S-1

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

S-1 1 d702138ds1.htm S-1 S-1

As filed with the Securities and Exchange Commission on April 19, 2019.

Registration Statement No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FASTLY, INC.

(Exact name of registrant as specified in its charter)

Delaware

7372

27-5411834

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

475 Brannan Street, Suite 300

San Francisco, CA 94107

1-844-432-7859

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Artur Bergman

Chief Executive Officer

Fastly, Inc.

475 Brannan Street, Suite 300

San Francisco, CA 94107

1-844-432-7859

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Mark P. Tanoury

Seth J. Gottlieb

Jon C. Avina

Kate L. Nichols

Cooley LLP

3175 Hanover Street

Palo Alto, CA 94304

(650) 843-5000

Paul Luongo

General Counsel

Fastly, Inc.

475 Brannan Street, Suite 300

San Francisco, CA 94107

(415) 488-6329

Alan F. Denenberg

Sarah K. Solum

Davis Polk & Wardwell LLP

1600 El Camino Real

Menlo Park, CA 94025

(650) 752-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 7(a)(2)(B) of the Securities Act. ☐

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price⁽¹⁾⁽²⁾	Amount of Registration Fee
Class A Common Stock, $0.00002 par value per share	$100,000,000	$12,120

(1)	In accordance with Rule 457(o) under the Securities Act of 1933, as amended, the number of shares being registered and the proposed maximum offering price per share are not included in this table.

(2)	Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the offering price of shares that the underwriters have the option to purchase.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated April 19, 2019

PROSPECTUS

Shares

LOGO

Class A Common Stock

This is Fastly, Inc.’s initial public offering. We are selling shares of our Class A common stock.

We expect the public offering price to be between $ and $ per share. Currently, no public market exists for the shares of our Class A common stock. We have applied to list our Class A common stock on the New York Stock Exchange (NYSE) under the symbol “FSLY.”

We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately % of the voting power of our outstanding capital stock immediately following this offering, with our directors, executive officers, and principal stockholders representing approximately % of such voting power.

We are an “emerging growth company” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

Investing in our Class A common stock involves risks that are described in the “Risk Factors” section beginning on page 14 of this prospectus.


	Per Share	Total
Public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to us	$	$

(1)

See “Underwriting” beginning on page 154 for additional information regarding underwriting compensation.

The underwriters may also exercise their option to purchase up to an additional shares of Class A common stock from us, at the initial public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares of Class A common stock will be ready for delivery on or about , 2019.


BofA Merrill Lynch		Citigroup		Credit Suisse

William Blair

Raymond James

Baird

Oppenheimer & Co.

Stifel

Craig-Hallum Capital Group

D.A. Davidson & Co.

The date of this prospectus is , 2019

LOGO

We are in the business of enabling developers to dream bigger. Together, we create the trustworthy internet. 53 0K+ Average Revenue Across All Enterprise Customers* (For the year ended December 31, 2018) 130%+ Dollar Based Net Expansion Rate** (For the years ended December 31, 2017 and 2018) 54%+ 2018 Gross Margin 64 NPS Score (As of December 2018) *Enterprise customers are defined as customers with LTM revenue in excess of $100,000 as of 12131/2018. Fastly had 227 Enterprise customers which generated 84% of total revenue as of 12/31/2018. **We calculate Dollar Based Net Expansion Rate by dividing the revenue for a given period from customers who remained customers as of the last day of the given period (the “current period”) by the revenue from the same customers for the same period measured one year prior (the “base period”). The revenue included in the current period excludes revenue from (0 customers that churned after the end of the base period and (ii) new customers that entered into a customer agreement after the end of the base period

LOGO

Fueling the future of the web New York Times CC I’m a huge fan of Fastly. On election night, we had 100,000 requests per second, and Fastly performed flawlessly - we had no problems at all. ‘‘ Nick Rockwell CTO Instrument your entire Ticketmaster CC When tickets go on sale, we can see thousands of requests per second. At the same time, our inventory is changing every second. Fastly gives us the ability to reconcile these challenges and respond to customers in real-time by serving highly dynamic content from the edge. ‘‘ Gary Wong Software Manager iiibcNcw ~ork !iiimcs - \1.5 - •.• - - - - - ........... - ......... - - .. , ......... -- - HowCalifocnia’oBineotUtility Overlooked Wold fire Rioko •FiwoJI’U.,tOJ»)fldtoltiK:tl,..tlroslotbo 1Utoolnoo1015ho,...,..,.,tlnkodtothe ............. ..._.ot_aos• •I><J”Iotors......,..thatln”’>n)’”= PGt.E.-...!ou.tolo• O<<O<IIdllave -..,....,.,ortW.oU-w.t. New Relic Opinion> G.; I Coll “”•..:IB«~ ......... n., ~; ;.;. A ,..n\AliR iP t An•hhyll>ouldlho)’bo? ‘{ CC We work with Fastly because it’s a company whose values are significantly similar to ours - great engineering, great culture, always innovating, and totally focused on delivering high-quality products. ‘‘ Nic Benders Chief Architect ----------- tiCketmaster ,.. · or ~”’”’ ‘·-·~···” ~ lllii&l ~~ ::::.,.._ c, ,_,__,_ a., 02 0 -. 11> -- u. .. ....... @ ~ - (

LOGO

New: 40,000 bonus mile offer “”-~ · -wO “’’ L~ ~oo..o,.,. ~ r.- .ll<·..t..•,_.. .... ......,. •”’ : ~:E~!~I~~~~;:_y.~ .... _,_..~.- Spotify Spotify partnered with Fastly to design a managed CDN offering that could meet their needs. By combining Fastty• s full-site delivery and managed delivery offerings, Spotify was able to maintain control over how their content catalogue was delivered, while ensuring a quality experience for all their listeners. “ ru’”’””’”” “”””· ‘””””P””’ “”P’’ “’ • +·• .”’.”.-.r r •><oo1<••eo:nl:<r•:•h oo”” · : ~- -· ,.,...-·”” · ·- ~”’” Learn Git and GitHub wit hout a ny code! U.Cng t”” Hdln Were ;,..ifio>. yoor”ll ~·- ;or””””’1”’}· !;ort b”rcl\,ll.fl ... ~<lffmnto, ..-.:lo~ro:..M “’ll<-ltS! ‘<””’”’” ,. ~ ‘”” ..., .,_ -~,.w·-· ~ . ................ ... fA --~>0 U “’”~ .oi.>. ...-..-..-...~..-......., ~ . . ....-.. ...... ..... . ~. ..... Discover interesting projects artd people to populate . , .t “’·’ you r personal news feed Alaska Airlines Alaska Airlines used Pastly’s powerful edge programming language to safely test out new features without risking disruption to production traffic. Pastly allowed them to control what percentage of users were directed to a test server to experience a new feature, dialing this up over time until they were confident the feature was ready for release. Gspotffy ...... , ..... , o ........ 1 “’I’ l .. .. GitHub GitHub chose Pastly as a CDN provider to take advantage of Pastly’ s advanced functionality and large edge network capacity in order to serve an increasingly large customer base without overloading origin servers.

TABLE OF CONTENTS


	Page
Prospectus Summary		1
Risk Factors		14
Special Note Regarding Forward-Looking Statements		52
Industry and Market Data		53
Use of Proceeds		54
Dividend Policy		55
Capitalization		56
Dilution		58
Selected Consolidated Financial and Other Data		61
Management’s Discussion and Analysis of Financial Condition and Results of Operations		63
A Letter From Artur Bergman, Developer, Founder and CEO		85


	Page
Business		87
Management		114
Executive Compensation		121
Certain Relationships and Related Party Transactions		134
Principal Stockholders		136
Description of Capital Stock		139
Shares Eligible For Future Sale		147
Material U.S. Federal Income Tax Considerations for Non-U.S. Holders		150
Underwriting		154
Legal Matters		163
Experts		163
Where You Can Find Additional Information		163
Index to Consolidated Financial Statements		F-1

We have not, and the underwriters have not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering, or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside of the United States.

DEALER PROSPECTUS DELIVERY OBLIGATION

Through and including , 2019 (25 days after the date of this prospectus), all dealers that effect transactions in our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Fastly,” “the company,” “we,” “us,” and “our” in this prospectus refer to Fastly, Inc. and its consolidated subsidiaries.

Overview

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

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

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

Organizations must keep up with complex and ever-evolving end-user requirements. We help them surpass their end-users’ expectations by powering fast, secure, and scalable digital experiences. We built a powerful edge cloud platform, designed from the ground up to be programmable and support agile software development. We believe our platform gives our customers a significant competitive advantage, whether they were born into the digital age or are just embarking on their digital transformation journey. Our platform consists of three key components: a programmable edge, a software-defined modern network, and a philosophy of customer empowerment. Our programmable edge provides developers with real-time visibility and control where they can write and deploy code to push application logic to the edge. It supports modern application delivery processes, freeing developers to innovate without constraints. Our software-defined modern network is built for the software-defined future. It is powerful, efficient, and flexible, designed to enable us to rapidly scale to meet the needs of the most demanding customers and never be a barrier to their growth. Our 45 terabit edge network is located in 60 uniquely designed points-of-presence (POPs) across the world as of March 31, 2019. Finally, being developers ourselves, we empower customers to build great things while supporting their efforts through frictionless tools and a deeply technical support team that facilitates ongoing collaboration.

power of software to build differentiation at the edge. With our edge cloud platform, our customers are disrupting existing industries and creating new ones. For example, several of our customers have reinvented digital publishing by connecting readers through subscription models to indispensable content, helping people understand the world through deeply reported independent journalism. Our customers’ software applications use our edge cloud platform to ensure concert goers can buy tickets to the live events they love, travelers can book flights seamlessly and embark on their next great adventure, and sports fans can stream events in real time, across all devices. The range of applications that developers build with our edge cloud platform continues to surpass our expectations.

