("IaaS") that enables developers to build, secure, and deliver digital experiences, at the edge of the internet. This service represents the convergence of the Content Delivery Network ("CDN") with functionality that has been traditionally delivered by hardware-centric appliances such as Application Delivery Controllers ("ADC"), Web Application Firewalls ("WAF"), Bot Detection, and Distributed Denial of Service ("DDoS") solutions. It also includes the emergence of a new, but growing, edge computing market which aims to move compute power and logic as close to the end-user as possible. The edge cloud uses the emerging cloud computing, serverless paradigm in which the cloud provider runs the server and dynamically manages the allocation of machine resources. When milliseconds matter, processing at the edge is an ideal way to handle highly dynamic and time-sensitive data. The edge cloud complements data center, central cloud, and hybrid solutions.

Our mission is to fuel the next modern digital experience by providing developers with a programmable and reliable edge cloud platform that they adopt as their own.

Organizations must keep up with complex and ever-evolving end-user requirements. We help them surpass their end-users’ expectations by powering fast, secure, and scalable digital experiences. We built a powerful edge cloud platform, designed from the ground up to be programmable and support agile software development. We believe our platform gives our customers a significant competitive advantage, whether they were born into the digital age or are just embarking on their digital transformation journey. Our platform consists of three key components: a programmable edge, a software-defined modern network, and a philosophy of customer empowerment. Our programmable edge provides developers with real-time visibility and control, where they can write and deploy code to push application logic to the edge. It supports modern application delivery processes, freeing developers to innovate without constraints. We recently launched the beta of Compute@Edge, a powerful new language-agnostic compute environment, designed to empower developers to build far more advanced edge applications with greater security, more robust logic, and new levels of performance. Our software-defined modern network is built for the software-defined future. It is powerful, efficient, and flexible, designed to enable us to rapidly scale to meet the needs of the most demanding customers and never be a barrier to their growth. As of ~~March 31,~~June 30, 2020, our 88100 terabit software-centric network is located in 72 uniquely designed Points-of-Presence ("POPs") across 55 markets around the world. Finally, being developers ourselves, we empower customers to build great things while supporting their efforts through frictionless tools and a deeply technical support team that facilitates ongoing collaboration.

We serve both established enterprises and technology-savvy organizations. Our customers represent a diverse set of organizations across many industries with one thing in common: they are competing by using the power of software to build differentiation at the edge. With our edge cloud platform, our customers are disrupting existing industries and creating new ones. For example, several of our customers have reinvented digital publishing by connecting readers through subscription models to indispensable content, helping people understand the world through deeply reported independent journalism. Our customers’ software applications use our edge cloud platform to ensure concert goers can buy tickets to the live events they love, travelers can book flights seamlessly and embark on their next great adventure, and sports fans can stream events in real

time, across all devices. The range of applications that developers build with our edge cloud platform continues to surpass our expectations.

We generate substantially all of our revenue from charging our customers based on their usage of our platform. Initially, customers typically choose to become platform customers, for which we charge fees based on their committed or actual use of our platform, as measured in gigabytes and requests. Many of our customers generate billings in excess of their minimum commitment. We also generate revenue from additional products as well as professional and other services, such as implementation. We charge a flat one-time or recurring fee for these additional products and services.

Potential customers have the opportunity to test our platform for free. If they choose to make use of our platform for live production delivery, they have the ability to sign up online by providing their credit card information and agreeing to a minimum monthly fee of $50.

We focus our direct selling efforts on medium to large organizations as well as smaller companies that are exhibiting significant growth. We engage with and support these customers with our field sales representatives, account managers, and technical account managers who focus on customer satisfaction and drive expansion of their usage of our platform and products. These teams work with technical and business leaders to help our customers’ end-users receive the best possible digital experience, while also lowering our customers’ total cost of ownership. Potential customers have the opportunity to test our platform for free. If they choose to make use of our platform for live production delivery, they have the ability to sign up online by providing their credit card information and agreeing to a nominal monthly fee.

We have established and continue to maintain our position by improving upon our programmable edge platform and software-defined modern network architecture. We continue to focus on empowering our developer community through events and conferences ~~including our Altitude conferences,~~ and online digital engagement. The success of these direct selling efforts is reflected by our ~~297~~304 enterprise customers as of ~~March 31,~~June 30, 2020 that generated 88% of our total revenue for the trailing 12 months ended ~~March 31,~~June 30, 2020.

As our customers become more successful and grow, they typically increase their usage of our platform and adopt additional Fastly products. A meaningful indicator of the increased activity from our existing customer accounts and overall customer satisfaction is our Dollar-Based Net Expansion Rate ("DBNER"), which was ~~133.0%~~137.4% and ~~130.4%~~132.3% for the trailing 12 months ended ~~March 31,~~June 30, 2020 and 2019, respectively. Our Net Retention Rate ("NRR") was 137.8% and 110.9% for the trailing twelve months ended June 30, 2020 and 2019, respectively. For a more complete description and discussion of DBNER and NRR, refer to the section titled "Key Business Metrics".

Customers that have negotiated contracts with us generate a substantial majority of our revenue. These customers typically purchase one or more products, for which we charge a monthly recurring or one-time fee depending on the products selected. Some of these customers also choose to purchase various levels of account management and enhanced customer support for a monthly fee. Typically, the term of these contracts is 12 months and includes a minimum monthly billing commitment in exchange for more favorable pricing terms.

The timing of our sales is difficult to predict. The length of our sales cycle, from initial evaluation to payment, can range from several months to well over a year and can vary substantially from customer to customer. Similarly, the onboarding and ramping process with new enterprise customers can take several months.

We have achieved significant growth in recent periods. For the three months ended ~~March 31,~~June 30, 2020 and 2019, our revenue was ~~$62.9~~$74.7 million and ~~$45.6~~$46.2 million, ~~respectively.~~respectively, an increase of 62%. Our 10 largest customers generated an aggregate of ~~31%~~33% and ~~31%~~30% of our revenue in the trailing 12 months ended ~~March 31,~~June 30, 2020 and 2019, respectively. We incurred a net loss of ~~$12.0~~$14.5 million and ~~$9.7~~$15.6 million in the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively.

~~Executive Leadership Change~~Follow-on Public Offering

On ~~February 18,~~May 26, 2020 ~~Artur Bergman stepped down as~~we completed a follow-on public offering in which we sold 6,900,000 shares of Class A common stock, which included 900,000 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at the public offering price of $41.50 per share. We received net proceeds of $274.9 million, after deducting underwriting discounts and commissions, from sales of our ~~Chief Executive Officer~~shares in the public offering.

Amendment to Amended and Restated Certificate of Incorporation

On June 10, 2020 we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation (the “Amendment”) which amended Article IV(D)(1)(d) of our Amended and Restated Certificate of Incorporation to change the final conversion date of our Class B common stock from ten years following our initial public offering to seven years following our initial public offering. The Amendment was ~~appointed as~~approved at our ~~Chief Architect~~2020 Annual Meeting of Shareholders on June 9, 2020. by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of Class A common stock and ~~Executive Chairperson. Mr. Bergman continues to serve~~Class

B common stock voting together as a ~~member of our Board of Directors,~~single class, and ~~was appointed as Chairperson~~the affirmative vote of the ~~Board on February 18, 2020. In addition, the Board appointed Joshua Bixby as our Chief Executive Officer. In connection with Mr. Bixby's appointment, the Board expanded the size~~holders of a majority of the ~~Board from six (6) to seven (7) members and appointed Mr. Bixby to serve~~voting power of the outstanding shares of Class B common stock voting as a ~~Class I director. Mr. Bixby's term as a member of the Board will expire at the meeting of the stockholders to be held in June 2020. Mr. Bixby does not serve on any committees of the Board.~~separate class.

