AKAMAI TECHNOLOGIES INC

Previous wording

This quarterly report on Form 10-Q, particularly Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below, and notes to our unaudited interim condensed consolidated financial statements included herein contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management as of the date hereof based on information currently available to our management. Use of words such as “believes,” “could,” “expects,” “anticipates,” “intends,” “plans,” “seeks,” “projects,” “estimates,” “should,” “would,” “forecasts,” “if,” “continues,” “goal,” “likely,” “may,” “will,” variations of such words or similar expressions are intended to identify a forward-looking statement. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions. Actual results may differ materially from the forward-looking statements we make as a result of various factors, including, but not limited to: potential slowing revenue growth, global economic and geopolitical conditions, our ability to acquire or develop new solutions, our ability to compete effectively, including our ability to continue to grow our compute solutions, security risks stemming from ineffective information technology systems or cybersecurity breaches, risks of maintaining global operations, regulatory developments, intellectual property claims or disputes, investment related risks and maintaining an effective system of internal controls. See “Risk Factors” elsewhere in this quarterly report on Form 10-Q and in our other reports with the Securities and Exchange Commission for a discussion of certain risks associated with our business. We disclaim any obligation to update forward-looking statements as a result of new information, future events or otherwise, including the potential impact of any mergers, acquisitions, divestitures or other events that may be announced after the date hereof.

Current wording

This quarterly report on Form 10-Q, particularly Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below, and notes to our unaudited interim condensed consolidated financial statements included herein contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management as of the date hereof based on information currently available to our management. Use of words such as “believes,” “could,” “expects,” “anticipates,” “intends,” “plans,” “seeks,” “projects,” “estimates,” “should,” “would,” “forecasts,” “if,” “continues,” “goal,” “likely,” “may,” “will,” variations of such words or similar expressions are intended to identify a forward-looking statement. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions. Actual results may differ materially from the forward-looking statements we make as a result of various factors, including, but not limited to: potential slowing revenue growth, a reduction in spending by our customers, global economic and geopolitical conditions, our ability to acquire or develop new solutions, our ability to compete effectively, including our ability to continue to grow our compute solutions, security risks stemming from ineffective information technology systems or cybersecurity breaches, risks of maintaining global operations, regulatory developments, intellectual property claims or disputes, investment related risks and maintaining an effective system of internal controls. See “Risk Factors” elsewhere in this quarterly report on Form 10-Q and in our other reports with the Securities and Exchange Commission for a discussion of certain risks associated with our business. We disclaim any obligation to update forward-looking statements as a result of new information, future events or otherwise, including the potential impact of any mergers, acquisitions, divestitures or other events that may be announced after the date hereof.

Previous wording

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

Current wording

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

Previous wording

We primarily derive revenue from the sale of services to customers pursuant to contracts having terms of one year or longer, which allows us to have a consistent and predictable base level of revenue. Services included in our contracts consist of security solutions, the delivery of content, applications and software over the internet, cloud computing solutions and professional services. In addition to a base level of revenue, we are also dependent on our ability to increase our product offerings and to cross-sell additional services to our new and existing customers, particularly for our security and compute solutions portfolios. Our revenue is also impacted by customer renewals, the rate of adoption and timing of customer offerings, variability of one-time events, usage of cloud computing services and the amount of traffic we serve on our network. Geopolitical, economic and other developments that impact our customers' businesses can also impact our ability to attract new customers or continue to cross-sell additional services to existing customers. Over the longer term, our ability to expand our product portfolio and to effectively manage the prices we charge for our solutions are key factors impacting our revenue growth.

Current wording

We primarily derive revenue from the sale of services to customers pursuant to contracts having terms of one year or longer, which allows us to have a consistent and predictable base level of revenue. Services included in our contracts consist of security solutions, the delivery of content, applications and software over the internet, cloud computing solutions and professional services. In addition to a base level of revenue, we are also dependent on our ability to increase our product offerings and to cross-sell additional services to our new and existing customers, particularly for our security and compute solutions portfolios. Our revenue is also impacted by customer renewals and the pricing for such renewals, the rate of adoption and timing of customer offerings, variability of one-time events, usage of cloud computing services and the amount of traffic we serve on our network. Geopolitical, economic and other developments that impact our customers' businesses can also impact our ability to attract new customers or continue to cross-sell additional services to existing customers and traffic levels for customers with variable usage. Over the longer term, our ability to expand our product portfolio and to effectively manage the prices we charge for our solutions are key factors impacting our revenue growth.