So where do we go from here? Our vision is to create a trustworthy internet, where good thrives. We want all developers to have the ability to deliver the next transformative digital experience on a global scale. And because big ideas often start small, we love it when developers experiment and iterate on our edge cloud platform, coming up with exciting new ways to solve today’s complex problems.

Our usage-based revenue grows as our customers’ websites and applications deliver, process, and protect more traffic, as they adopt more features of our edge platform and as they more broadly adopt our platform across their organizations. A meaningful indicator of the increased activity from our existing customers is our Dollar-Based Net Expansion Rate (DBNER), which was 147.3% and 132.0% for the years ended December 31, 2017 and 2018, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Dollar-Based Net Expansion Rate.”

We have achieved significant growth in recent periods. For the years ended December 31, 2017 and 2018, our revenue was $104.9 million and $144.6 million, respectively. We incurred a net loss of $32.5 million and $30.9 million for the years ended December 31, 2017 and 2018, respectively.

Industry Background

Online Behaviors and Expectations Have Changed

Hyper-connected end-users are increasingly impatient. We live in a digital age defined by constant connectivity and instant gratification. These connected end-users have more choice, more access to information, and less patience. Slower load times lead to fewer page views and lower customer satisfaction. According to a Google study, as page load times increase from one to five seconds, the probability of bounce increases 90%.

End-users expect instant, personalized, and dynamic experiences online. We believe personalized content results in increased sales and an increased likelihood of repeat purchases. The increasing popularity of the mobile application, gaming, and live-streaming markets has fueled explosive growth in dynamic content and the transformative nature of emerging technologies like the internet of things (IoT) and augmented and virtual reality (AR/VR) is readily apparent. These technologies will require companies to rapidly process vast amounts of data closer to the end-user or device for instant, accurate responses.

Enterprises Need To Reinvent Themselves To Compete

Digital transformation is driving the growth of hybrid and multi-cloud deployments. A growing number of enterprises are tapping into the agility, flexibility, and scalability of the cloud to help support their digital transformation efforts. While some may opt for hybrid cloud deployments, multi-cloud is becoming increasingly popular as a means of avoiding vendor lock-in and ensuring redundancy for mission critical websites and applications.

Enterprises are looking for cloud partners who can scale on-demand. In this digital age, enterprises are expected to deliver exceptional online experiences that can handle sudden and unpredicted spikes in traffic. Organizations are looking for partners with broad global coverage who can scale on demand.

Savvy enterprises see edge computing as the next evolution of the cloud. Industry leaders looking for ways to deliver the next truly delightful application experience for their end-users are turning to edge computing for answers. Gartner defines edge computing as “solutions that facilitate data processing at or near the source of data generation.” Gartner estimates that, by 2022, 75% of enterprise-generated data will be created and processed outside a traditional data center or cloud, at the network edge.

Developers Are Empowered and Powerful

Developers are the new decision-makers. As enterprises embrace digital transformation, the future will be built in software, in the cloud, by developers. Developers are being empowered to make their own technology choices around which cloud platforms, services, programming languages, and frameworks are needed to create new and improved applications.

Software differentiation is being built not bought. Enterprises rely on developers to build custom software to gain a competitive advantage. Cloud platforms have made it easier than ever for developers to build their own custom applications quickly and cost effectively.

Developers are adopting modern software delivery practices. Operational efficiency needs are driving the adoption of more agile application delivery practices. Modern software delivery practices are also extending to security with the growing popularity of DevSecOps.

Developers Are Expecting More from Cloud Providers

These Emerging Trends Pose Significant Challenges for Existing Solutions

Existing solutions for enterprises and developers, such as enterprise data centers, central cloud, small business-focused, or legacy CDNs, suffer from a number of technical limitations that make them particularly ill-equipped to address these new end-user, developer, and enterprise requirements.

Limitations of Legacy Vendors

Legacy CDNs, enterprise data centers, and central cloud architectures suffer from a number of technical limitations that make them particularly ill-equipped to address changing end-user, developer, and enterprise requirements. Legacy CDNs tend to be largely black box solutions, unable to provide real-time visibility and control, and operate on an outdated architecture, adding cost and limiting developers’ flexibility to expand on functionality. When enterprises choose to maintain their own data centers, they incur a high total cost of

ownership associated with management of their own physical hardware in colocation facilities, leading to challenges in agility and handling attacks at scale. While central cloud vendors have benefitted from the growing popularity of IaaS offerings, running modern applications in the central cloud poses challenges related to latency, ability to pre-scale, and cost efficiency. As a result, developers have not been truly empowered to pursue digital transformations, despite many attempts for improvement within the industry.

Our Solution: The Developer’s Edge

We have built a powerful edge cloud platform, designed from the ground up to be programmable and support agile software development. We process, serve, and secure our customers’ applications as close to their end-users as possible, at the edge of the internet for enhanced performance and protection.

Programmable Edge. Our programmable edge sits in an extremely privileged position, between our customers’ applications and their end-users, placing our services closer to those users. It is designed to create a space for developers to innovate at their own pace, by providing:

•

Full programmability. Our powerful platform allows developers to write and deploy their custom code to push application logic to the edge. We believe that logic like A/B testing, URL redirects, paywall authentication, and location/language customization can all be executed faster and more efficiently at the edge.

•

Reusable modules. Our platform includes reusable modules based on commonly deployed custom code examples. We package and add these reusable modules to our platform, which do not require developer experience to implement.

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Real-time visibility and control. Our edge cloud platform is built with instant visibility and control as a core tenet. We stream log data from our network edge in real time so developers can instantly see the impact of new code in production, troubleshoot issues as they occur, and rapidly identify suspicious traffic. We also empower developers to make and roll back their own configuration or code changes on the fly.

•

Agile development. Developers can build our platform into their technology stack to power continuous integration/continuous development (CI/CD) efforts. They can use our edge cloud platform to help push new code to production multiple times per day as they test new features, fix bugs, or enhance existing offerings.

•

Safety at the edge. We built a serverless development platform at the edge, designed to allow us to run code in a safe and secure manner, while maintaining the performance and scalability needed for modern applications.

Software-Defined Modern Network. Our edge cloud platform is designed to take advantage of the modern internet. Our philosophy has been to differentiate through software by building a powerful software-centric network composed of unique and proprietary components. Our approach consists of the following key elements:

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Software-centric approach at global scale. We develop our software to run on custom-designed servers built upon commodity components and network hardware. With this approach we can control every aspect of the network, from request to response. We have created our own proprietary software-defined networking stack with built-in routing and load balancing, resulting in better network efficiency and greater flexibility to scale as we add more services.

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POP design. We built Fastly for the internet of today—meaning fewer POPs, each with massive scale and located at the key interconnection points of the internet. We run smaller clusters of more powerful servers that provide superior performance for customers who expect updates to be pushed out to their global end-users nearly instantaneously. Legacy CDNs do not offer this benefit, as it is extremely difficult to update hundreds of thousands of servers around the world.

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Server efficiency. We have a highly efficient global server footprint because we combine advanced server and network hardware with our world class software at each of our POPs.

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One network. We have built a single powerful, compliant network to support our customers’ security and delivery needs.

Customer Empowerment Philosophy. We believe in empowering our customers to build great things, while collaborating with them to promote their success. We have a unique understanding of what it takes to deliver a frictionless customer experience.

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Freedom to try. Our free trial allows developers to sign up and start experimenting with our edge cloud platform in a frictionless, self-service manner.

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Flexible support model. Developers are free to program on our edge cloud platform, taking advantage of our rich documentation and expertise of our developer community.

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Partner friendly. Just as we expose the ability to program at the edge to our customer base, we enable our partners to build applications on our edge cloud platform.

Strengths of Our Platform

Our edge cloud platform has the following strengths:

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Programmability. Our edge cloud platform is fully programmable. Developers can tap into our user interface to address simple use cases. More complex use cases can be addressed using our powerful edge programming language and Application Programming Interfaces (APIs) to write custom code at the edge.

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Real-time visibility and control. Our edge cloud platform is built with real-time visibility and control as a core tenet. We allow developers to make instant configuration changes and see the impact of those changes nearly immediately.

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Consistent and superior performance. We accelerate web and mobile applications, allowing enterprises to provide delightful end-user experiences. Our modern platform design enables us to cache dynamic content for long periods of time and retrieve it quickly so web pages load faster.

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Support for agile development processes. The speed, flexibility, and control offered by our edge cloud platform delivers empowers developers to embrace agile development practices. They can build our edge cloud platform into their technology stack to power CI/CD and DevSecOps efforts.

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Easy to scale. Our software-centric approach and software-defined modern network design are designed to enable enterprises to scale on demand.

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One network. Using a single, compliant network, our edge cloud platform is able to support our enterprise customers’ security and delivery needs in a highly efficient manner.

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Scalable security. Our network is designed to provide the massive scale needed to defend against DDoS attacks without sacrificing performance.

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Large and growing developer community. We provide support to some of the most important open source tools used by developers. Powering the tools that developers use provides us with significant exposure to the developer ecosystem.

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Good neighborhood. We choose to do business with customers who we believe uphold similar values to our own. We do not knowingly do business with websites that promote violence or hate.

