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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 September 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 November 3, 2020: 162,793,988
1

Table of Contents
AKAMAI TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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) (unaudited)September 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$742,521 $393,745 
Marketable securities 701,515 1,143,249 
Accounts receivable, net of reserves of $3,696 and $1,880 at September 30, 2020, and December 31, 2019, respectively
630,406 551,943 
Prepaid expenses and other current assets168,779 142,676 
Total current assets2,243,221 2,231,613 
Marketable securities 1,110,058 835,384 
Property and equipment, net1,383,480 1,152,153 
Operating lease right-of-use assets745,089 758,450 
Acquired intangible assets, net184,478 179,431 
Goodwill1,598,919 1,600,265 
Deferred income tax assets97,801 76,528 
Other assets151,347 173,062 
Total assets$7,514,393 $7,006,886 

3

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

(in thousands, except share data) (unaudited)September 30,
2020
December 31,
2019
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$114,850 $138,946 
Accrued expenses369,815 334,861 
Deferred revenue88,942 71,223 
Operating lease liabilities136,292 139,463 
Other current liabilities7,225 8,843 
Total current liabilities717,124 693,336 
Deferred revenue3,954 4,368 
Deferred income tax liabilities31,946 29,187 
Convertible senior notes1,889,743 1,839,791 
Operating lease liabilities682,623 692,181 
Other liabilities81,386 90,065 
Total liabilities3,406,776 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; 164,062,652 shares issued and 162,799,784 shares outstanding at September 30, 2020, and 162,000,843 shares issued and outstanding at December 31, 2019
1,641 1,620 
Additional paid-in capital3,781,228 3,653,486 
Accumulated other comprehensive loss(45,854)(45,144)
Treasury stock, at cost, 1,262,868 shares at September 30, 2020, and no shares at December 31, 2019
(121,078) 
Retained earnings491,680 47,996 
Total stockholders’ equity4,107,617 3,657,958 
Total liabilities and stockholders’ equity$7,514,393 $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 September 30,
For the Nine Months
Ended September 30,
(in thousands, except per share data) (unaudited)2020201920202019
Revenue$792,845 $709,912 $2,351,862 $2,121,494 
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)283,439 246,938 828,825 729,874 
Research and development66,773 64,887 202,087 192,467 
Sales and marketing122,749 122,258 370,004 383,640 
General and administrative128,365 123,216 385,435 366,167 
Amortization of acquired intangible assets10,340 9,624 31,155 28,871 
Restructuring charge (benefit)21 (300)10,439 6,879 
Total costs and operating expenses611,687 566,623 1,827,945 1,707,898 
Income from operations181,158 143,289 523,917 413,596 
Interest income6,307 7,908 22,852 22,953 
Interest expense(17,324)(12,127)(51,778)(32,689)
Other expense, net(2,158)(752)(7,869)(819)
Income before provision for income taxes167,983 138,318 487,122 403,041 
(Provision) benefit for income taxes(8,801)960 (41,764)(42,718)
Loss from equity method investment(559)(1,388)(1,674)(1,388)
Net income$158,623 $137,890 $443,684 $358,935 
Net income per share:
Basic$0.97 $0.85 $2.73 $2.20 
Diluted$0.95 $0.84 $2.69 $2.18 
Shares used in per share calculations:
Basic162,757 162,445 162,387 163,029 
Diluted166,519 164,558 164,990 164,788 

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 September 30,
For the Nine Months
Ended September 30,
(in thousands) (unaudited)2020201920202019
Net income$158,623 $137,890 $443,684 $358,935 
Other comprehensive income (loss):
Foreign currency translation adjustments13,177 (14,095)(7,292)(10,744)
Change in unrealized (loss) gain on investments, net of income tax benefit (provision) of $559, $(52), $(3,120) and $(1,153) for the three and nine months ended September 30, 2020 and 2019, respectively
(1,724)155 6,582 3,232 
Other comprehensive income (loss)11,453 (13,940)(710)(7,512)
Comprehensive income$170,076 $123,950 $442,974 $351,423 