Previous wording

•Increased sales of our security solutions, led by application security solutions and segmentation solutions from our acquisition of Guardicore Ltd., and increased sales of our compute solutions, attributable to our acquisition of Linode Limited Liability Company ("Linode") and enhanced services on our compute platform, have made a significant contribution to revenue growth. Our security and compute solutions represented almost two-thirds of our total revenue during the first half of 2024. We plan to continue to invest in these areas with a focus on further advancing our product portfolios and sales capabilities.

Current wording

•Increased sales of our security solutions, led by application security solutions and segmentation solutions from our acquisition of Guardicore Ltd., and increased sales of our compute solutions, attributable to our acquisition of Linode Limited Liability Company ("Linode") and enhanced services on our compute platform, have made a significant contribution to revenue growth. Our security and compute solutions represented almost two-thirds of our total revenue during the first nine months of 2024. We plan to continue to invest in these areas with a focus on further advancing our product portfolios and sales capabilities.

Previous wording

•Traffic on our network continues to grow as compared to prior years, but we, and the content delivery industry more broadly, are seeing growth at a more moderate pace than we've experienced in the past. We and our customers have been managing through a time of global economic and geopolitical headwinds and uncertainty. In particular, a large social media customer has taken steps to lower costs and reduce reliance on U.S. providers by optimizing its platform, including using a “do-it-yourself” component, which has reduced traffic on our network and negatively impacted our delivery revenue. If our customers increase their reliance on “do-it-yourself” solutions, it may negatively impact traffic on our network and delivery revenue.

Current wording

•Traffic on our network continues to grow as compared to prior years, but we, and the industry more broadly, are seeing growth at a more moderate pace than we've experienced in the past. In particular, we are seeing traffic growth slowing in verticals such as media and gaming, as these customers optimize their traffic and manage through underlying business challenges at a time of global economic and geopolitical headwinds. For instance, a large social media customer has taken steps to lower costs and reduce reliance on U.S. providers by optimizing its platform, including using a “do-it-yourself” component, which has reduced traffic on our network and negatively impacted our revenue in 2024. If our customers' businesses continue to be impacted by economic and geopolitical headwinds, they may optimize their traffic or may increase their reliance on “do-it-yourself” solutions, which may negatively impact traffic on our network and revenue.

Previous wording

•The prices paid by some of our delivery and security customers have declined in recent years due to competition and contract renewals, which negatively impacts our revenue growth rates. We have been able to mitigate some of the negative impacts to our revenue growth rates by upselling incremental solutions to our existing delivery and security customers. We continue to take steps upon contract renewals to optimize how we charge certain high-volume traffic delivery customers, including charging a premium for higher-cost destinations and continuing to maintain alignment between customer traffic volumes and unit pricing.

Current wording

•The prices paid by some of our delivery and security customers have declined in recent years due to competition and contract renewals, which negatively impacts our revenue growth rates. We have been able to mitigate some of the negative impacts to our revenue growth rates by upselling incremental solutions to our existing delivery and security customers. We continue to take steps upon contract renewals to optimize how we charge certain high-volume traffic delivery customers, including, in certain circumstances, charging a premium for higher-cost destinations and focusing on continuing to maintain alignment between customer traffic volumes and unit pricing.

Previous wording

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

Current wording

•We have experienced variations in certain types of revenue from quarter-to-quarter. These quarterly variations in revenue are attributable to, among other things, the timing of large customer contract renewals; the frequency and timing of purchases of custom solutions or licensed software; the nature and timing of software and gaming releases by our customers; holiday season activity; and whether there are large live sporting or other events or situations that impact the amount of media traffic on our network.

Previous wording

•Network build-out and supporting service costs represent another significant portion of our cost of revenue. These costs include maintenance and supporting services incurred as we continue to build out our compute infrastructure and maintain our global network, and costs of third-party cloud providers used for some of our operations. We have seen these costs increase in recent years as a result of our network expansion, and particularly the build out of our compute infrastructure. We previously experienced increased costs from third-party cloud providers, but have recently begun to mitigate those costs by migrating to our own cloud solutions and optimizing third-party cloud spend. We will need to continue to effectively manage our network build-out and supporting service costs and continue to migrate third-party cloud services to Akamai Connected Cloud to maintain or improve current levels of profitability.