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Partner integrations. We offer full-featured APIs for seamless integration into any technology stack.

Market Opportunity

We believe that our market opportunity is large and growing and is predominately untapped. We offer a viable solution for many use cases which have not historically been addressed by legacy technologies. On top of our edge computing capabilities, we offer content delivery, streaming, cloud security, and application delivery control.

When incorporating these additional offerings, we estimate a total market opportunity of approximately $18.0 billion in 2019, based on expected growth from 2017, to $35.8 billion in 2022, growing with an expected CAGR of 25.6%.

Growth Strategy

Key elements of our growth strategy include the following:

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Invest in our technology platform. We intend to continue to invest in our large-scale, enterprise-grade edge cloud platform which is both developer-friendly and fully programmable.

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Expansion into additional vertical markets. We will build upon our success in digital publishing, media and entertainment, technology, online retail, travel and hospitality, and financial services, while expanding into new markets over time.

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Further enable channel partners. Our edge cloud platform is the backend of choice for many of the largest PaaS vendors serving the developer community. These PaaS vendors aggregate millions of unique web properties under one brand, using us as their edge cloud. We believe that more and more web applications will be built on convenient and powerful out-of-the-box solutions offered by large PaaS vendors. As these partners expand their customer base, we will grow alongside them.

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Grow our developer community and continue our open source commitment. Developers are familiar with the open source caching software that we use, which makes adopting our platform easier. Developers are also familiar with the PaaS vendors we empower and the large number of open source tools we deliver and secure. This familiarity helps us in the sales process, and we will continue to invest in this ecosystem. We will continue to work on open source projects, which will empower developers to build applications in multiple languages and run them faster and more securely at our edge.

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Invest in marketing. As we look towards our next stage of growth, we plan on significantly increasing our brand and digital marketing efforts, running campaigns that target both developers and business-level decision makers across different verticals.

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Expand existing customer relationships. We plan to continually increase wallet-share over time for existing customers as we build out new products and features, and as customers continue to fully recognize the value of our platform.

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Further enable channel partners. Many of our solution partners are Platform as a Service (PaaS) providers who built us into their platform to offer faster, more secure, and scalable hosting services. As these partners expand their customer base, we will grow alongside them.

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Grow our technology ecosystem. We act as the unifying layer for several cloud services. As our customers consume more cloud and Software as a Service (SaaS) offerings, we can create additional value and grow with our partners.

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Continue our open source commitment. Developers are familiar with the open source caching software that we use, which makes adopting our platform easier. We will continue to work on open source projects, which will empower developers to build applications in multiple languages, and run them faster and more securely at our edge.

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Extend our global footprint. As our customer base grows, we plan to aggressively scale our network accordingly. We are expanding our global corporate footprint to support international customers.

Our Culture and Employees

Technology has the potential to make a radically positive impact on the world, and we aspire to improve human lives through our work. We were founded on strong ethical principles, and we have intentionally grown values-first, scaling our workforce, services, customer portfolio, and investment partners purposefully. We choose to work with customers that we believe have integrity, are trustworthy, and do not promote violence or hate.

We are dedicated to building a diverse workforce and leadership team that reflects our values and the unique needs of our global customer base. We strive to be a company full of kind, honest, passionate, and high-integrity people.

Risk Factors

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:

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If we are unable to attract new customers, our business will be harmed.

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Our business depends on customers increasing their use of our platform, and any loss of customers or decline in their use of our platform could harm our business.

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If our platform fails to perform properly due to defects, interruptions, delays in performance, or similar problems, and if we fail to develop enhancements to resolve any defect, interruption, delay, or other problems, we could lose customers, become subject to service performance or warranty claims, or incur significant costs.

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If we fail to forecast our revenue accurately, or we fail to manage our expenditures, our operating results could be adversely effected.

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Our limited operating history and our history of operating losses makes it difficult to evaluate our current business and prospects and may increase the risks associated with your investment.

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If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements, or preferences, our products may become less competitive.

•

Failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.

•

The markets in which we participate are competitive, and if we do not compete effectively, our business will be harmed.

•

If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, results of operations, and financial condition may suffer.

•

We receive a substantial portion of our revenues from a limited number of customers, and the loss of, or a significant reduction in usage by, one or more of our major customers would result in lower revenues.

•

We may not be able to scale our business quickly enough to meet our customers’ growing needs. If we are not able to grow efficiently, our business could be harmed.

If we are unable to adequately address these and other risks we face, our business may be harmed.

Corporate Information

We were initially incorporated under the laws of the State of Delaware in March 2011 under the name SkyCache, Inc. We changed our name to Fastly, Inc. in May 2012.

Our principal executive offices are located at 475 Brannan Street, Suite 300, San Francisco, California 94107. Our telephone number is 1-844-432-7859. Our website address is www.fastly.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our Class A common stock.

“Fastly,” the Fastly logo, and other trademarks or service marks of Fastly, Inc. appearing in this prospectus are the property of Fastly, Inc. This prospectus contains additional trade names, trademarks, and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ^® or TM symbols.

stock. Outstanding shares of Class B common stock will represent approximately % of the voting power of our outstanding capital stock immediately following this offering, and our directors, executive officers, and principal stockholders will continue to have substantial control over the company, representing voting power of approximately %.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act) and therefore we intend to take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. We may take advantage of these exemptions for up to five years or until we are no longer qualify as an “emerging growth company,” whichever is earlier. In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.

The Offering

Class A common stock offered

Class A common stock to be outstanding after this offering

shares ( shares if the underwriters’ option to purchase additional shares of Class A common stock is exercised in full)

Class B common stock to be outstanding after this offering

Total Class A and Class B common stock to be outstanding after this offering

Underwriters’ option to purchase additional shares of Class A common stock

Voting rights

We have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion rights. The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to 10 votes per share, on all matters that are subject to stockholder vote. Following this offering, each share of Class B common stock may be converted into one share of Class A common stock at the option of the holder thereof, and will be converted into one share of Class A common stock upon transfer thereof, subject to certain exceptions. See the section titled “Description of Capital Stock” for additional information.

Use of proceeds

We estimate that we will receive net proceeds of approximately $ million, or approximately $ million if the underwriters exercise their option to purchase additional shares in full, based upon an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The principal purposes of this offering are to increase our financial flexibility, create a public market for our Class A common stock, and facilitate our future access to the capital markets. We expect to use the net proceeds of this offering for working capital and other general corporate purposes. We may use a portion of the net proceeds we receive from this offering to repay up to approximately $47.5 million of indebtedness under our credit facilities. We may also use a portion of the net proceeds from this offering for acquisitions or strategic investments in complementary businesses or technologies, although we do not currently have any plans for any such acquisitions or investments. These expectations are subject to change. See “Use of Proceeds” for additional information.

Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

Proposed NYSE symbol

“FSLY”

The number of shares of our Class A and Class B common stock that will be outstanding after this offering is based on no shares of Class A common stock and 157,865,413 shares of Class B common stock (including preferred stock on an as-converted basis and reclassified as Class B common stock) outstanding as of December 31, 2018, and excludes:

•

24,357,214 shares of Class B common stock issuable upon the exercise of options outstanding as of December 31, 2018, at a weighted-average exercise price of $1.48 per share;

•

1,036,835 shares of Class B common stock issuable upon the exercise of warrants outstanding as of December 31, 2018 with a weighted-average exercise price of $3.28 per share, which are expected to remain outstanding after the closing of this offering;

•

1,219,609 shares of Class B common stock reserved for issuance under our 2011 Equity Incentive Plan, which shares will cease to be available for issuance at the time our 2019 Equity Incentive Plan becomes effective;

•

shares of our Class A common stock reserved for future issuance pursuant to our 2019 Equity Incentive Plan, which will become effective prior to the completion of this offering and will include provisions that automatically increase the number of shares of Class A common stock reserved for issuance thereunder each year; and

•

shares of Class A common stock reserved for future issuance under our 2019 Employee Stock Purchase Plan, which will become effective prior to the completion of this offering and will include provisions that automatically increase the number of shares of Class A common stock reserved for issuance thereunder each year.

Unless otherwise indicated, this prospectus reflects and assumes the following:

•

the reclassification of all 50,604,959 outstanding shares of our common stock into an equal number of shares of our Class B common stock and the authorization of our Class A common stock;

•

the conversion of all of our outstanding shares of our preferred stock into an aggregate of 107,260,454 shares of our Class B common stock immediately upon the closing of this offering;

•

the conversion of all of our outstanding warrants to purchase shares of preferred stock into warrants to purchase an equal number of shares of our Class B common stock immediately upon the closing of this offering;

•

the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;

•

no exercise of outstanding options or warrants after December 31, 2018; and

•

no exercise by the underwriters of their option to purchase additional shares of our Class A common stock.

Summary Consolidated Financial and Other Data

The following tables summarize our consolidated financial and other data. We derived the summary consolidated statements of operations data for the years ended 2017 and 2018 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future.

When you read this summary consolidated financial data, it is important that you read it together with the historical consolidated financial statements and related notes to those statements, as well as “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus.