Further details on the ~~executive leadership change~~Amendment are described in our ~~most recently filed Annual~~Current Report on Form ~~10-K for the fiscal year ended December 31, 2019.~~8-K filed on June 10, 2020.

Factors Affecting Our Performance

Winning New Customers

We are focused on continuing to attract new customers. Our customer base includes both large, established enterprises that are undergoing digital transformation and emerging companies spanning a wide array of industries and verticals. In both instances, developers within these companies often use and advocate the adoption of our platform by their companies. We also benefit from word-of-mouth promotion across the broader developer community. We will continue to invest in our developer outreach, leveraging it as a cost-efficient approach to attracting new customers. We also plan to dedicate significant resources to sales and marketing programs, including various online marketing activities as well as targeted account-based advertising.

This will require us to dedicate significant resources to further develop the market for our platform and differentiate our platform from competitive products and services. We will also need to expand, retain, and motivate our sales and marketing personnel in order to target our sales efforts at larger enterprises and senior management of these potential customers.

Expanding within our Existing Customer Base

We emphasize retaining our customers and expanding their usage of our platform and adoption of our other products. Customers often begin with smaller deployments of our programmable edge platform and then expand their usage over time. In addition, our programmable edge platform includes a variety of other offerings, such as load balancing, shielding, web security, and WAF. As our customers mature, we assist them in expanding their use of our platform, including the use of additional offerings beyond edge cloud delivery. As enterprises grow and experience increased traffic, their needs evolve, leading them to find additional use cases for our platform and expand their usage accordingly. In addition, given that customer acquisition costs are incurred largely for acquiring and initial onboarding, we gain operating leverage to the extent that existing customers expand their use of our platform and products.

Our ability to retain our customers and expand their usage could be impaired for a variety of reasons, including a customer moving to another provider or reducing usage within the term of their contract to their minimum usage commitment. Even if our customers expand their usage of our platform, we cannot guarantee that they will maintain those usage levels for any meaningful period of time or that they will renew their commitments.

We also cannot be certain what actions the U.S. or another country's government may take with respect to certain of our customers that may adversely affect our ability to do business with our customers that operate in China, target China as a market or that have strong business ties to China. ByteDance, the operator of the TikTok application, operates in and has strong business ties to China and is our top customer, accounting for 13% and 12% of revenue for the three and six months ended June 30, 2020, respectively. On August 6, 2020, President Trump issued an executive order banning transactions with ByteDance, effective 45 days after the execution of the order. The TikTok application has also been the subject of a ban in other countries. While we are still assessing the impact of these bans, the ban of the TikTok application by the U.S. government, and any other governments, creates uncertainty around our ability to support ByteDance. The loss of this customer’s traffic could have a negative impact on our business.

For additional details, refer to the section titled "Risk Factors."

International Customer Growth

We intend to continue expanding our efforts to attract customers outside of the United States by augmenting our sales teams and strategically increasing the number of ~~points of presence ("POPs")~~POPs in select international locations. As of ~~March 31,~~June 30, 2020 and 2019, ~~51%~~52% and ~~45%~~46% of our customers were headquartered outside of the United States, respectively.

Our international expansion, including our global sales efforts, will add increased complexity and cost to our business. This will require us to significantly expand our sales and marketing capabilities outside of the United States, as well as increase the number of POPs around the world to support our customers. We have limited experience managing the administrative aspects of a global organization, and we have only recently begun to establish and operate offices in foreign countries, which could place a strain on our business and culture.

Investing in Sales and Marketing

Our customers have been pivotal in driving brand awareness and broadening our reach. While we continue to leverage our self-service approach to drive adoption by developers, we intend to continue to expand our sales and marketing efforts, with an increased focus on sales to enterprises globally. Utilizing our direct sales force, we have multiple selling points within organizations to acquire new customers and increase usage from our existing customers. We intend to increase our discretionary marketing spend, including account based and brand spend, to drive the effectiveness of our sales teams. As a result, we expect our total operating expenses to increase as we continue to expand. Our investments in our sales and marketing teams are intended to help accelerate our sales, onboarding, and ramp cycles. ~~As of March 31, 2020, we had 62 sales representatives and sales managers across our company.~~

These efforts will require us to invest significantly in financial and other resources. Furthermore, we believe that there is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, and retaining sufficient numbers of sales personnel to support our growth.

Continued Investment in Our Platform and Network Infrastructure

We must continue to invest in our platform and network infrastructure to maintain our position in the market. We expect our revenue growth to be dependent on an expanding customer base and continued adoption of our edge cloud platform. In anticipation of winning new customers and staying ahead of our customers’ needs, we plan to continue to invest in order to expand the scale and capacity of our software-defined modern network, resulting in increased network service provider fees, which could adversely affect our gross margins if we are unable to offset these costs with revenue from new customers and increase revenue from existing customers. Our customers require constant innovation within their own organizations and expect the same from us. Therefore, we will continue to invest in resources to enhance our development capabilities and introduce new products and features on our platform. We believe that investment in research and development will contribute to our long-term growth but may also negatively impact our short-term profitability. For the three and six months ended ~~March 31,~~June 30, 2020, our research and development expenses as a percentage of revenue was ~~23%.~~22% and 22%, respectively.

Developers use our platform to build custom applications and require a state-of-the-art infrastructure to test and run these applications. We will continue to invest in our network infrastructure by strategically increasing our POPs. We also anticipate making investments in upgrading our technology and hardware to continue providing our customers a fast and secure platform. Our total investment in property and equipment for the three and six months ended ~~March 31,~~June 30, 2020 was ~~$13.5~~$1.1 million and $14.6 million representing ~~21%~~1% and 11% of our revenue in such periods. We expect our investment in property and equipment to increase on an absolute basis and may increase as a percentage of revenue in future periods. Our gross margins and operating results are impacted by these investments. As of ~~March 31,~~June 30, 2020, we had 72 POPs and are located in 55 markets across 26 countries.

In the event that there are errors in software, failures of hardware, damages to a facility or misconfigurations of any of our services—whether caused by our products, third-party error, our own error, natural disasters, or security breaches—we could experience lengthy interruptions in our platform as well as delays and additional expenses in arranging new facilities and services. In addition, there can be no assurance that we are adequately prepared for unexpected increases in bandwidth demands by our customers, particularly when customers experience cyber-attacks. The bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including service outages, payment disputes, network providers going out of business, natural disasters, networks imposing traffic limits, or governments adopting regulations that impact network operations.