Current wording

•Network build-out and supporting service costs represent another significant portion of our cost of revenue. These costs include maintenance and supporting services incurred as we continue to build out our compute infrastructure and maintain our global network, and costs of third-party cloud providers used for some of our operations. We have seen these costs increase in recent years as a result of our network expansion, and particularly the build out of our compute infrastructure. We previously experienced increased costs from third-party cloud providers, but have begun to mitigate those costs by migrating to our own cloud solutions and working to optimize third-party cloud spend. We will need to continue to effectively manage our network build-out and supporting service costs and continue to migrate third-party cloud services to Akamai Connected Cloud to maintain or improve current levels of profitability.

Previous wording

•Our employees are core to the operations of our business, and payroll and related costs, including stock-based compensation, is our largest expense. It is important to the success of operations that we offer competitive compensation packages. However, we remain disciplined in allocating our resources to support our faster growing security and compute solutions, including maintaining operational efficiencies to mitigate the rising cost of talent. In 2023, we redesigned one of our non-executive short-term incentive compensation programs by shifting certain employees from a cash-based to stock-based program. We also introduced a non-executive incentive program tied to our initiative to migrate certain third-party cloud services onto Akamai Connected Cloud. These programs were designed to better align employee incentives with the interests of our stockholders, which increased our stock-based compensation.

Current wording

•Our employees are core to the operations of our business, and payroll and related costs, including stock-based compensation, is our largest expense. It is important to the success of operations that we offer competitive compensation packages. However, we are focused on remaining disciplined in allocating our resources to support our faster growing security and compute solutions, including maintaining operational efficiencies to mitigate the rising cost of talent. In 2023, we redesigned one of our non-executive short-term incentive compensation programs by shifting certain employees from a cash-based to stock-based program. We also introduced a non-executive incentive program tied to our initiative to migrate certain third-party cloud services onto Akamai Connected Cloud. These programs were designed to better align employee incentives with the interests of our stockholders, which increased our stock-based compensation.

Previous wording

In June 2024, we acquired Noname Gate Ltd. ("Noname Security") for $452.3 million, subject to post-closing adjustments. Noname Security is intended to expand our existing API Security offering by providing more flexible deployment options, extensive vendor integrations and enhanced attack analysis. We believe this acquisition will accelerate our ability to meet increasing customer and market demand. Noname Security has approximately 200 employees. The acquisition is expected add approximately $20.0 million of revenue for 2024 and will be dilutive to our earnings per share through 2024.

Current wording

In June 2024, we acquired Noname Gate Ltd. ("Noname Security") for $452.3 million, subject to post-closing adjustments. Noname Security is intended to expand our existing API Security offering by providing more flexible deployment options, extensive vendor integrations and enhanced attack analysis. We believe this acquisition will accelerate our ability to meet increasing customer and market demand. As part of the acquisition, we integrated approximately 200 Noname Security employees primarily within sales and marketing and research and development. The acquisition is expected to add approximately $20.0 million of revenue for 2024 and will be dilutive to our earnings per share through 2024.

Previous wording

Global macroeconomic and geopolitical conditions continue to impact our customers, as well as our business and revenue growth rates. We, along with our customers, continue to manage through an uncertain period of fluctuating inflation, regulations that may negatively impact business, economic uncertainty, uncertain energy supplies, heightened geopolitical tensions, potential for supply chain disruptions, changes in international tax laws, fluctuations in foreign exchange rates and elevated interest rates. To the extent these macroeconomic conditions continue, we expect that it may adversely affect our business, operations and financial results.

Current wording

Global macroeconomic and geopolitical conditions continue to impact our customers, as well as our business and revenue growth rates. We, along with our customers, continue to manage through an uncertain period of fluctuating inflation, regulations that may negatively impact business, economic and political uncertainty, uncertain energy supplies, heightened geopolitical tensions and conflict, potential for supply chain disruptions, changes in international tax laws, fluctuations in foreign exchange rates and elevated interest rates. To the extent these macroeconomic conditions continue, we expect that it may adversely affect our business, operations and financial results.