Consolidated Statements of Operations Data (in thousands)	Year Ended December 31,
	2017			2018
Revenue	$	104,900		$	144,563
Cost of revenue⁽¹⁾		48,672			65,499

Gross profit	$	56,228			79,064
Operating expenses:
Research and development⁽¹⁾		28,989			34,618
Sales and marketing⁽¹⁾		40,818			50,134
General and administrative⁽¹⁾		17,451			23,450

Total operating expenses		87,258			108,202

Loss from operations		(31,030	)		(29,138	)
Interest income		443			939
Interest expense		(1,116	)		(1,810	)
Other expense, net		(539	)		(741	)

Loss before income taxes		(32,242	)		(30,750	)
Income taxes		208			185

Net loss	$	(32,450	)	$	(30,935	)

Net loss attributable to common stockholders	$	(32,450	)	$	(30,935	)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.69	)	$	(0.63	)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		46,799,801			48,754,382

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


(in thousands)	2017		2018
Cost of revenue	$	190	$	265
Research and development		1,040		1,332
Sales and marketing		493		1,023
General and administrative		1,086		1,459

Total	$	2,809	$	4,079


	As of December 31, 2018
	Actual			Pro Forma⁽¹⁾⁽⁵⁾			Pro Forma, as adjusted⁽²⁾⁽³⁾
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	36,963		$	36,963
Working capital⁽⁴⁾		85,517			85,517

Total assets	$	162,754		$	162,754

Convertible preferred stock warrant liabilities		3,261
Convertible preferred stock		219,584			—
Common stock		1			3
Additional paid-in-capital		16,403			239,246
Accumulated deficit		(146,186	)		(146,186	)

Total stockholders’ equity (deficit)	$	(131,927	)	$	90,918

(1)	The pro forma column reflects the automatic conversion of all outstanding shares of our convertible preferred stock into 107,260,454 shares of Class B common stock immediately upon the closing of this offering with a par value of $0.00002 per share.

(2)

The pro forma as adjusted column further reflects the receipt of $ million in net proceeds from our sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, the amount of cash and cash equivalents, working capital, total assets, and total stockholders’ deficit by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1,000,000 in the number of shares we are offering would increase or decrease, respectively, the amount of cash and cash equivalents, working capital, total assets, and total stockholders’ deficit by approximately $ million, assuming the initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

(4)	Working capital is defined as current assets less current liabilities.

(5)	The pro forma column reflects the conversion of convertible preferred stock warrant liabilities to purchase up to 884,460 shares of preferred stock into warrants to purchase up to 884,460 shares of Class B common stock.


	2017			2018
Key Business Metrics⁽¹⁾
Number of Customers (as of end of period)		1,439			1,582

Number of Enterprise Customers (as of end of period)		170			227

Dollar-Based Net Expansion Rate		147.3	%		132.0	%

(1)	See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” for our definitions of these metrics.

RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our Class A common stock. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, customer growth, results of operations, financial condition, or prospects. Any of these events could cause the trading price of our Class A common stock to decline, which would cause you to lose all or part of your investment. Our business, results of operations, financial condition, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.

Risks Related to Our Business and Industry

If we are unable to attract new customers, our business will be harmed.

To grow our business, we must continue to attract new customers. To do so, we must successfully convince potential customers of the benefits and the value of our platform. This may require significant and costly sales efforts that are targeted at larger enterprises and senior management of these potential customers. These factors significantly impact our ability to add new customers and increase the time, resources, and sophistication required to do so. In addition, numerous other factors, many of which are out of our control, may now or in the future impact our ability to acquire new customers, including potential customers’ commitments to other providers, real or perceived costs of switching to our platform, our failure to expand, retain, and motivate our sales and marketing personnel, our failure to develop or expand relationships with potential customers and channel partners, failure by us to help our customers to successfully deploy our platform, negative media or industry or financial analyst commentary regarding us or our solutions, litigation, and deteriorating general economic conditions. Any of these factors could impact our ability to attract new customers to our platform. As a result of these and other factors, we may be unable to attract new customers, which would harm our business.

Our business depends on customers increasing their use of our platform, and any loss of customers or decline in their use of our platform could harm our business.

Our ability to grow and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing customers and to have them increase their usage of our platform. If our customers do not increase their use of our platform, our revenue may decline and our results of operations may be harmed. Customers are charged based on the usage of our platform. Most of our customers do not have long-term contractual financial commitments to us, and therefore, most of our customers may reduce or cease their use of our products at any time without penalty or termination charges. Customers may terminate or reduce their use of our platform for any number of reasons.

In order for us to maintain or improve our results of operations, it is important that our customers use our platform in excess of their commitment levels, if any, and continue to use our platform on the same or more favorable terms. Our ability to retain our customers and expand their usage could be impaired for a variety of reasons. For example, our customers may choose to use other providers. Because our customers’ minimum usage commitments for our platform are relatively low compared to their expected usage, it can be easy for certain customers to reallocate usage or switch from our platform to an alternative platform altogether. In addition, even if our customers expand their usage of our platform, we cannot guarantee that they will maintain those usage levels for any meaningful period of time. If any of these events were to occur, our business may be harmed.

Our usage and revenue may decline or fluctuate as a result of a number of factors, including customer budget constraints, customer satisfaction, changes in our customers’ underlying businesses, changes in the type and size of our customers, pricing changes, competitive conditions, the acquisition of our customers by other

companies, and general economic conditions. In addition, our customers currently have no obligation to renew their commitments for our platform after the expiration of their contract term, and a majority of our current customer contracts are only one year in duration. The loss of customers or reductions in their usage of our platform may each have a negative impact on our business, results of operations, and financial condition. If our customers reduce their usage of or do not continue to use our platform, our revenue and other results of operations will decline and our business will suffer. In addition, existing customers may negotiate lower rates for their usage in exchange for an agreement to renew, expand their usage in the future, or adopt new products. As a result, these customers may not reduce their usage of our platform, but the revenue we derive from that usage will decrease. If our usage or revenue fall significantly below the expectations of the public market, securities analysts, or investors, our business would be harmed.

Our future success also depends in part on our ability to expand our existing customer relationships by selling additional products to our existing customers. The rate at which our customers purchase products from us depends on a number of factors, including general economic conditions and pricing and services offered by our competitors. If our efforts to sell additional products to our customers are not successful, our business may be harmed.

If our platform fails to perform properly due to defects, interruptions, delays in performance. or similar problems, and if we fail to develop enhancements to resolve any defect, interruption, delay, or other problems, we could lose customers, become subject to service performance or warranty claims or incur significant costs.

Our operations are dependent upon our ability to prevent system interruption. The applications underlying our edge cloud computing platform are inherently complex and may contain material defects or errors, which may cause disruptions in availability or other performance problems. We have from time to time found defects in our platform and may discover additional defects in the future that could result in data unavailability, unauthorized access to, loss, corruption, or other harm to our customers’ data. These defects or errors could also be found in third-party applications on which we rely. We may not be able to detect and correct defects or errors before implementing our products. Consequently, we or our customers may discover defects or errors after our products have been deployed.

We currently serve our customers from our POPs located around the world. Our customers need to be able to access our platform at any time, without interruption or degradation of performance. However, we have not developed redundancies for all aspects of our platform. We depend, in part, on our third-party facility providers’ ability to protect these facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts, and similar events. In some cases, third-party cloud providers run their own platforms that we access, and we are, therefore, vulnerable to their service interruptions. In the event that there are any errors in software, failures of hardware, damages to a facility, or misconfigurations of any of our services, we could experience lengthy interruptions in our platform as well as delays and additional expenses in arranging new facilities and services. Our customers may choose to divert their traffic away from our platform as a result of interruptions or delays. Even with current and planned disaster recovery arrangements, including the existence of redundant data centers that become active during certain lapses of service or damage to a POP, any such traffic diversions could harm our business.

We design our system infrastructure and procure and own or lease the computer hardware used for our platform. Design and mechanical errors, spikes in usage volume, and failure to follow system protocols and procedures could cause our systems to fail, resulting in interruptions on our platform. Moreover, we have experienced and may in the future experience system failures or interruptions in our platform as a result of human error. Any interruptions or delays in our platform, whether caused by our products, third-party error, our own error, natural disasters, or security breaches, or whether accidental or willful, could harm our relationships with customers, reduce customers’ usage of our platform, and cause our revenue to decrease and/or our expenses to increase. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability

and cause us to issue service credits or cause customers to fail to renew their customer contracts, any of which could harm our business.

The occurrence of any defects, errors, disruptions in service, or other performance problems, interruptions, or delays with our platform, whether in connection with the day-to-day operations or otherwise, could result in:

•

loss of customers;

•

reduced customer usage of our platforms;

•

lost or delayed market acceptance and sales of our products;

•

delays in payment to us by customers;

•

injury to our reputation and brand;

•

legal claims, including warranty and service level agreement claims, against us; or

•

diversion of our resources, including through increased service and warranty expenses or financial concessions, and increased insurance costs.

The costs incurred in correcting any material defects, errors, or other performance problems in our platform may be substantial and could harm our business.

If we fail to forecast our revenue accurately, or if we fail to manage our expenditures, our operating results could be adversely affected.

Because our recent growth has resulted in the rapid expansion of our business and revenues, we do not have a long history upon which to base forecasts of future revenue and operating results. We cannot accurately predict customers’ usage or renewal rates given the diversity of our customer base across industries, geographies and size, and other factors. Accordingly, we may be unable to accurately forecast our revenues notwithstanding our substantial investments in sales and marketing, infrastructure, and research and development in anticipation of continued growth in our business. If we do not realize returns on these investments in our growth, our results of operations could differ materially from our forecasts, which would adversely affect our results of operations and could disappoint analysts and investors, causing our stock price to decline.

Our limited operating history and our history of operating losses makes it difficult to evaluate our current business and prospects and may increase the risks associated with your investment.