Uncertainty of Coronavirus (COVID-19) Pandemic

The ongoing global COVID-19 pandemic has adversely impacted, and may continue to adversely impact, many aspects of our business. As certain of our customers or potential customers experience downturns or uncertainty in their own business operations and revenue resulting from the spread of COVID-19, they have and may continue to decrease or delay their technology spending, request pricing concessions or payment extensions, or seek renegotiations of their contracts, any of which have resulted in and may continue to result in delayed or decreased revenue for us. ~~In addition, we~~We have experienced and may continue to experience customer losses, including due to bankruptcy or our customers ceasing operations, which ~~may continue to result~~has resulted in andelays and inability to collect receivables from these ~~customers.~~customers and slow-downs in our sales cycles. In addition, a portion of our revenue is related to usage of our platform in connection with live events, such as sporting events that have been or may be postponed or cancelled. A decline in revenue or the collectability of our receivables could harm our business. The nature and extent of the impact of the COVID-19 pandemic on our customers and our customers’ response to the COVID-19 pandemic is difficult to assess or predict, and we may be unable to accurately forecast our revenues or financial results, especially given that the near

and long term impact of the pandemic remains uncertain. We have seen an increase in usage of our platform following the implementation of preventative measures to contain or mitigate the outbreak of COVID-19. However, we cannot predict how long we will see this increased level of usage as these preventative measures, including shelter-in-place orders, school closures, travel bans and restrictions, limitations on business activity, quarantines, and other related measures and community practices, change over time. In addition, there is no assurance that customers will continue to use our platform, or to the same extent, after the COVID-19 pandemic begins to taper or has ended. We may see a decline in customers or usage when shelter-in-place measures are eased or terminated, and individuals are no longer working or attending work or school from home. Our results of operations could be materially above or below our forecasts, which could adversely affect our results of operations, disappoint analysts and investors, and/or cause our stock price to decline.

The COVID-19 pandemic has been declared a national emergency in many countries. In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders, and similar government orders and restrictions in order to control the spread of the disease. Such orders or restrictions, or the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions, and cancellation or postponement of events, among other effects that could negatively impact productivity and disrupt our operations and those of our partners and customers. In March 2020, we closed all of our offices, suspended non-essential travel, cancelled or postponed Fastly-sponsored events, and ~~discouraged~~we are not permitting employee attendance at industry events and in-person work-related meetings. We may take further actions that alter our operations as may be required by federal, state, or local authorities, or which we

determine are in our best interests. While much of our operations can be performed remotely, certain activities such as expanding and maintaining our network of POPs around the world often require personnel to be on-site, and our ability to carry out these activities may be negatively impacted if our employees or local data center personnel are not able to travel. In addition, travel restrictions may also affect our ability to complete audits of our data centers and facilities, which may in turn affect our compliance certifications and cause customers to reduce or cease using our services. For activities that may be conducted remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed, some employees have experienced, and may ~~have~~continue to experience, less capacity to work due to increased personal obligations (such as childcare, eldercare, or caring for family who become sick), ~~may~~some have become sick themselves and bebeen unable to work, or may be otherwise negatively affected, mentally or physically, by the COVID-19 pandemic and prolonged social distancing. Decreased effectiveness and availability of our team could adversely affect our results due to slow-downs in our sales cycles and recruiting and onboarding efforts, delays in our entry into customer contracts, delays in addressing performance issues, delays in product development, delays and inefficiencies among various operational aspects of our business, including our financial organization, or other decreases in productivity that could seriously harm our business. Moreover, our finance organization’s ability to ensure that we comply with the requirements of Section 404 may be impaired, including the ability of our registered public accounting firm to issue an attestation report on management’s assessment of our internal control over financial reporting. Furthermore, we may decide to postpone or cancel planned investments in our business in response to changes in our business as a result of the spread of COVID-19, which may impact our ability to attract and retain customers and our rate of innovation, either of which could harm our business.

Our business is also dependent upon the timely supply of certain parts and components manufactured in China to construct our servers. To the extent that our suppliers are impacted by the COVID-19 pandemic, it likely will reduce the availability, or result in delays, of parts and components to us, which in turn could interrupt our ability to complete the construction of our servers to meet the usage needs of our customers.

In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, ~~reducing~~may reduce our ability to access capital, which could negatively affect our liquidity in the future.

The global impact of COVID-19 continues to rapidly evolve, and we will continue to monitor the situation closely. We have ~~undertaken~~substantially completed business continuity planning to identify and address ~~the~~ risks to our business posed by this pandemic, ~~and have,~~which included, among other things, ~~prepared to eliminate~~the elimination of single points of failure among our employees to address the decrease in employee productivity. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could harm our business.

For additional details, refer to the section titled "Risk Factors."

Key Business Metrics

We regularly review a number of metrics, including the key metrics presented in the table below, to evaluate our business, measure our performance, identify trends affecting our business, prepare financial projections, and make strategic

decisions. The calculation of the key metrics and other measures discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.

We believe that the number of customers is an important indicator of the adoption of our platform. Our definition of a customer consists of identifiable operating entities with which we have a billing relationship in good standing, from which we recognized revenue during the period, and are active as of the end of the period. In addition to our paying customers, we also

have trial, developer, nonprofit and open source program, and other non-paying accounts that are excluded from our customer count metric. As of ~~March 31,~~June 30, 2020 and 2019, we had ~~1,837~~1,951 and ~~1,621~~1,627 customers, respectively.

Number of Enterprise Customers

Historically our revenue has been driven primarily by a subset of customers who have leveraged our platform substantially from a usage standpoint. These enterprise customers are defined as customers with revenue in excess of $100,000 over the previous 12-month period. As of ~~March 31,~~June 30, 2020, we had ~~297~~304 enterprise customers which generated 88% of our revenue for the trailing 12 months ended ~~March 31,~~June 30, 2020. As of ~~March 31,~~June 30, 2019, we had ~~243~~262 enterprise customers which generated ~~85%~~86% of our revenue for the trailing 12 months ended ~~March 31,~~June 30, 2019. We believe the recruitment and cultivation of enterprise customers is critical to our long-term success.

~~DBNER~~Dollar Based Net Expansion Rate ("DBNER")

Our ability to generate and increase our revenue is dependent upon our ability to increase the number of new customers and usage of our platform and increase the purchase of additional products by our existing customers. We track our performance in this area by measuring our DBNER. Our DBNER increases when customers increase their usage of our platform or purchase additional products, and declines when they reduce their usage, benefit from lower pricing on their existing usage, or curtail their purchases of additional products. We believe DBNER is a key metric in measuring the long-term value of our customer relationships and our ability to grow our revenue through increased usage of our platform and purchase of additional products by our existing customers. However, our calculation of DBNER indicates only expansion among continuing customers and does not indicate any decrease in revenue attributable to former customers, which may differ from similar metrics of other companies.

We calculate DBNER by dividing the revenue for a given period from customers who remained customers as of the last day of the given period ("current period") by the revenue from the same customers for the same period measured one year prior ("base period"). The revenue included in the current period excludes revenue from (i) customers that churned after the end of the base period and (ii) new customers that entered into a customer agreement after the end of the base period. For example, to calculate our DBNER for the trailing 12 months ended ~~March 31,~~June 30, 2020, we divide (i) revenue, for the trailing 12 months ended ~~March 31,~~June 30, 2020, from customers that entered into a customer agreement on or before ~~March 31,~~June 30, 2019, and that remained customers as of ~~March 31,~~June 30, 2020, by (ii) revenue, for the trailing 12 months ended ~~March 31,~~June 30, 2019, from the same set of customers.