Previous wording

During the three and six months ended June 30, 2024, the increase in our revenue, as compared to the same periods in 2023, was primarily the result of continued growth in sales of our security and compute solutions, partially offset by a decline in revenue from our delivery solutions due to impacts from economic and geopolitical uncertainty our customers are facing.

Current wording

During the three and nine months ended September 30, 2024, the increase in our revenue, as compared to the same periods in 2023, was primarily the result of continued growth in sales of our security and compute solutions, partially offset by a decline in revenue from our delivery solutions due to impacts from economic and geopolitical uncertainty our customers are facing.

Previous wording

The increase in security solutions revenue for the three and six months ended June 30, 2024, as compared to the same periods in 2023, was due to growth in sales of key products in our security solutions portfolio, including our segmentation and web application solutions.

Current wording

The increase in security solutions revenue for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was due to growth in sales of key products in our security solutions portfolio, including our segmentation and web application solutions.

Previous wording

The decrease in delivery solutions revenue for the three and six months ended June 30, 2024, as compared to the same periods in 2023, was due to our customers' economic and geopolitical headwinds which resulted in moderation of traffic growth rates and the continued pricing impact of renewals. These headwinds are also causing a large social media customer to increase their focus on cost optimization and "do-it-yourself" solutions, which reduced traffic on our network and had a negative impact on our delivery revenue.

Current wording

The decrease in delivery solutions revenue for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was due to our customers' economic and geopolitical headwinds which resulted in moderation of traffic growth rates and the continued downward pricing of renewals. These headwinds are also causing a large social media customer to increase their focus on cost optimization and "do-it-yourself" solutions, which reduced traffic on our network and had a negative impact on our delivery revenue.

Previous wording

The increase in compute solutions revenue for the three and six months ended June 30, 2024, as compared to the same periods in 2023, was due to growth in sales of compute products, including cloud optimization solutions, to new and existing customers.

Current wording

The increase in compute solutions revenue for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was due to growth in sales of compute products, including cloud optimization solutions, to new and existing customers.

Previous wording

For the three and six months ended June 30, 2024 and 2023, no single country outside the U.S. accounted for 10% or more of revenue during these periods. Changes in foreign currency exchange rates unfavorably impacted our revenue by $9.8 million and $13.6 million during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023.

Current wording

For the three and nine months ended September 30, 2024 and 2023, no single country outside the U.S. accounted for 10% or more of revenue during these periods. Changes in foreign currency exchange rates unfavorably impacted our revenue by $2.7 million and $16.2 million during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.

Previous wording

The increase in cost of revenue for the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to co-location fees and depreciation of network equipment as a result of investment in Akamai Connected Cloud, particularly as we build out our compute infrastructure to support future growth and scalability, as well as stock-based compensation as a result of the shift in one of our compensation programs from cash-based to stock-based for certain employees in 2024. These increases were partially offset by lower network build-out and supporting services due to a decrease in third-party cloud costs as we have been migrating third-party cloud services onto our own cloud solutions and optimizing third-party cloud spending. Additionally, the increase in stock-based compensation for the six months ended June 30, 2024, as compared to the same period in 2023, was a result of the timing of our performance-based equity award grants.

Current wording

The increase in cost of revenue for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to higher co-location fees and depreciation of network equipment as a result of investment in Akamai Connected Cloud, particularly as we build out our compute infrastructure to support future growth and scalability, as well as stock-based compensation as a result of the shift in one of our compensation programs from cash-based to stock-based for certain employees in 2024. These increases were partially offset by lower network build-out and supporting services due to a decrease in third-party cloud costs as we have been migrating third-party cloud services onto our own cloud solutions and working to optimize third-party cloud spending. Additionally, the increase in stock-based compensation for the nine months ended September 30, 2024, as compared to the same period in 2023, was a result of the timing of our performance-based equity award grants.

Previous wording

The increase in research and development expenses during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was due to higher payroll and related costs, including stock-based compensation, as a result of headcount growth from our strategic initiatives and prior year annual merit increases, partially offset by increases in capitalized salaries and related costs as we had additional resources focused on development activities related to our platform and solutions.