We were founded in 2011 and have experienced net losses and negative cash flows from operations since inception. Our limited operating history makes it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and difficulties frequently experienced by rapidly growing companies in constantly evolving industries, including the risks described in this prospectus. If we do not address these risks successfully, our business may be harmed.

We generated a net loss of $30.9 million for the year ended December 31, 2018, and as of December 31, 2018, we had an accumulated deficit of $146.2 million. We will need to generate and sustain increased revenue levels and manage costs in future periods in order to become profitable; even if we achieve profitability, we may not be able to maintain or increase our level of profitability. We intend to continue to expend significant funds to support further growth and further develop our platform, including expanding the functionality of our platform,

expanding our technology infrastructure and business systems to meet the needs of our customers, expanding our direct sales force and partner ecosystem, increasing our marketing activities, and growing our international operations. We will also face increased compliance costs associated with growth, expansion of our customer base, and the costs of being a public company. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our increased operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described herein, and unforeseen expenses, difficulties, complications and delays, and other unknown events. If we are unable to achieve and sustain profitability, our business may be harmed.

Further, we have limited historical financial data and operate in a rapidly evolving market. As such, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.

The market in which we compete is relatively new and subject to rapid technological change, evolving industry standards and regulatory changes, as well as changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. If we are unable to develop and sell new products that satisfy our customers and provide enhancements, new features, and capabilities to our platform that keep pace with rapid technological and industry change, our revenue and operating results could be adversely affected. If new technologies emerge that enable our competitors to deliver competitive products and applications at lower prices, more efficiently, more conveniently, or more securely, such technologies could adversely impact our ability to compete. If our platform does not allow us or our customers to comply with the latest regulatory requirements, our existing customers may decrease their usage on our platform and new customers will be less likely to adopt out platform.

Our platform must also integrate with a variety of network, hardware, mobile, and software platforms and technologies, and we need to continuously modify and enhance our products and platform capabilities to adapt to changes and innovation in these technologies. If developers widely adopt new software platforms, we would have to attempt to develop new versions of our products and enhance our platform’s capabilities to work with those new platforms. These development efforts may require significant engineering, marketing, and sales resources, all of which would affect our business and operating results. Any failure of our platform’s capabilities to operate effectively with future infrastructure platforms, technologies, and software platforms could reduce the demand for our platform. If we are unable to respond to these changes in a cost-effective manner, our products may become less marketable and less competitive or obsolete, and our business may be harmed.

Moreover, our platform is highly technical and complex and relies on the Varnish Configuration Language (VCL). Potential developers may be unfamiliar or opposed to working with VCL and therefore decide to not adopt our platform, which may harm our business.

Failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.

We have historically benefitted from word-of-mouth and other organic marketing to attract new customers. Through this word-of-mouth marketing, we have been able to build our brand with relatively low marketing and sales costs. This strategy has allowed us to build a substantial customer base and community of users who use our products and act as advocates for our brand and our platform, often within their own corporate organizations. However, our ability to further increase our customer base and achieve broader market acceptance of our edge cloud platform will significantly depend on our ability to expand our marketing and sales operations. We plan to continue expanding our sales force and strategic partners, both domestically and internationally. We

also plan to dedicate significant resources to sales, marketing, and demand-generation programs, including various online marketing activities as well as targeted account-based advertising. The effectiveness of our targeted account-based advertising has varied over time and may vary in the future. All of these efforts will require us to invest significant financial and other resources and if they fail to attract additional customers our business will be harmed. We have also used a strategy of offering free trial versions of our platform in order to strengthen our relationship and reputation within the developer community by providing these developers with the ability to familiarize themselves with our platform without first becoming a paying customer. However, most trial accounts do not convert to paid versions of our platform, and to date, only a few users who have converted to paying customers have gone on to generate meaningful revenue. If our other lead generation methods do not result in broader market acceptance of our platform and the users of trial versions of our platform do not become, or are unable to convince their organizations to become, paying customers, we will not realize the intended benefits of this strategy, and our business will be harmed.

We believe that there is significant competition for sales personnel, including sales representatives, sales managers, and sales engineers, with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, and retaining sufficient numbers of sales personnel to support our growth. New hires require significant training and may take significant time before they achieve full productivity. Our recent hires may not become productive as quickly as we expect, if at all, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, particularly if we continue to grow rapidly, new members of our sales force will have relatively little experience working with us, our platform, and our business model. If we are unable to hire and train sufficient numbers of effective sales personnel, our sales personnel do not reach significant levels of productivity in a timely manner, or our sales personnel are not successful in acquiring new customers or expanding usage by existing customers, our business will be harmed.

The markets in which we participate are competitive, and if we do not compete effectively, our business will be harmed.

The market for cloud computing platforms, particularly enterprise grade products, is highly fragmented, competitive, and constantly evolving. With the introduction of new technologies and market entrants, we expect that the competitive environment in which we compete will remain intense going forward. Legacy CDNs, such as Akamai, Limelight, EdgeCast (part of Verizon Digital Media), Level3, and Imperva, and small business-focused CDNs, such as Cloudflare, InStart, StackPath, and Section.io, offer products that compete with ours. We also compete with cloud providers who are starting to offer compute functionality at the edge like Amazon’s CloudFront, AWS Lambda, and Google Cloud Platform, as well as traditional data center and appliance vendors like F5, Citrix, A10 Networks, Cisco, Imperva, Radware, and Arbor Networks, who offer a range of on-premise solutions for load balancing, WAF, and DDoS. Some of our competitors have made or may make acquisitions or may enter into partnerships or other strategic relationships that may provide more comprehensive offerings than they individually had offered. Such acquisitions or partnerships may help competitors achieve greater economies of scale than us. In addition, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships, or strategic relationships. We compete on the basis of a number of factors, including:

•

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

•

our global network coverage;

•

our ability to utilize new and proprietary technologies to offer services and features previously not available in the marketplace;

•

our ability to identify new markets, applications, and technologies;

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our ability to attract and retain customers;

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our brand, reputation, and trustworthiness;

•

our credibility with developers;

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the quality of our customer support;

•

our ability to recruit software engineers and sales and marketing personnel; and

•

our ability to protect our intellectual property.

We face substantial competition from legacy CDNs, small business-focused CDNs, cloud providers, traditional data center, and appliance vendors. In addition, existing and potential customers may not use our platform, or may limit their use, because they pursue a “do-it-yourself” approach by putting in place equipment, software, and other technology products for content and application delivery within their internal systems; enter into relationships directly with network providers instead of relying on an overlay network like ours; or implement multi-vendor policies to reduce reliance on external providers like us.

Our competitors vary in size and in the breadth and scope of the products and services offered. Many of our competitors and potential competitors have greater name recognition, longer operating histories, more established customer relationships and installed customer bases, larger marketing budgets, and greater resources than we do. While some of our competitors provide a platform with applications to support one or more use cases, many others provide point-solutions that address a single use case. Other potential competitors not currently offering competitive applications may expand their product offerings to compete with our platform. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, and customer requirements. An existing competitor or new entrant could introduce new technology that reduces demand for our platform. In addition to application and technology competition, we face pricing competition. Some of our competitors offer their applications or services at a lower price, which has resulted in pricing pressures. Some of our larger competitors have the operating flexibility to bundle competing applications and services with other offerings, including offering them at a lower price or for no additional cost to customers as part of a larger sale of other products. For all of these reasons, we may not be able to compete successfully and competition could result in the failure of our platform to achieve or maintain market acceptance, any of which could harm our business.

If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, results of operations and financial condition may suffer.

We believe that maintaining and enhancing our brand is important to continued market acceptance of our existing and future products, attracting new customers, and retaining existing customers. We also believe that the importance of brand recognition will increase as competition in our market increases. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing efforts, our ability to provide reliable products that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality and products, and our ability to successfully differentiate our platform from competitive products and services. Additionally, our brand and reputation may be affected if customers do not have a positive experience with our partners’ services. Our brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. If we fail to successfully promote and maintain our brand, our business may be harmed.

Our future success is dependent on establishing and maintaining successful relationships with a diverse set of customers. We currently receive a substantial portion of our revenues from a limited number of customers. For the year ended December 31, 2018, our top ten customers accounted for approximately 32% of our revenue. It is likely that we will continue to be dependent upon a limited number of customers for a significant portion of our revenues for the foreseeable future and, in some cases, the portion of our revenues attributable to individual customers may increase in the future. The loss of one or more key customers or a reduction in usage by any major customers would reduce our revenues. If we fail to maintain existing customers or develop relationships with new customers, our business would be harmed.

We may not be able to scale our business quickly enough to meet our customers’ growing needs. If we are not able to grow efficiently, our business could be harmed.

As usage of our edge cloud computing platform grows and as the breadth of use cases for our platform expands, we will need to devote additional resources to improving our platform architecture, integrating with third-party applications and maintaining infrastructure performance. In addition, we will need to appropriately scale our processes and procedures that support our growing customer base, including increasing our number of POPs around the world and investments in systems, training, and customer support.

Any failure of or delay in these efforts could cause impaired system performance and reduced customer satisfaction. These issues could reduce the attractiveness of our platform to customers, resulting in decreased sales to new customers, lower renewal rates by existing customers, the issuance of service credits, or requested refunds, which would hurt our revenue growth and our reputation. Even if we are able to upgrade our systems and expand our staff, any such expansion will be expensive and complex, and require the dedication of significant management time and attention. We could also face inefficiencies or operational failures as a result of our efforts to scale our cloud infrastructure. We cannot be sure that the expansion and improvements to our cloud infrastructure will be effectively implemented on a timely basis, if at all, and such failures would harm our business.