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 Nine Months
Ended September 30,
(in thousands) (unaudited)20202019
Cash flows from operating activities:
Net income$443,684 $358,935 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization350,681 324,874 
Stock-based compensation146,901 140,262 
(Benefit) provision for deferred income taxes(22,548)24,581 
Amortization of debt discount and issuance costs47,057 30,761 
Other non-cash reconciling items, net16,284 3,778 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(85,439)(38,144)
Prepaid expenses and other current assets(21,380)(11,663)
Accounts payable and accrued expenses49,818 (29,441)
Deferred revenue14,803 16,714 
Other current liabilities(1,638)(21,850)
Other non-current assets and liabilities(14,316)(22,643)
Net cash provided by operating activities923,907 776,164 
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(395,793)(268,766)
Capitalization of internal-use software development costs(168,634)(159,645)
Purchases of short- and long-term marketable securities(1,153,526)(1,373,563)
Proceeds from sales of short- and long-term marketable securities29,809 547 
Proceeds from maturities of short- and long-term marketable securities1,301,354 878,779 
Other non-current assets and liabilities(1,980)1,895 
Net cash used in investing activities(425,040)(1,078,170)
Cash flows from financing activities:
Proceeds from the issuance of convertible senior notes 1,135,629 
Proceeds from the issuance of warrants 185,150 
Purchase of note hedge related to convertible senior notes (312,225)
Repayment of convertible senior notes (690,000)
Proceeds related to the issuance of common stock under stock plans45,812 43,204 
Employee taxes paid related to net share settlement of stock-based awards(77,299)(61,116)
Repurchases of common stock(121,078)(291,788)
Other non-current assets and liabilities (1,558)
Net cash (used in) provided by financing activities(152,565)7,296 
Effects of exchange rate changes on cash, cash equivalents and restricted cash3,535 (2,650)
Net increase (decrease) in cash, cash equivalents and restricted cash349,837 (297,360)
Cash, cash equivalents and restricted cash at beginning of period394,146 1,036,987 
Cash, cash equivalents and restricted cash at end of period$743,983 $739,627 
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AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

 For the Nine Months
Ended September 30,
(in thousands) (unaudited)20202019
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received of $16,674 and $2,746 for the nine months ended September 30, 2020 and 2019, respectively
$31,634 $65,896 
Cash paid for interest expense5,235719
Cash paid for operating lease liabilities144,322107,478
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities128,17787,207
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses48,35764,982
Capitalization of stock-based compensation28,48727,352
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$742,521 $738,462 
Restricted cash1,462 1,165 
Cash, cash equivalents and restricted cash$743,983 $739,627 

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 September 30, 2020
(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance at July 1, 2020162,630,477 $1,638 $3,734,787 $(57,307)$(107,880)$333,057 $3,904,295 
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes289,304 3 (13,390)(13,387)
Stock-based compensation59,831 59,831 
Repurchases of common stock(119,997)(13,198)(13,198)
Net income158,623 158,623 
Foreign currency translation adjustment13,177 13,177 
Change in unrealized loss on investments, net of tax(1,724)(1,724)
Balance at September 30, 2020162,799,784 $1,641 $3,781,228 $(45,854)$(121,078)$491,680 $4,107,617 

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

Three Months Ended September 30, 2019
(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockAccumulated
Deficit
Total Stockholders' Equity
SharesAmount
Balance at July 1, 2019163,359,091 $1,649 $3,760,840 $(42,484)$(116,247)$(208,994)$3,394,764 
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes305,367 3 (10,727)(10,724)
Stock-based compensation55,406 55,406 
Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880
240,820 240,820 
Issuance of warrants related to convertible senior notes185,150 185,150 
Purchase of note hedge related to convertible senior notes(312,225)(312,225)
Repurchases of common stock(2,004,956)(175,541)(175,541)
Net income137,890 137,890 
Foreign currency translation adjustment(14,095)(14,095)
Change in unrealized gain on investments, net of tax155 155 
Balance at September 30, 2019161,659,502 $1,652 $3,919,264 $(56,424)$(291,788)$(71,104)$3,501,600 