Current wording

The increase in research and development expenses during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to higher payroll and related costs and stock-based compensation, as a result of headcount growth from our strategic initiatives, including the acquisition of Noname Security, and prior year annual merit increases, partially offset by increases in capitalized salaries and related costs as we had additional resources focused on development activities related to our platform and solutions. Additionally, the increase in stock-based compensation for the nine months ended September 30, 2024, as compared to the same period in 2023, was a result of the timing of our performance-based equity award grants.

Previous wording

Research and development costs are expensed as incurred, other than certain internal-use software development costs eligible for capitalization. Capitalized development costs consist of payroll and related costs for personnel and external consulting expenses involved in the development of internal-use software used to deliver our services and operate our network. During the three months ended June 30, 2024 and 2023, we capitalized $25.5 million and $20.1 million, respectively, of stock-based compensation. During the six months ended June 30, 2024 and 2023, we capitalized $50.3 million and $33.3 million, respectively, of stock-based compensation. These capitalized internal-use software development costs are amortized to cost of revenue over their estimated useful lives, ranging from two to ten years based on the software developed and its expected useful life.

Current wording

Research and development costs are expensed as incurred, other than certain internal-use software development costs eligible for capitalization. Capitalized development costs consist of payroll and related costs for personnel and external consulting expenses involved in the development of internal-use software used to deliver our services and operate our network. During the three months ended September 30, 2024 and 2023, we capitalized $25.7 million and $22.1 million, respectively, of stock-based compensation. During the nine months ended September 30, 2024 and 2023, we capitalized $76.0 million and $55.4 million, respectively, of stock-based compensation. These capitalized internal-use software development costs are amortized to cost of revenue over their estimated useful lives, ranging from two to ten years based on the software developed and its expected useful life.

Previous wording

The increase in sales and marketing expenses during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was due to higher payroll and related costs as a result of prior year annual merit increases. Additionally, the increase during the six months ended June 30, 2024, as compared to the same period in 2023, was due to stock-based compensation as a result of the timing of our performance-based equity award grants, partially offset by a reduction in marketing programs as a result of the timing of events and advertising spend.

Current wording

The increase in sales and marketing expenses during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was due to higher payroll and related costs and stock-based compensation as a result of prior year annual merit increases and employees acquired through the Noname Security acquisition. Additionally, the increase during the nine months ended September 30, 2024, as compared to the same period in 2023, was due to stock-based compensation as a result of the timing of our performance-based equity award grants, partially offset by a reduction in marketing programs and related costs as a result of the timing of events and advertising spend.

Previous wording

During the remainder of 2024, we expect our sales and marketing expenses to increase as compared to 2023 due to to our continued investment in go-to-market efforts and the sales and marketing personnel added from the Noname Security acquisition. However, we plan to continue to carefully manage costs in an effort to manage our operating margins.

Current wording

During the remainder of 2024, we expect our sales and marketing expenses to increase as compared to 2023 due to our continued investment in go-to-market efforts and the sales and marketing personnel added from the Noname Security acquisition in June 2024. However, we plan to continue to carefully manage costs in an effort to manage our operating margins.

Previous wording

The increase in general and administrative expenses during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was due to higher payroll and related costs as a result of prior year merit increases, partially offset by decreased facilities-related costs as we exited certain facilities in connection with our FlexBase program. Additionally, the increase during the six months ended June 30, 2024, as compared to the same period in 2023, was due to stock-based compensation as a result of the timing of our performance-based equity award grants.

Current wording

The increase in general and administrative expenses during the three months ended September 30, 2024, as compared to the same period in 2023, was primarily due to higher acquisition-related costs from our acquisition of Noname Security and an increased provision for doubtful accounts due to collection risks with certain customers and the reversal of provisions in the third quarter of 2023 as a result of customer payments. The increase in general and administrative expenses during the nine months ended September 30, 2024, as compared to the same period in 2023, was due to higher payroll and related costs as a result of prior year merit increases, an increase in other expenses related to professional service fees to support our business and stock-based compensation as a result of the timing of our performance-based equity award grants. These increases were partially offset by decreased facilities-related costs as we exited certain facilities in connection with our FlexBase program.

Previous wording

The increase in amortization of acquired intangible assets for the three and six months ended June 30, 2024, as compared to the same periods in 2023, was the result of amortization of acquired intangible assets related to our recent acquisitions. Based on acquired intangible assets at June 30, 2024, we expect amortization of acquired intangible assets to be approximately $43.1 million for the remainder of 2024, and $82.7 million, $84.1 million, $79.3 million and $74.2 million for 2025, 2026, 2027 and 2028, respectively.