For the trailing 12 months ended ~~March 31,~~June 30, 2020 and 2019 our DBNER was ~~133.0%~~137.4% and ~~130.4%~~132.3%, respectively. We believe that an annual cohort analysis of our customers demonstrates our success in customer expansion. Once a customer begins to generate revenue for us, they tend to increase their usage of our platform, in particular in their second year. Customer accounts acquired in 2017, 2018, and 2019 are referred to as the 2017 Cohort, 2018 Cohort, and 2019 Cohort, respectively. As described above, our customers tend to increase their usage of our platform in their second year, which is typically followed by more modest increases in usage, if any, in ensuing years. For example, the DBNER for the 2017 Cohort was 305.5% for the year ended December 31, 2018. However, the DBNER for the 2017 Cohort was 144.3% for the year ended December 31, 2019, which generally represents their third year as a customer, depending on when they entered into a customer agreement. While DBNER may fluctuate from quarter to quarter based on, among other things, the timing associated with new customer accounts,

we expect our DBNER to continue to decrease as customers that have used our platform for more than two years become a larger portion of both our overall customer base and the revenue that we use to calculate DBNER.

Net Retention Rate ("NRR")

Our ability to generate and increase our revenue is also dependent upon our ability to retain our existing customers. In addition to measuring expansion using DBNER, NRR allows us to track customer retention which demonstrates the stickiness of our edge cloud platform. Our NRR measures the net change in monthly revenue from existing customers in the last month of the period (the “current" period month) compared to the last month of the same period one year prior (the “prior" period month), and includes revenue contraction due to billing decreases or customer churn, revenue expansion due to billing increases, but excludes revenue from new customers. We calculate Net Retention Rate by dividing the revenue from the current period month by the revenue in the prior period month.

For the last month of the quarters ended June 30, 2020 and 2019 our NRR was 137.8% and 110.9%, respectively.

Key Components of Statement of Operations

We derive our revenue primarily from usage-based fees earned from customers using our platform. We also earn flat fees from certain products and services.

Customers are generally invoiced in arrears on a monthly basis. Many customers have tiered usage pricing which reflects discounted rates as usage increases. Usage charges are determined on a monthly basis based on actual usage within the month and do not impact usage charges within any other month. Our larger customers often enter into contracts that contain minimum billing commitments and reflect discounted pricing associated with such usage levels.

We define U.S. revenue as revenue from customers that have a billing address in the United States, and we define international revenue as revenue from customers that have a billing address outside of the United States. Our revenue has been and will continue to be impacted by new and existing customers’ usage of our products, international expansion, and the success of our sales efforts.

Cost of Revenue and Gross Margin

Cost of revenue consists primarily of fees paid for bandwidth, peering, and colocation. Cost of revenue also includes personnel costs, such as salaries, benefits, bonuses, and stock-based compensation for our customer support and infrastructure employees, and non-personnel costs, such as amortization of capitalized internal-use software development costs and depreciation of our network equipment. Our arrangements with network service providers require us to pay fees based on bandwidth use, in some cases subject to minimum commitments, which may be underutilized. We expect our cost of revenue to continue to increase on an absolute basis and may increase as a percentage of revenue, including as a result of depreciation and amortization associated with capital expenditures in future periods.

Our gross margin has been and will continue to be affected by a number of factors, including the timing and extent of our investments in our operations, our ability to manage our network service providers and cloud infrastructure-related fees, the timing of amortization of capitalized software development costs, depreciation of our network equipment, and the extent to which we periodically choose to pass on our cost savings from network optimization efforts to our customers in the form of lower usage rates.

Research and Development

Research and development expenses consist primarily of personnel costs, including salaries, benefits, bonuses, and stock-based compensation. Research and development expenses also include cloud infrastructure fees for development and testing, amortization of capitalized internal-use software development costs, and an allocation of our general overhead expenses. We capitalize the portion of our software development costs that meet the criteria for capitalization.

We continue to focus our research and development efforts on adding new features and products including new use cases, improving the efficiency and performance of our network, and increasing the functionality of our existing products. We expect our research and development expenses to continue to increase in absolute dollars as we continue to invest in efforts to

enhance the functionality of our platform and develop new products and features to produce next-generation edge computing solutions. Over the long term we expect our research and development expenses to decrease as a percentage of our revenue. However, our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Sales and marketing expenses consist primarily of personnel costs, including commissions for our sales employees, salaries, benefits, bonuses, and stock-based compensation. Sales and marketing expenses also include expenditures related to advertising, marketing, our brand awareness activities, costs related to our ~~Altitude conferences,~~company sponsored events, professional services fees, and an allocation of our general overhead expenses.

We focus our sales and marketing efforts on generating awareness of our company, platform and products, creating sales leads, and establishing and promoting our brand, both domestically and internationally. We plan to increase our investment in sales and marketing by hiring additional sales and marketing personnel, expanding our sales channels, driving our go-to-market strategies, building our brand awareness, and sponsoring additional marketing events. As a result, we expect our sales and marketing expenses to continue to increase in absolute dollars and may increase as a percentage of revenue in the foreseeable future. Over the long term, we expect our sales and marketing expenses to decrease as a percentage of our revenue. However, our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

General and Administrative

General and administrative expenses consist primarily of personnel costs, including salaries, benefits bonuses, and stock-based compensation for our accounting, finance, legal, human resources and administrative support personnel, and executives. General and administrative expenses also include costs related to legal and other professional services fees, sales and other taxes, depreciation and amortization, an allocation of our general overhead expenses, and bad debt expense. We

expect that we will incur costs associated with supporting the growth of our business, our operation as a public company, and to meet the increased compliance requirements associated with our international expansion.

Our general and administrative expenses include a significant amount of sales and other taxes to which we are subject based on the manner we sell and deliver our products. Historically, we have not collected such taxes from our customers and have therefore recorded such taxes as general and administrative expenses. We expect that these expenses will decline in future years as we continue to implement our sales tax collection mechanisms and start collecting these taxes from our customers. We expect our general and administrative expenses to continue to increase in absolute dollars and as a percentage of revenue in the ~~forseeable~~foreseeable future. Over the long term, we expect our general and administrative expenses to decrease as a percentage of our revenue. However, our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Our income tax expense consists primarily of income taxes in certain foreign jurisdictions where we conduct business and state minimum income taxes in the United States. We have a full valuation allowance on our U.S. Federal and state deferred tax assets. We expect to maintain this valuation allowance for the foreseeable future.

Results of Operations

The following tables set forth our results of operations for the period presented:

Cost of revenue⁽¹⁾

Research and development⁽¹⁾

Sales and marketing⁽¹⁾

General and administrative⁽¹⁾

(1)Includes stock-based compensation expense as follows:


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)
Cost of revenue	$	1,090	$	293	$	1,705	$	437
Research and development	4,053		714		5,724		1,146
Sales and marketing	7,076		596		8,559		965
General and administrative	4,062		640		6,622		1,162
Total	$	16,281	$	2,243	$	22,610	$	3,710

The following tables set forth our results of operations for the period presented ~~and~~ as a percentage of our ~~revenue for that period.~~revenue:

Research and development⁽¹⁾

Sales and marketing⁽¹⁾

General and administrative⁽¹⁾

* Columns may not add up to 100% due to rounding.