We may have insufficient transmission bandwidth and colocation space, which could result in disruptions to our platform and loss of revenue.

Our operations are dependent in part upon transmission bandwidth provided by third-party telecommunications network providers and access to colocation facilities to house our servers. There can be no assurance that we are adequately prepared for unexpected increases in bandwidth demands by our customers, particularly when customers experience cyber-attacks. The bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including service outages, payment disputes, network providers going out of business, natural disasters, networks imposing traffic limits, or governments adopting regulations that impact network operations. In some regions, bandwidth providers have their own services that compete with us, or they may choose to develop their own services that will compete with us. These bandwidth providers may become unwilling to sell us adequate transmission bandwidth at fair market prices, if at all. This risk is heightened where market power is concentrated with one or a few major networks. We also may be unable to move quickly enough to augment capacity to reflect growing traffic or security demands. Failure to put in place the capacity we require could result in a reduction in, or disruption of, service to our customers and ultimately a loss of those customers. Such a failure could result in our inability to acquire new customers demanding capacity not available on our platform.

Security incidents and attacks on our platform could lead to significant costs and disruptions that could harm our business, financial results, and reputation.

Our business is dependent on providing our customers with fast, efficient, and reliable distribution of applications and content over the internet. We transmit and store our customers’ information, data, and encryption keys as well as our own; customer information and data may include personally identifiable data of and about their end-users. Maintaining the security and availability of our platform, network, and internal IT systems and the security of information we hold on behalf of our customers is a critical issue for us and our customers. Attacks on our customers and our own network are frequent and take a variety of forms, including DDoS attacks, infrastructure attacks, botnets, malicious file attacks, cross-site scripting, credential abuse, ransomware, bugs, viruses, worms, and malicious software programs. Malicious actors can attempt to fraudulently induce employees or suppliers to disclose sensitive information through spamming, phishing, or other tactics. In addition, unauthorized parties may attempt to gain physical access to our facilities in order to infiltrate our information systems. We have in the past been subject to cyber-attacks from third parties, including parties who we believe are sponsored by government actors. Since our customers share our multi-tenant architecture, an attack on any one of our customers could have a negative effect on other customers. These attacks have significantly increased the bandwidth used on our platform and have strained our network. If attacks like these were to occur in the future and if we do not have the systems and processes in place to respond to them, our business could be harmed.

Security incidents, whether as a result of third-party action, employee or customer error, technology impairment or failure, malfeasance or criminal activity, or hostile state actors, could result in unauthorized access to, or loss or unauthorized disclosure of, this information, litigation, indemnity obligations, and other possible liabilities. Further, certain of our insurance policies and the laws of some states may limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence or intentional misconduct of us and our suppliers and we cannot assure you that we are adequately insured against the risks that we face.

In recent years, cyber-attacks have increased in size, sophistication, and complexity, increasing exposure for our customers and us. In addition, as we expand our emphasis on selling security-related products, we may become a more attractive target for attacks on our infrastructure intended to destabilize, overwhelm, or shut down our platform. For example, we have had security incidents in the past that have tested the limits of our infrastructure and impacted the performance of our platform. The costs to us to avoid or alleviate cyber or other security problems and vulnerabilities are significant. However, our efforts to address these problems and vulnerabilities may not be successful. Any significant breach of our security measures could:

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lead to the dissemination of proprietary information or sensitive, personal, or confidential data about us, our employees, or our customers—including personally identifiable information of individuals involved with our customers and their end-users;

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lead to interruptions or degradation of performance in our platform;

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threaten our ability to provide our customers with access to our platform;

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generate negative publicity about us;

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result in litigation and increased legal liability or fines; or

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lead to governmental inquiry or oversight.

The occurrence of any of these events could harm our business or damage our brand and reputation, lead to customer credits, loss of customers, higher expenses, and possibly impede our present and future success in retaining and attracting new customers. A successful security breach or attack on our infrastructure would be damaging to our reputation and could harm our business.

Similar security risks exist with respect to our business partners and the third-party vendors that we rely on for aspects of our information technology support services and administrative functions. As a result, we are subject to the risk that cyber-attacks on our business partners and third-party vendors may adversely affect our business even if an attack or breach does not directly impact our systems. It is also possible that security breaches sustained by our competitors could result in negative publicity for our entire industry that indirectly harms our reputation and diminishes demand for our platform.

The nature of our business exposes us to inherent liability risks.

Our platform and related applications, including our WAF and DDoS solutions, are designed to provide rapid protection against web application vulnerabilities and cyber-attacks. However, no security product can provide absolute protection against all vulnerabilities and cyber-attacks. Our platform is subject to cyber-attacks, and the failure of our platform and related applications to adequately protect against these cyber-attacks may allow our customers to be attacked. Any adverse consequences of these attacks, and our failure to meet our customers’ expectations as they relate to such attacks, could harm our business.

Due to the nature of our applications, we are potentially exposed to greater risks of liability for product or system failures than may be inherent in other businesses. Although substantially all of our customer agreements contain provisions that limit our liability to our customers, these limitations may not be sufficient, and we cannot assure you that these limitations will be enforced or the costs of any litigation related to actual or alleged omissions or failures would not have a material adverse effect on us even if we prevail.

Failure to comply with governmental laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local, and foreign governments. If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws, we could face direct liability or delivery of content by our platform may be blocked by certain governments. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions, or other collateral consequences. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business could be harmed. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business.

Our sales to highly regulated organizations and government entities are subject to a number of challenges and risks.

We sell to customers in highly regulated industries such as financial services, insurance, and healthcare, as well as to various governmental agency customers, including state and local agency customers, and foreign governmental agency customers. Sales to such entities are subject to a number of challenges and risks. Selling to such entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government contracting requirements may change and in doing so restrict our ability to sell into the government sector until we comply with the revised requirements. Government demand and payment for our offerings are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings.

Further, highly regulated and governmental entities may demand shorter contract terms or other contractual provisions that differ from our standard arrangements, including terms that can lead those customers to obtain broader rights in our offerings than would be standard. Such entities may have statutory, contractual, or other legal rights to terminate contracts with us or our partners due to a default or for other reasons, and any such

termination may harm our business. In addition, these governmental agencies may be required to publish the rates we negotiate with them, which could harm our negotiating leverage with other potential customers and in turn harm our business.

Our dedication to our values may negatively influence our financial results.

We have taken, and may continue to take, actions that we believe are in the best interests of our customers and our business, even if those actions do not maximize financial results in the short term. For instance, we do not knowingly allow our platform to be used to deliver content from groups that promote violence or hate, and that conflict with our values like strong ethical principles of integrity and trustworthiness, among others. However, this approach may not result in the benefits that we expect or may result in negative publicity, in which case our business could be harmed.

If we cannot maintain our company culture as we grow, our success and our business may be harmed.

We believe our culture has been a key contributor to our success to date and that the critical nature of the products that we provide promotes a sense of greater purpose and fulfillment in our employees. We have invested in building a strong corporate culture and believe it is one of our most important and sustainable sources of competitive advantage. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel and to effectively focus on and pursue our corporate objectives. As we grow and develop the systems and processes associated with being a public company, we may find it difficult to maintain these important aspects of our culture. In addition, while we have historically benefitted from having a dispersed workforce, as we grow and our resources become more globally dispersed and our organizational management structures become more complex, we may find it increasingly difficult to maintain these beneficial aspects of our corporate culture. If we fail to maintain our company culture, our business may be harmed.

Slower usage growth on our platform and numerous other factors could cause our revenue growth rate to slow.

Increasing usage on our platform is key to our revenue growth. Numerous factors can impact the usage growth of our platform, including:

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the pace of introduction of over-the-top (OTT) streaming video and other forms of digital content that consume bandwidth by our customers;

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the popularity of our customers’ offerings as compared to those offered by companies that do not use our platform;

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adoption of new technologies that allow end-users to access content from a core cloud without having to access our network;

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customers, particularly large internet platform companies, utilizing their own data centers and implementing delivery approaches that limit or eliminate reliance on third-party providers like us; and

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macro-economic market and industry pressures.

We base our decisions about expense levels and investments on estimates of our future revenue and future anticipated rate of growth. Many of our expenses are fixed cost in nature for some minimum amount of time, such as with colocation and bandwidth providers, so it may not be possible to reduce costs in a timely manner or without the payment of fees to exit certain obligations early. If we experience slower usage growth on our platform than we expect or than we have experienced in recent years, our revenue growth rate will slow down and our business may be harmed.

Our growth depends in large part on the success of our partner relationships.

We maintain a partner ecosystem of companies who build edge applications to integrate with our platform. We are dependent on these partner relationships to amplify our reach and provide our customers with enhanced value from our platform. Our future growth will be increasingly dependent on the success of our partner relationships, including their development of useful applications for our platform. If those partnerships do not provide these benefits or if our partners are unable to serve our customers effectively, we may need to allocate resources internally to provide these services or our customers may not realize the full value of our platform, which could harm our business.

Moreover, our partners’ business partners may not completely align with our core values and therefore may do business with companies that we otherwise would not. Our association with these companies could damage our brand and reputation and potentially harm our business.

We operate in an emerging and evolving market, which may develop more slowly or differently than we expect. If our market does not grow as we expect, or if we cannot expand our services to meet the demands of this market, our revenue may decline, or fail to grow, and we may incur operating losses.