Current wording

The increase in amortization of acquired intangible assets for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was the result of amortization of acquired intangible assets related to our recent acquisitions. Based on acquired intangible assets at September 30, 2024, we expect amortization of acquired intangible assets to be approximately $24.1 million for the remainder of 2024, and $92.3 million, $85.1 million, $70.4 million and $63.3 million for 2025, 2026, 2027 and 2028, respectively.

Previous wording

The restructuring charge for the three and six months ended June 30, 2024 was driven by our FlexBase program as we exited certain facilities that were no longer needed, resulting in impairments of right-of-use-assets and leasehold improvements. We do not expect to incur material additional charges related to this program.

Current wording

The restructuring charge for the three and nine months ended September 30, 2023 was driven by our FlexBase program as we exited certain facilities that were no longer needed, resulting in impairments of right-of-use-assets and leasehold improvements. We do not expect to incur material additional charges related to the FlexBase program.

Previous wording

The restructuring charge for the three and six months ended June 30, 2023 was primarily related to impairments of right-of-use assets and leasehold improvements that are no longer needed as a result of our FlexBase program. Additionally, the restructuring charge for the six months ended June 30, 2023 included the result of management's commitment to an action to restructure certain parts of the company to enable the prioritization of investments in the fastest growing areas of the business. The restructuring charge for the action included severance and related expenses for certain headcount reductions. We do not expect to incur material additional charges related to the action.

Current wording

Additionally, the restructuring charge for the nine months ended September 30, 2023 included the result of management's commitment to an action to restructure certain parts of the company to enable the prioritization of investments in the fastest growing areas of the business. The restructuring charge for the action included severance and related expenses for certain headcount reductions. We do not expect to incur material additional charges related to this action.

Previous wording

Interest and marketable securities income, net consists of interest earned on invested cash and marketable securities balances and income and losses on mutual funds that are associated with our employee non-qualified deferred compensation plan. The increase for the three and six months ended June 30, 2024, as compared to the same periods in 2023, was the result of increased cash, cash equivalents and marketable securities balances as a result of our August 2023 issuance of $1,265.0 million in par value of convertible senior notes due 2029 and higher interest rates, as well as increased gains associated with the non-qualified deferred compensation plan.

Current wording

Interest and marketable securities income, net consists of interest earned on invested cash and marketable securities balances and income and losses on mutual funds that are associated with our employee non-qualified deferred compensation plan. The increase for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was the result of increased cash, cash equivalents and marketable securities balances received from our August 2023 issuance of $1,265.0 million in par value of convertible senior notes due 2029 and higher interest rates, as well as increased gains associated with the non-qualified deferred compensation plan.

Previous wording

Interest expense is related to our debt transactions, which are described in Note 7 to the interim condensed consolidated financial statements. The increase to interest expense for the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to the August 2023 issuance of $1,265.0 million in par value of convertible senior notes due 2029.

Current wording

Interest expense is related to our debt transactions, which are described in Note 7 to the interim condensed consolidated financial statements. The increase to interest expense for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to the August 2023 issuance of $1,265.0 million in par value of convertible senior notes due 2029.

Previous wording

Other expense, net primarily represents net foreign exchange gains and losses mainly due to foreign exchange rate fluctuations on intercompany transactions and other non-operating expense and income items as well as gains and losses on equity investments. Other expense, net may fluctuate in the future based on changes in foreign currency exchange rates or other events.

Current wording

Other expense, net primarily represents net foreign exchange gains and losses mainly due to foreign exchange rate fluctuations on the remeasurement of monetary assets and liabilities that are not denominated in the functional currency as well as other non-operating expense and income items. Other expense, net may fluctuate in the future based on changes in foreign currency exchange rates or other events.

Previous wording

For the three months ended June 30, 2024, as compared to the same period in 2023, our provision for income taxes increased due to higher profitability, a decrease in foreign income taxed at lower rates and the impact of the enactment of a 15% global minimum corporate income tax that the Organisation for Economic Co-operation and Development ("OECD") and OECD member countries have begun implementing and which was effective for us beginning January 1, 2024. These items were partially offset by an increase in the benefit of U.S. federal, state and foreign research and development credits. For the six months ended June 30, 2024, as compared to the same period in 2023, our provision for income taxes decreased due to an increase in the excess tax benefit related to stock-based compensation, a decrease in the tax on global intangible low-taxed income and a decrease in the valuation allowance recorded against state and foreign credits. These items were partially offset by an increase in profitability and the 15% global minimum corporate income tax.

