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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________ 
FORM 10-Q
 ______________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to    
            

Commission file number 0-27275
______________________________________________ 
Akamai Technologies, Inc.

(Exact name of registrant as specified in its charter)
Delaware 04-3432319
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
145 Broadway
Cambridge, MA 02142
(617) 444-3000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
______________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock - par value $0.01 per share
AKAMNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No  x
The number of shares outstanding of the registrant’s common stock as of August 4, 2020: 162,704,861
1

Table of Contents
AKAMAI TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

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

2

Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)June 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$572,288  $393,745  
Marketable securities 800,321  1,143,249  
Accounts receivable, net of reserves of $6,225 and $1,880 at June 30, 2020, and December 31, 2019, respectively644,659  551,943  
Prepaid expenses and other current assets175,731  142,676  
Total current assets2,192,999  2,231,613  
Marketable securities 1,018,835  835,384  
Property and equipment, net1,281,392  1,152,153  
Operating lease right-of-use assets736,465  758,450  
Acquired intangible assets, net194,951  179,431  
Goodwill1,595,304  1,600,265  
Deferred income tax assets61,310  76,528  
Other assets143,542  173,062  
Total assets$7,224,798  $7,006,886  

3

Table of Contents
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS, continued

(in thousands, except share data)June 30,
2020
December 31,
2019
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$153,958  $138,946  
Accrued expenses263,646  334,861  
Deferred revenue93,648  71,223  
Operating lease liabilities138,478  139,463  
Other current liabilities7,692  8,843  
Total current liabilities657,422  693,336  
Deferred revenue4,536  4,368  
Deferred income tax liabilities29,556  29,187  
Convertible senior notes1,872,937  1,839,791  
Operating lease liabilities673,678  692,181  
Other liabilities82,374  90,065  
Total liabilities3,320,503  3,348,928  
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 700,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued or outstanding    
Common stock, $0.01 par value; 700,000,000 shares authorized; 163,773,348 shares issued and 162,630,477 shares outstanding at June 30, 2020, and 162,000,843 shares issued and outstanding at December 31, 20191,638  1,620  
Additional paid-in capital3,734,787  3,653,486  
Accumulated other comprehensive loss(57,307) (45,144) 
Treasury stock, at cost, 1,142,871 shares at June 30, 2020, and no shares at December 31, 2019(107,880)   
Retained earnings333,057  47,996  
Total stockholders’ equity3,904,295  3,657,958  
Total liabilities and stockholders’ equity$7,224,798  $7,006,886  

The accompanying notes are an integral part of the consolidated financial statements.
4

Table of Contents
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
        
 For the Three Months
Ended June 30,
For the Six Months
Ended June 30,
(in thousands, except per share data)2020201920202019
Revenue$794,715  $705,074  $1,559,017  $1,411,582  
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)276,804  242,193  545,386  482,936  
Research and development64,090  61,439  135,314  127,580  
Sales and marketing123,469  135,106  247,255  261,382  
General and administrative129,709  120,116  257,070  242,951  
Amortization of acquired intangible assets10,381  9,648  20,815  19,247  
Restructuring (benefit) charge(167) 790  10,418  7,179  
Total costs and operating expenses604,286  569,292  1,216,258  1,141,275  
Income from operations190,429  135,782  342,759  270,307  
Interest income9,502  6,410  16,545  15,045  
Interest expense(17,249) (8,446) (34,454) (20,562) 
Other expense, net(1,603) (578) (5,711) (67) 
Income before provision for income taxes181,079  133,168  319,139  264,723  
Provision for income taxes(18,671) (19,253) (32,963) (43,678) 
Loss from equity method investment(493)   (1,115)   
Net income$161,915  $113,915  $285,061  $221,045  
Net income per share:
Basic$1.00  $0.70  $1.76  $1.35  
Diluted$0.98  $0.69  $1.74  $1.34  
Shares used in per share calculations:
Basic162,413  163,407  162,203  163,322  
Diluted164,768  165,019  164,226  164,903  