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

Nine Months Ended September 30, 2020
(in thousands, except share data) (unaudited)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 taxes1,667,888 17 (76,696)(76,679)
Issuance of common stock under employee stock purchase plan393,921 4 29,166 29,170 
Stock-based compensation175,272 175,272 
Repurchases of common stock(1,262,868)(121,078)(121,078)
Net income443,684 443,684 
Foreign currency translation adjustment(7,292)(7,292)
Change in unrealized gain on investments, net of tax6,582 6,582 
Balance as of September 30, 2020162,799,784 $1,641 $3,781,228 $(45,854)$(121,078)$491,680 $4,107,617 


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

Nine Months Ended September 30, 2019
(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockAccumulated DeficitTotal 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 taxes1,833,758 18 (59,653)(59,635)
Issuance of common stock under employee stock purchase plan473,462 5 27,664 27,669 
Stock-based compensation167,475 167,475 
Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880
240,820 240,820 
Issuance of warrants related to convertible senior notes185,150 185,150 
Purchase of note hedge related to convertible senior notes(312,225)(312,225)
Repurchases of common stock(3,552,268)(291,788)(291,788)
Net income358,935 358,935 
Foreign currency translation adjustment(10,744)(10,744)
Change in unrealized gain on investments, net of tax3,232 3,232 
Balance as of September 30, 2019161,659,502 $1,652 $3,919,264 $(56,424)$(291,788)$(71,104)$3,501,600 


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 325,000 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 September 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 September 30, 2020
Commercial paper$11,954 $42 $ $11,996 $11,996 $ 
Corporate bonds1,410,954 11,095 (274)1,421,775 636,405 785,370 
U.S. government agency obligations359,014 529 (241)359,302 52,637 306,665 
$1,781,922 $11,666 $(515)$1,793,073 $701,038 $1,092,035 
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)$1,963,456 $1,143,006 $820,450 

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

Unrealized gains and unrealized temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive loss in the consolidated balance sheets. Upon realization, those amounts are reclassified from accumulated other comprehensive loss to interest income in the consolidated statements of income. As of September 30, 2020, the Company did not hold for investment any corporate bonds that were classified as an available-for-sale marketable securities that had been in a continuous unrealized loss position for more than 12 months.
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The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets as of September 30, 2020 and December 31, 2019 (in thousands):

Total Fair ValueFair Value Measurements at
Reporting Date Using
 Level 1    Level 2    
As of September 30, 2020
Money market funds$375,752 $375,752 $ 
Commercial paper41,994  41,994 
Corporate bonds1,421,775  1,421,775 
U.S. government agency obligations409,298  409,298 
Mutual funds18,500 18,500  
$2,267,319 $394,252 $1,873,067 
As of December 31, 2019
Money market funds$50,779 $50,779 $ 
Certificates of deposit150,000  150,000 
Commercial paper73,845  73,845 
Corporate bonds1,370,130  1,370,130 
U.S. government agency obligations369,481  369,481 
Mutual funds15,177 15,177  
$2,029,412 $65,956 $1,963,456 

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

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

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

September 30,
2020
December 31,
2019
Due in 1 year or less$701,038 $1,143,006 
Due after 1 year through 3 years1,092,035 820,450 
$1,793,073 $1,963,456 

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3. Accounts Receivable

Net accounts receivable consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
 
September 30,
2020
December 31,
2019
Trade accounts receivable$471,057 $396,204 
Unbilled accounts receivable163,045 157,619 
Gross accounts receivable634,102 553,823 
Allowances for current expected credit losses and other reserves(3,696)(1,880)
Accounts receivable, net$630,406 $551,943 

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

Balance as of January 1, 2020$1,880 
Charges to income from operations10,354 
Collections from customers previously reserved and other(8,538)
Balance as of September 30, 2020$3,696 