Current wording

For the three months ended September 30, 2024, as compared to the same period in 2023, our provision for income taxes decreased due to lower profitability, partially offset by an increase in global intangible low-taxed income and a decrease in foreign income taxed at lower rates. For the nine months ended September 30, 2024, as compared to the same period in 2023, our provision for income taxes decreased due to lower profitability, an increase in the excess tax benefit related to stock-based compensation and an increase in the benefit of U.S. federal and state research and development credits. These amounts were partially offset by a decrease in foreign income taxed at lower rates and the 15% global minimum corporate income tax that the Organisation for Economic Co-operation and Development ("OECD") member countries have begun implementing and which was effective for us beginning January 1, 2024.

Previous wording

For the three months ended June 30, 2024, our effective income tax rate was higher than the federal statutory tax rate due to non-deductible stock-based compensation, tax on an intercompany transaction and the 15% global minimum corporate income tax. These amounts were partially offset by foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits. For the six months ended June 30, 2024, our effective income tax rate was lower than the federal statutory tax rate due to the excess tax benefit related to stock-based compensation, foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by non-deductible stock-based compensation and the 15% global minimum corporate income tax.

Current wording

For the three months ended September 30, 2024, our effective income tax rate was higher than the federal statutory tax rate due to non-deductible stock-based compensation, partially offset by the excess tax benefit related to stock-based compensation, foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits. For the nine months ended September 30, 2024, our effective income tax rate was lower than the federal statutory tax rate due to the excess tax benefit related to stock-based compensation, foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by non-deductible stock-based compensation and the adoption of a 15% global minimum corporate income tax by certain OECD member countries.

Previous wording

For the three and six months ended June 30, 2023, our effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by tax on global intangible low-taxed income, non-deductible stock-based compensation and a shortfall related to stock-based compensation.

Current wording

For the three and nine months ended September 30, 2023, our effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by non-deductible stock-based compensation and a shortfall related to stock-based compensation.

Previous wording

In addition to providing financial measurements based on GAAP, we provide additional financial metrics that are not prepared in accordance with GAAP ("non-GAAP financial measures"). Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate our financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per diluted share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, as discussed below.

Current wording

In addition to providing financial measurements based on GAAP, we provide additional financial metrics that are not prepared in accordance with GAAP ("non-GAAP financial measures"). Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate our financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per diluted share, Adjusted EBITDA, Adjusted EBITDA margin and impact of foreign currency exchange rates, as discussed below.

Previous wording

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

Current wording

•Stock-based compensation and amortization of capitalized stock-based compensation – Stock-based compensation is an important aspect of the compensation paid to our employees which includes long-term incentive plans to encourage retention, performance-based plans to encourage achievement of specified financial targets and also short-term incentive awards with a one year vest. The grant date fair value of the stock-based compensation awards varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of our current financial results to previous and future periods difficult to interpret; therefore, we believe it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation from our non-GAAP financial measures in order to highlight the performance of our core business and to be consistent with the way many investors evaluate our performance and compare our operating results to peer companies.

Previous wording

•Restructuring charge – We have incurred restructuring charges from programs that have significantly changed either the scope of the business undertaken by us or the manner in which that business is conducted. These charges include severance and related expenses for workforce reductions, impairments of long-lived assets that will no longer be used in operations (including right-of-use assets, other facility-related property and equipment and internal-use software) and termination fees for any contracts cancelled as part of these programs. We exclude these items from our non-GAAP financial measures when evaluating our continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of our business.

Current wording

•Restructuring charge – We have incurred restructuring charges from programs that have significantly changed either the scope of the business undertaken by us or the manner in which that business is conducted. These charges include severance and related expenses for workforce reductions, impairments of long-lived assets that will no longer be used in operations (including acquired intangible assets, right-of-use assets, other facility-related property and equipment and internal-use software) and termination fees for any contracts cancelled as part of these programs. We exclude these items from our non-GAAP financial measures when evaluating our continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of our business.