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

 For the Three Months
Ended June 30,
For the Six Months
Ended June 30,
(in thousands)2020201920202019
Net income$161,915  $113,915  $285,061  $221,045  
Other comprehensive income (loss):
Foreign currency translation adjustments5,808  2,849  (20,469) 3,351  
Change in unrealized gain on investments, net of income tax provision of $5,144, $547, $3,679 and $1,101 for the three and six months ended June 30, 2020 and 2019, respectively15,880  1,646  8,306  3,077  
Other comprehensive income (loss)21,688  4,495  (12,163) 6,428  
Comprehensive income$183,603  $118,410  $272,898  $227,473  

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

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AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six Months
Ended June 30,
(in thousands)20202019
Cash flows from operating activities:
Net income$285,061  $221,045  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization231,788  214,270  
Stock-based compensation96,684  93,447  
Provision for deferred income taxes11,394  24,608  
Amortization of debt discount and issuance costs31,310  19,628  
Other non-cash reconciling items, net14,804  1,180  
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(105,546) (38,127) 
Prepaid expenses and other current assets(9,979) (23,287) 
Accounts payable and accrued expenses(47,402) (52,789) 
Deferred revenue21,342  27,973  
Other current liabilities(1,115) (18,739) 
Other non-current assets and liabilities(6,407) 9,570  
Net cash provided by operating activities521,934  478,779  
Cash flows from investing activities:
Cash received (paid) for business acquisitions, net of cash acquired106  (121,409) 
Cash paid for asset acquisition(36,376)   
Cash paid for equity method investment  (36,008) 
Purchases of property and equipment(214,952) (158,158) 
Capitalization of internal-use software development costs(120,716) (117,620) 
Purchases of short- and long-term marketable securities(842,516) (391,758) 
Proceeds from sales of short- and long-term marketable securities29,667  268  
Proceeds from maturities of short- and long-term marketable securities984,333  649,262  
Other non-current assets and liabilities79  2,237  
Net cash used in investing activities(200,375) (173,186) 
Cash flows from financing activities:
Repayment of convertible senior notes  (690,000) 
Proceeds related to the issuance of common stock under stock plans29,805  28,772  
Employee taxes paid related to net share settlement of stock-based awards(63,930) (49,956) 
Repurchases of common stock(107,880) (116,247) 
Other non-current assets and liabilities  (1,558) 
Net cash used in financing activities(142,005) (828,989) 
Effects of exchange rate changes on cash, cash equivalents and restricted cash(828) 2,678  
Net increase (decrease) in cash, cash equivalents and restricted cash178,726  (520,718) 
Cash, cash equivalents and restricted cash at beginning of period394,146  1,036,987  
Cash, cash equivalents and restricted cash at end of period$572,872  $516,269  

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

 For the Six Months
Ended June 30,
(in thousands)20202019
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received of $6,711 and $2,216 for the six months ended June 30, 2020 and 2019, respectively$26,409  $54,271  
Cash paid for interest expense3,079719
Cash paid for operating lease liabilities94,15769,317
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities65,83263,709
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses98,23571,066
Capitalization of stock-based compensation18,85618,760
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$572,288  $515,896  
Restricted cash584  373  
Cash, cash equivalents and restricted cash$572,872  $516,269  

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

Three Months Ended June 30, 2020
(in thousands, except share data)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance at April 1, 2020162,176,589  $1,631  $3,658,990  $(78,995) $(80,550) $171,142  $3,672,218  
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes331,544  3  (12,595) (12,592) 
Issuance of common stock under employee stock purchase plan393,921  4  29,166  29,170  
Stock-based compensation59,226  59,226  
Repurchases of common stock(271,577) (27,330) (27,330) 
Net income161,915  161,915  
Foreign currency translation adjustment5,808  5,808  
Change in unrealized loss on investments, net of tax15,880  15,880  
Balance at June 30, 2020162,630,477  $1,638  $3,734,787  $(57,307) $(107,880) $333,057  $3,904,295  