The market for edge computing is in an early stage of development. There is considerable uncertainty over the size and rate at which this market will grow, as well as whether our platform will be widely adopted. Our success will depend, to a substantial extent, on the widespread adoption of our platform as an alternative to other solutions, such as legacy CDNs, enterprise data centers, central cloud, and small business-focused CDNs. Some organizations may be reluctant or unwilling to use our platform for a number of reasons, including concerns about additional costs, uncertainty regarding the reliability, and security of cloud-based offerings or lack of awareness of the benefits of our platform. Moreover, many organizations have invested substantial personnel and financial resources to integrate traditional on-premise services into their businesses, and therefore may be reluctant or unwilling to migrate to cloud-based services. Our ability to expand sales of our product into new and existing markets depends on several factors, including potential customer awareness of our platform; the timely completion of data centers in those markets; introduction and market acceptance of enhancements to our platform or new applications that we may introduce; our ability to attract, retain and effectively train sales and marketing personnel; our ability to develop relationships with partners; the effectiveness of our marketing programs; the pricing of our services; and the success of our competitors. If we are unsuccessful in developing and marketing our product into new and existing markets, or if organizations do not perceive or value the benefits of our platform, the market for our product might not continue to develop or might develop more slowly than we expect, either of which may harm our business.

The estimates of market opportunity, forecasts of market growth included in this prospectus may prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business. Even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts included in this prospectus are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable companies or end-users covered by our market opportunity estimates will purchase our products at all or generate any particular level of revenues for us. Even if the market in which we compete meets the size estimates and growth forecasted in this prospectus, our business could fail to grow for a variety of reasons, including reasons outside of our control, such as competition in our industry.

Usage of our platform accounts for substantially all of our revenue.

We expect that we will be substantially dependent on our edge cloud platform to generate revenue for the foreseeable future. As a result, our operating results could suffer due to:

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any decline in demand for our edge cloud platform;

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the failure of our edge cloud platform to achieve continued market acceptance;

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the market for edge cloud computing services not continuing to grow, or growing more slowly than we expect;

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the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our edge cloud platform;

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technological innovations or new standards that our edge cloud platform does not address;

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sensitivity to current or future prices offered by us or our competitors;

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our customers’ development of their own edge cloud platform; and

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our inability to release enhanced versions of our edge cloud platform on a timely basis.

If the market for our edge cloud platform grows more slowly than anticipated or if demand for our edge cloud platform does not grow as quickly as anticipated, whether as a result of competition, pricing sensitivities, product obsolescence, technological change, unfavorable economic conditions, uncertain geopolitical environment, budgetary constraints of our customers, or other factors, our business would be harmed.

We expect fluctuations in our financial results and key metrics, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors, our stock price and the value of your investment could decline.

Our operating results, as well as our key metrics (including our DBNER) have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance and period-to-period comparisons of our operating results and key metrics may not be meaningful. In addition to the other risks described herein, factors that may affect our operating results include the following:

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fluctuations in demand for or pricing of our platform;

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our ability to attract new customers;

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our ability to retain our existing customers;

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fluctuations in the usage of our platform by our customers, which is directly related to the amount of revenue that we recognize from our customers;

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fluctuations in customer delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors;

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changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions;

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the timing of customer payments and any difficulty in collecting accounts receivable from customers;

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potential and existing customers choosing our competitors’ products or developing their own products in-house;

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timing of new functionality of our existing platform;

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our ability to control costs, including our operating expenses;

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the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions;

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the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments, and other non-cash charges;

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the amount and timing of costs associated with recruiting, training, and integrating new employees;

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the effects of acquisitions or other strategic transactions;

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expenses in connection with acquisitions or other strategic transactions;

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our ability to successfully deploy POPs in new regions;

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general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate;

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the ability to maintain our partnerships;

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the impact of new accounting pronouncements;

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changes in the competitive dynamics of our market, including consolidation among competitors or customers;

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significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our platform; and

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awareness of our brand and our reputation in our target markets.

Additionally, certain large scale events, such as major elections and sporting events, can significantly impact usage of our platform, which could cause fluctuations in our results of operations. While increased usage of our platform during these events could result in increased revenue, these seasonal and one-time events could also impact the performance of our platform during those events and lead to a sub-optimal experience for some customers. Such annual and one-time events may cause fluctuations in our results of operations as they would impact both our revenue and our operating expenses.

Any of the foregoing and other factors may cause our results of operations to vary significantly. If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock could decline substantially, and our business could be harmed.

Our recent rapid growth may not be indicative of our future growth and, if we continue to grow rapidly, we may not be able to manage our growth effectively.

We have experienced substantial growth in our business since inception. For example, our headcount has grown from 379 employees as of December 31, 2017 to 449 employees as of December 31, 2018. In addition, we are rapidly expanding, and expect to continue to expand in the future, our international operations. We have also experienced significant growth in the number of customers, usage, and amount of data delivered across our platform. This growth has placed and may continue to place significant demands on our corporate

culture, operational infrastructure, and management. We may not continue to grow as rapidly in the future. Overall growth of our revenue depends on a number of factors, including our ability to:

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address new and developing markets, such as large enterprise customers outside the United States;

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control expenses;

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recruit, hire, train, and manage additional qualified engineers;

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recruit, hire, train, and manage additional sales and marketing personnel;

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maintain our corporate culture;

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expand our international operations;

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implement and improve our administrative, financial and operational systems, procedures, and controls;

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attract new customers and increase our existing customers’ usage on our platform;

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expand the functionality and use cases for the products we offer on our platform;

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provide our customers with customer support that meets their needs; and

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successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our products.

We may not successfully accomplish any of the above objectives. We expect to continue to expend substantial financial and other resources on:

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sales and marketing, including a significant expansion of our sales organization;

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our infrastructure, including POP deployments, systems architecture, management tools, scalability, availability, performance, and security, as well as disaster recovery measures;

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product development, including investments in our product development team and the development of new products and new functionality for our existing products;

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acquisitions or strategic investments;

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international expansion; and

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general administration, including increased legal and accounting expenses associated with being a public company.

We employ a pricing model that subjects us to various challenges that could make it difficult for us to derive sufficient value from our customers.

We generally charge our customers for their usage of our platform based on the combined total usage, as well as the features and functionality enabled. Additionally, once our product is purchased, customers can also buy any combination of our add-on products. We do not know whether our current or potential customers or the market in general will continue to accept this pricing model going forward and, if it fails to gain acceptance, our

business could be harmed. We also generally purchase bandwidth from internet service providers and server colocation space from third parties based on expected usage from our customers. Moreover, if our customers use our platform in a manner that is inconsistent with how we have purchased bandwidth, servers, and colocation space, our business could be harmed.

We do not have sufficient history with our pricing model to accurately predict the optimal pricing necessary to attract new customers and retain existing customers.

We have limited experience with respect to determining the optimal prices for our products and, as a result, we have in the past and expect that we will need to change our pricing model from time to time in the future. As the market for our products matures, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically. Pricing decisions may also impact the mix of adoption among our customers and negatively impact our overall revenue. Moreover, larger organizations may demand substantial price concessions. As a result, in the future we may be required to reduce our prices or develop new pricing models, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow.

Our sales and onboarding cycles with customers can be long and unpredictable, and our sales and onboarding efforts require considerable time and expense.

The timing of our sales with our enterprise customers and related revenue recognition is difficult to predict because of the length and unpredictability of the sales cycle for these customers. In addition, for our enterprise customers, the lengthy sales cycle for the evaluation and implementation of our products may also cause us to experience a delay between expenses for such sales efforts and the generation of corresponding revenue. The length of our sales cycle for these customers, from initial evaluation to payment, can range from several months to well over a year and can vary substantially from customer to customer. Similarly, the onboarding and ramping process with new enterprise customers can take several months. As the purchase of our products can be dependent upon customer initiatives, our sales cycle can extend to even longer periods of time. Customers often view a switch to our platform as a strategic decision requiring significant investment and, as a result, frequently require considerable time to evaluate, test, and qualify our product offering prior to entering into or expanding a contract commitment. During the sales cycle, we expend significant time and money on sales and marketing and contract negotiation activities, which may not result in a completed sale. Additional factors that may influence the length and variability of our sales cycle include:

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the effectiveness of our sales force, particularly new salespeople, as we increase the size of our sales force and train our new salespeople to sell to enterprise customers;

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the discretionary nature of customers’ purchasing decisions and budget cycles;

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customers’ procurement processes, including their evaluation of competing products;

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economic conditions and other factors affecting customer budgets;

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the regulatory environment in which our customers operate;

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integration complexity for a customer deployment;

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the customer’s familiarity with edge cloud computing platforms;

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evolving customer demands; and

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competitive conditions.

Given these factors, it is difficult to predict whether and when a customer will switch to our platform.

Given that it can take several months for our customers to ramp up their usage of our platform, during that time, we may not be able to generate enough revenue from a particular customer or that customer may not increase their usage in a meaningful way. Moreover, because the switching costs are fairly low, our customers are able to switch from our platform to alternative services relatively easily.

We rely on the performance of highly skilled personnel, including our management and other key employees, and the loss of one or more of such personnel, or of a significant number of our team members, could harm our business.

We believe our success has depended, and continues to depend, on the efforts and talents of senior management and key personnel, including Artur Bergman, our Founder and Chief Executive Officer. From time to time, there may be changes in our management team resulting from the hiring or departure of executives and key employees, which could disrupt our business. We also are dependent on the continued service of our existing software engineers because of the complexity of our platform. Our senior management and key employees are employed on an at-will basis. We cannot ensure that we will be able to retain the services of any member of our senior management or other key employees or that we would be able to timely replace members of our senior management or other key employees should any of them depart. The loss of one or more of our senior management or other key employees could harm our business.