Previous wording

(1) Shares used in non-GAAP per diluted share calculations have been adjusted for the three and six months ended June 30, 2024, for the benefit of our note hedge transactions. During these periods, our average stock price was in excess of $95.10, which is the initial conversion price of our convertible senior notes due in 2025. See further definition below.

Current wording

(1) Shares used in non-GAAP per diluted share calculations have been adjusted for the periods presented, for the benefit of our note hedge transactions. During these periods, our average stock price was in excess of $95.10, which is the initial conversion price of our convertible senior notes due in 2025. See further definition below.

Previous wording

To date, we have financed our operations primarily through public and private sales of debt and equity securities and cash generated by operations. As of June 30, 2024, our cash, cash equivalents and marketable securities, which primarily consisted of corporate bonds, U.S. government agency obligations, time deposits and money market funds, totaled $1.9 billion. We place our cash investments in instruments that meet high-quality credit standards, as specified in our investment policy. Our investment policy is also designed to limit the amount of our credit exposure to any one issue or issuer and seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity at all times.

Current wording

To date, we have financed our operations primarily through public and private sales of debt and equity securities and cash generated by operations. As of September 30, 2024, our cash, cash equivalents and marketable securities, which are detailed in Note 2 to the interim condensed consolidated financial statements, totaled $2.0 billion. We place our cash investments in instruments that meet high-quality credit standards, as specified in our investment policy. Our investment policy is also designed to limit the amount of our credit exposure to any one issue or issuer and seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity at all times.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of $319.6 million held in accounts outside the U.S. The U.S. Tax Cuts and Jobs Act establishes a territorial tax system in the U.S., which provides companies with the potential ability to repatriate earnings with minimal U.S. federal income tax impact. As a result, our liquidity is not expected to be materially impacted by the amount of cash and cash equivalents held in accounts outside the U.S.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $349.6 million held in accounts outside the U.S. The U.S. Tax Cuts and Jobs Act establishes a territorial tax system in the U.S., which provides companies with the potential ability to repatriate earnings with minimal U.S. federal income tax impact. As a result, our liquidity is not expected to be materially impacted by the amount of cash and cash equivalents held in accounts outside the U.S.

Previous wording

The increase in cash provided by operating activities for the six months ended June 30, 2024, as compared to the same period in 2023, was due to increased profitability, timing of collections from customers and the shift in our performance-based compensation program from cash-based to stock-based.

Current wording

The increase in cash provided by operating activities for the nine months ended September 30, 2024, as compared to the same period in 2023, was due to timing of collections from customers and as a result of the shift in our performance-based compensation program from cash-based to stock-based, which led to cash bonus payments in 2023 that did not recur in 2024.

Previous wording

The increase in cash used in investing activities during the six months ended June 30, 2024, as compared to the same period in 2023, was driven by cash paid for the acquisition of Noname Security, partially offset by an increase in cash proceeds from net marketable securities activity to fund the acquisition and a reduction of purchases of property and equipment related to our compute infrastructure build-out during the first half of 2023.

Current wording

The decrease in cash used in investing activities during the nine months ended September 30, 2024, as compared to the same period in 2023, was due to an increase in cash proceeds from net marketable securities activity to fund the acquisition of Noname Security in 2024 and a reduction of purchases of property and equipment related to our compute infrastructure build-out in 2023. Additionally, the cash used in investing activities during the nine months ended September 30, 2023 included an increase in purchases of marketable securities with the proceeds from our August 2023 issuance of convertible senior notes.

Previous wording

The decrease in cash used in financing activities during the six months ended June 30, 2024, as compared to the same period in 2023, was due to a decrease in repurchases of our common stock as part of our share repurchase program, partially offset by increased employee taxes paid related to vesting of stock awards driven by the shift in our performance-based compensation program from cash-based to stock-based and the increase in stock price.

Current wording

The increase in cash used in financing activities during the nine months ended September 30, 2024, as compared to the same period in 2023, was due to the net proceeds received in 2023 from our convertible senior notes due 2029 that did not recur in 2024 and increased employee taxes paid in 2024 related to vesting of stock awards driven by the shift in our performance-based compensation program from cash-based to stock-based and an increase in stock price, partially offset by a reduction in repurchases of our common stock as part of our share repurchase program.