Revenue was ~~$62.9~~$74.7 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$45.6~~$46.2 million for the three months ended ~~March 31,~~June 30, 2019, an increase of ~~$17.4~~$28.5 million, or ~~38%~~62%. We had ~~1,837~~1,951 customers and ~~297~~304 enterprise customers as of ~~March 31,~~June 30, 2020. We had ~~1,621~~1,627 customers and ~~243~~262 enterprise customers as of ~~March 31,~~June 30, 2019. This represents an increase of ~~216,~~324, or ~~13%~~20%, in customers and ~~54,~~42, or ~~22%~~16%, in enterprise customers from ~~March 31,~~June 30, 2019.

Revenue was $137.6 million for the six months ended June 30, 2020 compared to $91.7 million for the six months ended June 30, 2019, an increase of $45.9 million or 50%. We had 1,951 customers and 304 enterprise customers as of June 30, 2020. We had 1,627 customers and 262 enterprise customers as of June 30, 2019. This represents an increase of 324, or 20%, in customers and 42, or 16%, in enterprise customers from June 30, 2019.

Approximately ~~94%~~95% of our revenue in the three and six months ended ~~March 31,~~June 30, 2020 was driven by usage on our ~~platform.~~platform, primarily from existing customers, as revenue from new customers contributed less than 10% of our revenue. The proportion of the revenue contribution between new and existing customers is consistent with typical customer behavior as customers tend to contribute more revenue over time as their use of the platform increases. The remainder of our revenue was generated by our other products and services, including support and professional services.

U.S. revenue was ~~$41.0~~$46.0 million and ~~65%~~62% of revenue for the three months ended ~~March 31,~~June 30, 2020, and ~~$33.4~~$32.5 million and ~~73%~~70% of revenue for the three months ended ~~March 31,~~June 30, 2019. This represents an increase of ~~$7.6~~$13.5 million, or ~~23%~~42%. International revenue was ~~$21.9~~$28.6 million and ~~35%~~38% of revenue for the three months ended ~~March 31,~~June 30, 2020, and ~~$12.1~~$13.7 million and ~~27%~~30% of revenue for the three months ended ~~March 31,~~June 30, 2019. This represents an increase of ~~$9.8~~$15.0 million, or ~~81%~~110%. We had ~~906~~928 domestic customers and ~~931~~1,023 international customers as of ~~March 31,~~June 30, 2020. We had ~~897~~874 domestic customers and ~~724~~753 international

customers as of ~~March 31,~~June 30, 2019. This is an increase in domestic customers of 9,54, or 1%6%, and an increase in international customers of ~~207,~~270, or ~~29%~~36%, compared to ~~March 31,~~June 30, 2019.

U.S. revenue was $87.1 million and 63% of revenue for the six months ended June 30, 2020, and $65.9 million and 72% of revenue for the three months ended June 30, 2019. This represents an increase of $21.0 million, or 32%. International revenue was $50.5 million and 37% of revenue for the six months ended June 30, 2020, and $25.8 million and 28% of revenue for the six months ended June 30, 2019. This represents an increase of $24.7 million, or 96%. We had 928 domestic customers and 1,023 international customers as of June 30, 2020. We had 874 domestic customers and 753 international customers as of June 30, 2019. This is an increase in domestic customers of 54, or 6%, and an increase in international customers of 270, or 36%, compared to June 30, 2019.

For the three and six months ended ~~March 31,~~June 30, 2020 and 2019, our cost of revenue consisted of bandwidth, peering, and colocation fees, as well as personnel costs including salaries, benefits, bonuses, and stock-based compensation for employees who support the build out and operation of the network. Our cost of revenue also includes depreciation expense for network equipment, amortization of capitalized internal-use software, and other network costs.

Cost of revenue was ~~$27.3~~$29.7 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$19.7~~$20.8 million for the three months ended ~~March 31,~~June 30, 2019, an increase of ~~$7.5~~$8.9 million, or ~~38%~~43%. The increase in cost of revenue is primarily due to an increase in bandwidth costs of ~~$3.0~~$3.8 million, an increase in colocation costs of ~~$1.1~~$0.7 million ~~an increase in depreciation and amortization expense of $0.9 million as we continue to invest in our platform,~~ and an increase in other network costs of ~~$0.8~~$0.7 million to support the increased traffic on our platform. ~~In addition, there~~There was an increase in depreciation and amortization expense of $1.1 million as we continue to invest in our platform. There was also a $2.6 million increase in personnel costs, ~~of $1.6 million~~such as salaries, benefits, bonuses, and stock-based compensation, due to ~~an increase in~~the increased headcount to support the growth of our business. The increase was partially offset by a $0.3 million decrease due to an overall reduction in travel costs due to COVID-19.

Cost of revenue was $57.0 million for the six months ended June 30, 2020 compared to $40.5 million for the six months ended June 30, 2019, an increase of $16.5 million, or 41%. The increase in cost of revenue is primarily due to an increase in bandwidth costs of $6.7 million, an increase in colocation costs of $1.8 million and an increase in other network costs of $1.8 million to support the increased traffic on our platform. There was an increase in depreciation and amortization expense of $2.1 million as we continue to invest in our platform. There was also a $4.3 million increase in personnel costs, such as salaries, benefits, bonuses, and stock-based compensation, due to increased headcount to support the growth of our business. The increase was partially offset by a $0.4 million decrease due to an overall reduction in travel costs due to COVID-19.

Gross Profit and Gross Margin

Gross profit was ~~$35.7~~$45.0 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$25.8~~$25.4 million for the three months ended ~~March 31,~~June 30, 2019, an increase of ~~$9.8~~$19.6 million, or ~~38%~~77%. The increase in gross profit in the three months ended ~~March 31,~~June 30, 2020 compared to 2019 is due to the increase in ~~both~~ revenue from usage of our platform, ~~and~~outpacing the ~~corresponding~~ increase in associated costs of revenue.

Gross profit was $80.6 million for the six months ended June 30, 2020 compared to $51.2 million for the six months ended June 30, 2019, an increase of $29.4 million, or 57%. The increase in gross profit in the six months ended June 30, 2020 compared to 2019 is due to the increase in revenue from usage of our platform, outpacing the increase in associated costs of revenue.

Gross margin was ~~57%~~60% for the three months ended ~~March 31,~~June 30, 2020 compared to ~~57%~~55% for the three months ended ~~March 31,~~June 30, 2019, ~~remaining consistent~~an increase of 5%. This increase is due to better optimization of our platform.

Gross margin was 59% for the six months ended June 30, 2020 compared to ~~prior year.~~56% for the six months ended June 30, 2019, an increase of 3%. This increase is due to better optimization of our platform.

Research and development

Research and development expenses were ~~$14.3~~$16.7 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$10.2~~$11.2 million for the three months ended ~~March 31,~~June 30, 2019, an increase of ~~$4.1~~$5.4 million, or ~~41%~~48%. This is primarily due to an increase of ~~$4.3~~$6.4 million of personnel-related costs, such as salaries, benefits, bonuses, and stock-based compensation due to an increase in headcount and new equity awards granted to employees. The increase was partially offset by a $0.6 million decrease due to an overall reduction in travel costs due to COVID-19.

Research and development expenses were $31.0 million for the six months ended June 30, 2020 compared to $21.4 million for the six months ended June 30, 2019, an increase of $9.5 million, or 45%. This is primarily due to an increase of $10.6 million of personnel related costs, such as salaries, benefits, bonuses, and stock-based compensation due to an increase in headcount and new equity awards granted to employees. There was also a $0.5 million increase in data center costs, which was offset by an increase in ~~stock-based compensation expense related~~the capitalization for internal-use software of $1.3 million. The increase is also partially offset by a $0.9 million decrease due to ~~the increase~~an overall reduction in ~~the fair value of our stock options, the issuance of restricted stock unit awards ("RSUs"), and expense associated with the Employee Stock Purchase Plan ("ESPP").~~travel costs due to COVID-19.