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Three Months Ended June 30, 2019
(in thousands, except share data)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockAccumulated
Deficit
Total Stockholders' Equity
SharesAmount
Balance at April 1, 2019163,503,258  $1,640  $3,686,337  $(46,979) $(34,872) $(322,909) $3,283,217  
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes437,733  4  (11,151) (11,147) 
Issuance of common stock under employee stock purchase plan473,462  5  27,664  27,669  
Stock-based compensation57,990  57,990  
Repurchases of common stock(1,055,362) (81,375) (81,375) 
Net income113,915  113,915  
Foreign currency translation adjustment2,849  2,849  
Change in unrealized gain on investments, net of tax1,646  1,646  
Balance at June 30, 2019163,359,091  $1,649  $3,760,840  $(42,484) $(116,247) $(208,994) $3,394,764  
AKAMAI TECHNOLOGIES, INC.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued

Six Months Ended June 30, 2020
(in thousands, except share data)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance as of January 1, 2020162,000,843  $1,620  $3,653,486  $(45,144) $  $47,996  $3,657,958  
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes1,378,584  14  (63,306) (63,292) 
Issuance of common stock under employee stock purchase plan393,921  4  29,166  29,170  
Stock-based compensation115,441  115,441  
Repurchases of common stock(1,142,871) (107,880) (107,880) 
Net income285,061  285,061  
Foreign currency translation adjustment(20,469) (20,469) 
Change in unrealized loss on investments, net of tax8,306  8,306  
Balance as of June 30, 2020162,630,477  $1,638  $3,734,787  $(57,307) $(107,880) $333,057  $3,904,295  


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

Six Months Ended June 30, 2019
(in thousands, except share data)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance as of January 1, 2019162,904,550  $1,629  $3,670,033  $(48,912) $  $(430,890) $3,191,860  
Cumulative-effect adjustment to accumulated deficit related to adoption of new accounting pronouncement851  851  
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes1,528,391  15  (48,926) (48,911) 
Issuance of common stock under employee stock purchase plan473,462  5  27,664  27,669  
Stock-based compensation112,069  112,069  
Repurchases of common stock(1,547,312) (116,247) (116,247) 
Net income221,045  221,045  
Foreign currency translation adjustment3,351  3,351  
Change in unrealized gain on investments, net of tax3,077  3,077  
Balance as of June 30, 2019163,359,091  $1,649  $3,760,840  $(42,484) $(116,247) $(208,994) $3,394,764  


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

1. Nature of Business and Basis of Presentation

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

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

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

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

Newly-Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance that introduces a new methodology for accounting for credit losses on financial instruments. The guidance establishes a new "expected credit loss model" that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances. The Company prospectively adopted this standard on January 1, 2020. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

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

Recent Accounting Pronouncements

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

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

Gross UnrealizedClassification on Balance Sheet
Amortized CostGainsLossesAggregate
Fair Value
Short-Term
Marketable
Securities
Long-Term
Marketable
Securities
As of June 30, 2020
Commercial paper$26,897  $77  $(1) $26,973  $26,973  $  
Corporate bonds1,399,255  12,877  (339) 1,411,793  692,231  719,562  
U.S. government agency obligations362,188  866  (47) 363,007  80,851  282,156  
$1,788,340  $13,820  $(387) $1,801,773  $800,055  $1,001,718  
As of December 31, 2019
Certificates of deposit$150,000  $  $  $150,000  $150,000  $  
Commercial paper73,829  23  (7) 73,845  73,845    
Corporate bonds1,368,668  1,840  (378) 1,370,130  753,538  616,592  
U.S. government agency obligations369,475  80  (74) 369,481  165,623  203,858  
$1,961,972  $1,943  $(459)