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

4. Incremental Costs to Obtain a Contract with a Customer

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

September 30,
2020
December 31,
2019
Deferred costs included in prepaid and other current assets$41,017 $45,009 
Deferred costs included in other assets24,642 25,698 
Total deferred costs$65,659 $70,707 

During the three and nine months ended September 30, 2020, the Company recognized $14.8 million and $45.0 million, respectively, of amortization expense related to deferred costs. During the three and nine months ended September 30, 2019, the Company recognized $10.9 million and $32.5 million, respectively, of amortization expense related to deferred costs. Amortization expense related to deferred costs is primarily included in sales and marketing expense in the consolidated statements of income.

5. Goodwill and Acquired Intangible Assets

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

Balance as of January 1, 2020$1,600,265 
Measurement period adjustments related to acquisitions completed in prior years(1,056)
Foreign currency translation(290)
Balance as of September 30, 2020$1,598,919 

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

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

 September 30, 2020December 31, 2019
 Gross
Carrying
Amount
Accumulated AmortizationNet
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Completed technology$154,343 $(106,730)$47,613 $153,722 $(94,088)$59,634 
Customer-related intangible assets315,087 (180,658)134,429 279,684 (163,155)116,529 
Non-compete agreements816 (721)95 830 (529)301 
Trademarks and trade names7,543 (5,202)2,341 7,600 (4,633)2,967 
Acquired license rights490 (490) 490 (490) 
Total$478,279 $(293,801)$184,478 $442,326 $(262,895)$179,431 

Aggregate expense related to amortization of acquired intangible assets for the three and nine months ended September 30, 2020 was $10.3 million and $31.2 million, respectively. Aggregate expense related to amortization of acquired intangible assets for the three and nine months ended September 30, 2019 was $9.6 million and $28.9 million, respectively. Based on the Company’s acquired intangible assets as of September 30, 2020, aggregate expense related to amortization of acquired intangible assets is expected to be $10.5 million for the remainder of 2020, and $43.0 million, $37.3 million, $28.9 million and $20.5 million for 2021, 2022, 2023 and 2024, respectively.

6. Acquisitions

Asavie

In October 2020, the Company acquired Asavie, a privately-funded company headquartered in Dublin, Ireland, for approximately $155.1 million in cash ($128.0 million, net of cash acquired). The allocation of the purchase price has not been finalized as of the date of the filing of these financial statements. Asavie, whose global platform manages the security, performance and access policies for mobile and internet-connected devices, will become part of Akamai’s Security and Personalization Services product line sold to carrier partners that embed the solution within the technology bundle sold to their subscribers.

Instart

In February 2020, the Company acquired certain assets from Instart Logic, Inc. ("Instart"), a provider of cloud solutions for improving web and mobile application performance, for $36.4 million in cash. The purchase price was primarily allocated to a customer-related intangible asset that will be amortized over 17 years in a pattern that matches expense with expected economic benefits.

7. Debt

Convertible Notes Due 2027

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

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

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

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

upon the occurrence of specified corporate events.

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

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

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

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

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

September 30,
2020
December 31,
2019
Liability component:
Principal$1,150,000 $1,150,000 
Less: debt discount and issuance costs, net of amortization(203,072)(222,928)
Net carrying amount$946,928 $927,072 
Equity component:$220,529 $220,529 

The estimated fair value of the 2027 Notes at September 30, 2020 and December 31, 2019 was $1,332.4 million and $1,133.8 million, respectively. The fair value was determined based on the quoted price of the 2027 Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. Based on the closing price of the Company's common stock of $110.54 on September 30, 2020, the value of the 2027 Notes if converted to common stock was more than the principal amount of $1,150.0 million.

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

Note Hedge

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

Warrants

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

Convertible Notes Due 2025

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

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

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

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

upon the occurrence of specified corporate events.

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

Upon conversion, the Company, at its election, may pay or deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The initial conversion rate is 10.5150 shares of the Company's common stock per $