Sales and marketing expenses were ~~$19.2~~$24.7 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$15.0~~$16.9 million for the three months ended ~~March 31,~~June 30, 2019, an increase of ~~$4.1~~$7.8 million, or ~~27%~~46%. This is primarily due to a ~~$2.7~~$3.8 million increase in personnel related costs, such as salaries, sales commissions, benefits, and stock-based compensation, due to an increase in headcount and ~~an increase in~~new equity awards granted to employees. We also recorded a $4.8 million of stock-based compensation ~~expense related~~and $0.6 million of severance relating to ~~the increase~~an employee termination in the ~~fair value~~second quarter of ~~our stock options, the issuance of RSUs, and expense associated with the ESPP.~~fiscal 2020. The increase is ~~also~~partially offset by a $1.2 million decrease due to an ~~increase of $0.6 million~~overall reduction in travel costs due to COVID-19 and also an overall $0.5 million decrease in marketing spend.

Sales and marketing expenses were $43.8 million for the six months ended June 30, 2020 compared to $31.9 million for the six months ended June 30, 2019, an increase of $11.9 million, or 37%. This is primarily due to a $7.1 million increase in personnel related costs, such as salaries, sales commissions, benefits, and stock-based compensation, due to an increase in headcount and new equity awards granted to employees. We also recorded a $4.8 million of stock-based compensation and $0.6 million of severance relating to an ~~increase~~employee termination in the second quarter of ~~$0.4~~fiscal 2020. There was also a $0.6 million ~~in marketing costs, and an~~ increase ~~of $0.3 million~~ in professional ~~fees, driven~~fees. The increase is partially offset by ~~the growth of our business year over year.~~a $0.6 million decrease due to an overall reduction in travel costs due to COVID-19.

General and administrative

General and administrative costs were ~~$14.2~~$18.1 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$8.7~~$8.9 million for the three months ended ~~March 31,~~June 30, 2019, an increase of ~~$5.5~~$9.1 million, or ~~63%~~103%. This is primarily due to an increase of ~~$3.3~~$5.7 million of personnel related costs, such as salaries, benefits, and stock-based compensation due to an increase in headcount and ~~an increase in stock-based compensation expense related~~new equity awards granted to ~~the increase in the fair value of our stock options, the issuance of RSUs, and expense associated with the ESPP.~~employees. The increase is also due to an increase of ~~$0.8~~$2.0 million in external professional services such as legal, accounting, and enterprise systems ~~an increase~~to support the growth of ~~$0.7 million in facilities and information systems costs, and an increase of $0.6 million of~~our business ~~insurance costs associated with becoming~~as a public company. There was also a $1.4 million increase in bad debt expenses. The increase ~~was~~is partially offset by a $0.6 million decrease due to an overall reduction in travel costs due to COVID-19.

General and administrative costs were $32.2 million for the six months ended June 30, 2020 compared to $17.6 million for the six months ended June 30, 2019, an increase of $14.6 million, or 83%. This is primarily due to an increase of $9.2 million of personnel related costs, such as salaries, benefits, and stock-based compensation due to an increase in headcount and new equity awards granted to employees. The increase is also due to a $2.7 million increase in external professional services such as legal, accounting, and enterprise systems to support the growth of our business as a public company, a $0.7 million increase in software costs, and a $0.7 million increase in business insurance costs to support the growth of our business as a public company. We had a $0.5 million ~~decrease~~increase in uncollected sales tax reserves. There was also a $0.9 million increase in bad debt ~~expense.~~expenses. The increase is partially offset by a $0.7 million decrease due to an overall reduction in travel costs due to COVID-19.

Other Income and Expense

Interest income was ~~$0.7 million for the three months ended March 31, 2020 compared to~~ $0.4 million for the three months ended ~~March 31, 2019, an increase of $0.3 million, or 73%. This increase is due~~June 30, 2020 compared to ~~interest on proceeds raised from our IPO.~~

~~Interest Expense~~

~~Interest expense was $0.3~~$0.9 million for the three months ended ~~March 31,~~June 30, 2019, a decrease of $0.5 million, or 56%. This decrease is due to a reduction in interest rates in our investments portfolio.

Interest income was $1.1 million for the six months ended June 30, 2020 compared to ~~$1.2~~$1.3 million for the six months ended June 30, 2019, a decrease of $0.2 million, or 14%. This decrease is due to a reduction in interest rates in our investments portfolio.


	Three months ended June 30,								Six months ended June 30,
	2020		2019		Change		2020		2019		Change
	(in thousands)								(in thousands)
Interest expense	$	371	$	2,989	(88)	%	$	687	$	4,224	(84)	%

Interest expense was $0.4 million for the three months ended ~~March 31,~~June 30, 2020 compared to $3.0 million for the three months ended June 30, 2019, a decrease of ~~$0.9~~$2.6 million, or ~~74%~~88%. This decrease is primarily due to the acceleration of the amortization of debt issuance costs due to the early payment of the $20.0 million outstanding loan on our Credit Facility in June 2019 as well as a decrease in outstanding debt.

Interest expense was $0.7 million for the six months ended June 30, 2020 compared to $4.2 million for the six months ended June 30, 2019, a decrease of $3.5 million, or 84%. This decrease is primarily due to the acceleration of the amortization of debt issuance costs due to the early payment of the $20.0 million outstanding loan on our Credit Facility in June 2019 as well as a decrease in outstanding debt.

Other income (expense), net

Other ~~income,~~expense, net was ~~$0.4~~$0.1 million for the three months ended ~~March 31,~~June 30, 2020 compared to other expense, net of ~~$0.8~~$1.7 million for the three months ended ~~March 31,~~June 30, 2019, ~~an increase~~a decrease in other ~~income,~~expense, net of ~~$1.2~~$1.6 million, or ~~152%~~97%. This ~~increase~~decrease is primarily due to the conversion of warrant liabilities to additional paid in capital upon the IPO, resulting in no mark-to-market adjustment in the three months ended ~~March 31,~~June 30, 2020.

Other income, net was $0.3 million for the six months ended June 30, 2020 compared to other expense, net of $2.5 million for the six months ended June 30, 2019, a change of $2.8 million, or 114%. This change is primarily due to the conversion of warrant liabilities to additional paid in capital upon the IPO, resulting in no mark-to-market adjustment in the six months ended June 30, 2020.

Liquidity and Capital Resources

On May 21, 2019, upon the completion of our IPO, we received net proceeds of $192.5 million, after deducting underwriting discounts and commissions, from sales of 12,937,500 shares of our Class A common stock in the IPO. The net proceeds include additional proceeds of $25.1 million, net of underwriters' discounts and commissions, from the exercise of the underwriters' option to purchase an additional 1,687,500 shares of our Class A common stock.

To date, we have financed our operations primarily through equity issuances, payments received from customers, the net proceeds we received through sales of equity securities, and borrowings under our credit facilities. Our principal uses of cash in recent periods have primarily been around funding our operations and capital expenditures.

As of ~~March 31,~~June 30, 2020, we had cash, cash equivalents, and marketable securities totaling ~~$116.6~~$384.0 million, and restricted cash totaling $70.1 million. Our cash, cash equivalents, and marketable securities primarily consisted of bank deposits and money market funds held at major financial institutions and investment-grade commercial paper and corporate debt securities.

We believe that our cash and cash equivalents balances, our credit facilities, and the cash flows generated by our operations will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.

Cash Collateralized Revolving Credit Agreement

In November 2019, we entered into a Revolving Credit Agreement for an aggregate commitment amount of $70.0 million with a maturity date of November 3, 2022. The amount of borrowings available under the Revolving Credit Agreement at any time are collateralized by our cash. As of ~~March 31,~~June 30, 2020, $20.3 million had been drawn on the Revolving Credit Agreement.

The interest rate associated with each advance under the Revolving Credit Agreement is equal to the sum of LIBOR for the applicable interest period plus 1.50%, which is a per annum rate based on outstanding borrowings. As such, the interest rate set for the initial interest period ending in November 2020 is 3.46%. The commitment fee is 0.20% per annum based on the average daily unused amount of the commitment amount. Interest payments on outstanding borrowings are due on the last day of each interest period and payments for the commitment fee are due at the end of each calendar quarter.

The following table summarizes our cash flows for the period indicated:


	Six months ended June 30,
	2020		2019

Cash used in operating activities	$	(15,967)	$	(15,648)
Cash provided by (used in) investing activities	(27,828)		5,107
Cash provided by financing activities	285,127		187,127

Cash Flows from Operating Activities

For the ~~three~~six months ended ~~March 31,~~June 30, 2020, cash used in operating activities consisted primarily of our net loss of ~~$12.0~~$26.5 million adjusted for non-cash items, including ~~$4.7~~$9.4 million of depreciation and amortization, and ~~$6.3~~$22.6 million of stock-based compensation expense. With respect to changes in operating assets and liabilities, there was an increase in accounts receivable of ~~$6.0~~$22.2 million, primarily due to the growth of our business and the timing of cash receipts from certain of our larger customers, an increase in other long-term assets of ~~$1.4~~$3.3 million due to higher commissions being capitalized ~~subsequent~~due to ~~the adoption of ASC 606,~~higher sales, and an increase of ~~$1.1~~$2.0 million in prepaid expenses and other current assets due to pre-payments for SaaS licenses. This was partially offset by an increase of ~~$2.1~~$3.7 million in accounts payable, accrued expenses, and other liabilities due to timing of payments.

For the ~~three~~six months ended ~~March 31,~~June 30, 2019, cash used in operating activities consisted primarily of our net loss of ~~$9.7~~$25.3 million adjusted for non-cash items, including ~~$3.7~~$7.6 million of depreciation and amortization, ~~$1.5~~$3.7 million of stock-based compensation expense, an increase in our warrant liability of ~~$0.7~~$2.4 million, and an increase in our bad debt expense of ~~$0.6~~$1.0 million. With respect to changes in operating assets and liabilities, accounts payable, accrued expenses, and other liabilities increased ~~$0.6~~$2.6 million. This was partially offset by an increase in accounts receivable increased of ~~$4.6~~$3.9 million and an increase of ~~$2.8~~$8.2 million in prepaid expenses and other assets, which primarily resulted from the growth of our business and the timing of cash receipts from certain of our larger customers, pre-payments for ~~travel,~~travel-related services, SaaS licenses, and commissions.

Cash Flows from Investing Activities

For the ~~three~~six months ended ~~March 31,~~June 30, 2020, cash ~~provided by~~used in investing activities was ~~$9.7~~$27.8 million, primarily consisting of ~~$21.4~~$56.2 million of purchases of marketable securities, partially offset by $44.9 million of maturities and sales of marketable ~~securities. This was offset by $10.2~~securities, $12.6 million of payments related to purchases of property and equipment to expand our network, ~~and $1.4~~$2.2 million of additions to capitalized internal-use ~~software.~~software, and $1.8 million of purchases of intangible assets.

For the ~~three~~six months ended ~~March 31,~~June 30, 2019, cash ~~used in~~provided by investing activities was ~~$3.6~~$5.1 million, primarily consisting of ~~$4.8~~$47.6 million of sales of marketable securities, offset by $32.7 million in purchases of marketable securities, and $9.2 million of payments related to purchases of property and equipment to expand our network. ~~We also purchased an additional $20.1 million of marketable securities and sold $21.3 million of marketable securities.~~

Cash Flows from Financing Activities

For the ~~three~~six months ended ~~March 31,~~June 30, 2020, cash provided by financing activities was ~~$3.8~~$285.1 million, primarily consisting of ~~$3.2~~$274.9 million of proceeds from our follow-on public offering, net of underwriting fees, $8.8 million in proceeds from stock option exercises by our employees, and ~~$2.1~~$4.2 million in proceeds from the ESPP. This was partially offset by ~~$1.5~~$2.6 million of capital lease ~~payments.~~payments, and $0.2 million of payments of costs related to our follow-on public offering.

For the ~~three~~six months ended ~~March 31,~~June 30, 2019, cash ~~used in~~provided by financing activities was ~~$1.9~~$187.1 million, primarily consisting of ~~$2.5~~$192.5 million of ~~debt payments, partially offset by $0.9~~proceeds from our IPO, net of underwriting fees and $2.5 million in proceeds from stock option exercises by our employees. This was partially offset by $3.7 million of payments of costs related to our IPO and $5.0 million of debt payments.

Contractual Obligations and Other Commitments

Our principal commitments consist of obligations under operating leases, purchase obligations for contracts with our cloud infrastructure provider, network service providers, and other vendors, and outstanding debt. There have been no material changes in our contractual obligations and commitments from our most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except for those described under Note 7 and Note 98 of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, expenses, and related disclosures. Actual results and outcomes could differ significantly from our estimates, judgments, and assumptions. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in “Management's Discussion and Analysis – Critical Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Recent Accounting Pronouncements

See “Summary of Significant Accounting Policies" in Note 1 of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. ToBased on the ~~extent that~~market value of our common stock held by non-affiliates as of June 30, 2020, we ~~lose our~~will cease to be an emerging growth company ~~status and~~as of December 31, 2020. Once we no longer qualify as an emerging growth company, we will no longer be permitted to use these reporting exemptions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks in the ordinary course of our business. These risks primarily include interest rate and currency exchange risks as follows:

We had cash, cash equivalents, and marketable securities of ~~$116.6~~$384.0 million, and restricted cash of $70.1 million as of ~~March 31,~~June 30, 2020, which consisted of bank deposits, money market funds, corporate notes and bonds, commercial paper, U.S. Treasury securities, and asset-backed securities. The cash and cash equivalents are held for working capital purposes. The restricted cash is held as cash collateral in connection with our Cash Collateralized Revolving Credit Agreement. To date, fluctuations in interest income have not been significant. The primary objective of our investment activities is to preserve principal while generating income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Amounts borrowed under the Cash Collateralized Revolving Credit Agreement bear the same interest throughout the initial interest period, which ends in November 2020, at a rate of 3.46%. A hypothetical 10% change in interest rates during the period presented would not have had a material impact on our condensed consolidated financial statements.

Currency Exchange Risks

The functional currency of our foreign subsidiaries is the U.S. dollar. Therefore, we are exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars. The local currencies of our foreign subsidiaries are denominated in the British pound, Japanese Yen, Australian Dollar, and Euro. Our subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates. Revenue and expense accounts are remeasured at the average exchange rate in effect during the period. If there is a change in foreign currency exchange rates, the conversion of our foreign subsidiaries’ financial statements into U.S. dollars would result in a realized gain or loss which is recorded in our condensed consolidated statements of operations. We do not currently engage in any hedging activity to reduce our potential exposure to currency fluctuations, although we may choose to do so in the future. A hypothetical 10% change in foreign exchange rates during the period presented would not have had a material impact on our condensed consolidated financial statements.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange ~~Act of 1934, as amended (the "Exchange Act"))~~Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the evaluation of our disclosure controls and procedures as of ~~March 31,~~June 30, 2020, our principal executive officer and principal financial officer concluded that, as of such date, due to the material weakness described below, our disclosure controls and procedures were not effective.

Management identified material weaknesses in our internal control over financial reporting for the years ended December 31, 2019, 2018, and 2017, related to the lack of sufficient qualified accounting personnel and information systems personnel, which led to incorrect application of generally accepted accounting principles, and insufficiently designed segregation of duties, information technology access security and change management, and controls over business processes, including the financial statement close and reporting processes with respect to the development of accounting policies, procedures, and estimates.

After these material weaknesses were identified, management implemented a remediation plan that included hiring key accounting personnel and information systems personnel, creating a formal month-end close process, and establishing more robust processes supporting internal controls over financial reporting, including accounting policies, procedures, and estimates. During the ~~three~~six months ended ~~March 31,~~June 30, 2020, management hired additional staff and continues to actively recruit for open positions within the accounting ~~department~~and information systems departments and will, as necessary, supplement any interim staffing

needs with temporary resources. We will continue to monitor and assess our remediation initiatives, ~~to ensure that~~until the aforementioned material weaknesses are remediated.

Notwithstanding the material weaknesses, management has concluded that the financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.

Changes in Internal Control

Other than as described above, there have been no changes in our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we have been and will continue to be subject to legal proceedings and claims. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition, or cash flows. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners, and our customers by determining the scope, enforceability, and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.



	As of March 31, 2020			As of December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	22,501		$	16,142
Marketable securities	94,084			114,967
Accounts receivable, net of allowance for doubtful accounts of $1,821 and $1,816 as of March 31, 2020 and December 31, 2019, respectively	43,017			37,136
Restricted cash	70,087			70,087
Prepaid expenses and other current assets	12,139			10,991
Total current assets	241,828			249,323
Property and equipment, net	69,069			60,037
Goodwill	348			372
Intangible assets, net	1,089			1,125
Other assets	11,512			10,112
Total assets	$	323,846		$	320,969
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,457		$	4,602
Accrued expenses	20,218			19,878
Current portion of long-term debt	5,291			4,472
Other current liabilities	5,430			8,169
Total current liabilities	40,396			37,121
Long-term debt, less current portion	26,043			25,158
Other long-term liabilities	1,357			1,038
Total liabilities	67,796			63,317
Commitments and contingencies (Note 9)
Stockholders’ equity:
Class A and Class B common stock	2			2
Additional paid-in capital	459,360			449,463
Accumulated other comprehensive income	687			196
Accumulated deficit	(203,999		)	(192,009		)
Total stockholders’ equity	256,050			257,652
Total liabilities and stockholders’ equity	$	323,846		$	320,969



	Three months ended March 31, 2020
	Common Stock—Class A			Common Stock—Class B				Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stockholders’ Equity
	Shares	Amount		Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2019	60,954,694	$	1	33,863,021		$	1	$	449,463	$	196	$	(192,009	)	$	257,652
Exercise of stock options	1,106,688	—		—		—		3,174		—		—			3,174
Vesting of early exercised stock options	—	—		36,590		—		146		—		—			146
Stock-based compensation	—	—		—		—		6,577		—					6,577
Conversion of Class B to Class A Stock	9,727,897	—		(9,727,897	)	—		—		—		—			—
Net loss	—	—		—		—		—				(11,990		)	(11,990		)
Other comprehensive income	—	—		—		—		—		491		—			491
Balance as of March 31, 2020	71,789,279	$	1	24,171,714		$	1	$	459,360	$	687	$	(203,999	)	$	256,050



	Three months ended March 31, 2019
	Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Deficit
Balance at December 31, 2018	53,630,213	$	219,584	25,025,836	$	1	$	16,403	$	(2,109	)	$	(36	)	$	(146,186	)	$	(131,927	)
Impact of change in accounting policy	—	—		—	—		—		—			—			5,727			5,727
Exercise of stock options	—	—		449,751	—		639		—			—			—			639
Vesting of early exercised stock options	—	—		40,524	—		155		—			—			—			155
Stock-based compensation	—	—		—	—		1,467		—			—			—			1,467
Repayment of stockholder note	—	—		5,297	—		12		—			—			—			12
Net loss	—	—		—	—		—		—			—			(9,727		)	(9,727		)
Other comprehensive income	—	—		—	—		—		—			56			—			56
Balance as of March 31, 2019	53,630,213	$	219,584	25,521,408	$	1	$	18,676	$	(2,109	)	$	20		$	(150,186	)	$	(133,598	)



	As of March 31, 2020		As of December 31, 2019
	(in thousands)
Contract assets	$	305	$	271
Contract liabilities	$	852	$	317



	As of March 31,		As of December 31,
	2020		2019
	(in thousands)
Cash and cash equivalents:
Cash	$	8,503	$	11,623
Money market funds	13,998		2,020
Commercial paper	—		2,499
Total cash and cash equivalents	$	22,501	$	16,142
Marketable securities:
Corporate notes and bonds	$	9,024	$	17,470
Commercial paper	2,498		5,481
U.S. Treasury securities	68,713		78,160
Asset-backed securities	13,849		13,856
Total marketable securities	$	94,084	$	114,967



	Three months ended March 31, 2020
	(in thousands)
Balance as of December 31, 2019	$	372
Foreign currency translation	(24		)
Balance as of March 31, 2020	$	348



	Shares		Weighted- Average Grant Date Fair Value Per Share
	(in thousands)
Nonvested RSUs as of December 31, 2019	1,641		$	20.07
Granted	1,072		20.03
Vested	—
Cancelled/forfeited	(11	)	20.04
RSUs outstanding as of March 31, 2020	2,702		$	20.04


~~(1)~~	~~Class A common stock includes the issuance of 12.9 million shares of Class A common stock issued by us in connection with our IPO and shares issued upon the exercise of options subsequent to our IPO.~~


~~(2)~~	~~Class B common stock includes, for all periods presented, the conversion of all of our preferred stock into an aggregate of 53.6 million shares of our Class B common stock upon closing of the IPO.~~


	March 31,					June 30,
	2020		2019			2020		2019
Number of customers (as of end of period)	1,837		1,621		Number of customers (as of end of period)	1,951		1,627
Number of enterprise customers (as of end of period)	297		243		Number of enterprise customers (as of end of period)	304		262
DBNER (trailing 12 months)	133.0	%	130.4	%	DBNER (trailing 12 months)	137.4	%	132.3	%
NRR					NRR	137.8	%	110.9	%


~~(1)~~	~~Includes stock-based compensation expense as follows:~~