The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.

To execute our business strategy, we must attract and retain highly qualified personnel. Competition for executive officers, software developers, sales personnel, and other key employees in our industry is intense. In particular, we compete with many other companies for software developers with high levels of experience in designing, developing, and managing cloud-based software, as well as for skilled sales and operations professionals. In addition, we believe that the success of our business and corporate culture depends on employing people with a variety of backgrounds and experiences, and the competition for such diverse personnel is significant. While the market for such talented personnel is particularly competitive in the San Francisco Bay Area, where our headquarters is located, it is also competitive in other markets where we maintain operations. Many of the companies with which we compete for experienced personnel have greater resources than we do and can frequently offer such personnel substantially greater compensation than we can offer. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business would be harmed.

If our platform does not achieve sufficient market acceptance, our financial results and competitive position will suffer.

To meet our customers’ rapidly evolving demands, we invest substantial resources in research and development of enhanced products to incorporate additional functionality or expand the use cases that our platform addresses. Maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet the demands of the market is essential. If we are unable to develop products internally due to inadequate research and development resources, we may not be able to address our customers’ needs on a timely basis or at all. In addition, if we seek to supplement our research and development capabilities or the breadth of our products through acquisitions, such acquisitions could be expensive and we may not successfully integrate acquired technologies or businesses into our business. When we develop or acquire new or enhanced products, we typically incur expenses and expend resources upfront to develop, market, promote, and sell the new offering. Therefore, when we develop or acquire and introduce new or enhanced products, they must achieve high levels of market acceptance in order to justify the amount of our investment in

developing or acquiring and bringing them to market. Our new products or enhancements and changes to our existing products could fail to attain sufficient market acceptance for many reasons, including:

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failure to predict market demand accurately in terms of functionality and a failure to supply products that meet this demand in a timely fashion;

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defects, errors, or failures;

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negative publicity about our platform’s performance or effectiveness;

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changes in the legal or regulatory requirements, or increased legal or regulatory scrutiny, adversely affecting our platform;

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emergence of a competitor that achieves market acceptance before we do;

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delays in releasing enhancements to our platform to the market; and

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introduction or anticipated introduction of competing products by our competitors.

If our platform and any future enhancements do not achieve adequate acceptance in the market, or if products and technologies developed by others achieve greater acceptance in the market, our business could be harmed.

Beyond overall acceptance of our platform by our customers, it is important that we maintain and grow acceptance of our platform among the developers that work for our customers. We rely on developers to choose our platform over other options they may have, and to continue to use and promote our platform as they move between companies. These developers often make design decisions and influence the product and vendor processes within our customers. If we fail to gain or maintain their acceptance of our platform, our business would be harmed.

We rely on third-party hosting providers that may be difficult to replace.

We rely on third-party hosting services such as Amazon Web Services (AWS), Google, Softlayer (acquired by IBM), and other cloud providers that facilitate the offering of our platform. Some of these third-party hosting services offer competing products to ours and therefore may not continue to be available on commercially reasonable terms, or at all. These providers may be unwilling to do business with us if they view our platform as a threat. Any loss of the right to use any of the hosting providers could impair our ability to offer our platform until we are able to obtain alternative hosting providers.

If we do not or cannot maintain the compatibility of our platform with third-party applications that our customers use in their businesses, our business will be harmed.

Because our customers choose to integrate our products with certain capabilities provided by third-party providers, the functionality and popularity of our platform depends, in part, on our ability to integrate our platform and applications with third-party applications. These third parties may change the features of their technologies, restrict our access to their applications, or alter the terms governing use of their applications in a manner that is adverse to our business. Such changes could functionally limit or prevent our ability to use these third-party technologies in conjunction with our platform, which would negatively affect adoption of our platform and harm our business. If we fail to integrate our platform with new third-party applications that our customers use, we may not be able to offer the functionality that our customers need, which would harm our business.

The success of our business depends on customers’ continued and unimpeded access to our platform on the internet.

Our customers must have internet access in order to use our platform. Some internet providers may take measures that affect their customers’ ability to use our platform, such as degrading the quality of the content we transmit over their lines, giving that content lower priority, giving other content higher priority than ours, blocking our content entirely, or attempting to charge their customers more for using our platform.

In December 2010, the Federal Communications Commission (FCC) adopted net neutrality rules barring internet providers from blocking or slowing down access to online content, protecting services like ours from such interference. The FCC has repealed the net neutrality rules, and it is currently uncertain how the U.S. Congress will respond to this decision. To the extent network operators attempt to interfere with our platform, extract fees from us to deliver our platform, or otherwise engage in discriminatory practices, our business could be adversely impacted. Within such a regulatory environment, we could experience discriminatory or anti-competitive practices that could impede our domestic and international growth, cause us to incur additional expense, or otherwise harm our business.

We provide service level commitments under our customer agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid amounts, which could harm our business.

Most of our customer agreements contain service level commitments. If we are unable to meet the stated service level commitments, including failure to meet the uptime and delivery requirements under our customer agreements, we may be contractually obligated to provide the affected customers with service credits which could significantly affect our revenues in the periods in which the uptime and/or delivery failure occurs and the credits are applied. We could also face customer terminations, which could significantly affect both our current and future revenues. Any service level failures could harm our business.

If we fail to offer high quality support, our business may be harmed.

Our customers rely on our support team to assist them in deploying our products effectively and resolve technical and operational issues. High-quality support is important for the renewal and expansion of our agreements with existing customers. The importance of maintaining high quality support will increase as we expand our business and pursue new customers. If we do not help our customers quickly resolve issues and provide effective ongoing support, our ability to maintain and expand our relationships with existing and new customers could suffer and our business could be harmed. Further, increased demand for customer support, without corresponding revenue, could increase costs and adversely affect our business. In addition, as we continue to grow our operations and expand internationally, we will need to be able to provide efficient customer support that meets our customers’ needs globally at scale and our customer support team will face additional challenges, including those associated with delivering support and documentation in multiple languages. Our failure to do so could harm our business.

Future acquisitions, strategic investments, partnerships, or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, and dilute stockholder value.

We may in the future seek to acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform, enhance our technical capabilities, or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing acquisitions, whether or not such acquisitions are completed. In addition, we have only limited experience in acquiring other businesses and we may not successfully identify desirable acquisition targets or, if we acquire additional businesses, we may not be able to integrate them effectively following the acquisition. Acquisitions could also result in dilutive issuances of equity

securities or the incurrence of debt, which could adversely affect our operating results, may cause unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims, and may not generate sufficient financial returns to offset additional costs and expenses related to the acquisitions. In addition, if an acquired business fails to meet our expectations, our business may be harmed.

Because we recognize revenue from usage on our platform over the term of the relevant contract, downturns or upturns in sales contracts are not immediately reflected in full in our operating results.

Revenue for usage on our platform accounts for substantially all of our total revenue. We recognize revenue over the term of each of our customer contracts, which are typically one year in length but may be longer in length. As a result, much of our revenue is generated from contracts entered into during previous periods. Consequently, a decline in new or renewed contracts in any one quarter may not significantly reduce our revenue for that quarter but could negatively affect our revenue in future quarters. Our revenue recognition model also makes it difficult for us to rapidly increase our revenue through new contracts in any period, as revenue from customers is recognized over the applicable term of their contracts.

Seasonality may cause fluctuations in our sales and operating results.

We have experienced, and expect to continue to experience in the future, seasonality in our business, and our operating results and financial condition may be affected by such trends in the future. We generally experience seasonal fluctuations in demand for our platform. For example, we typically have customers who increase their usage and requests when they need more capacity during busy periods, especially in the fourth quarter of the year, and then subsequently scale back. We believe that the seasonal trends that we have experienced in the past may continue for the foreseeable future, particularly as we expand our sales to larger enterprises. To the extent we experience this seasonality, it may cause fluctuations in our operating results and financial metrics, and make forecasting our future operating results and financial metrics difficult. Additionally, we do not have sufficient experience in selling certain of our products to determine if demand for these products are or will be subject to material seasonality.

Unfavorable conditions in our industry or the global economy or reductions in information technology spending could harm our business.

Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers and potential customers. Current or future economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, political turmoil, natural catastrophes, warfare, and terrorist attacks on the United States, Europe, the Asia Pacific region, or elsewhere, could cause a decrease in business investments, including spending on information technology, which would harm our business. To the extent that our platform and our products are perceived by customers and potential customers as too costly, or difficult to deploy or migrate to, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Also, our competitors, many of whom are larger and have greater financial resources than we do, may respond to market conditions by lowering prices and attempting to lure away our customers. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our products. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within any particular industry.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

Our net operating loss (NOL) carryforwards could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. Our NOLs generated in tax years ending on or prior to December 31, 2018 are only permitted to be carried forward for 20

years under applicable U.S. tax law. Under the Tax Cuts and Jobs Act (Tax Act), our federal NOLs generated in tax years ending after December 31, 2018 may be carried forward indefinitely, but the deductibility of such federal NOLs is limited (as described below under “The Tax Act could adversely affect our business and financial condition”). It is uncertain if and to what extent various states will conform to the Tax Act.

In addition, under Section 382 of the United States Internal Revenue Code of 1986, as amended (Code), a corporation that undergoes an “ownership change” is generally subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of this offering and/or subsequent shifts in our stock ownership (some of which shifts are outside our control). Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs, even if we were to achieve profitability.

Our current operations are international in scope and we plan on further geographic expansion, creating a variety of operational challenges.

A component of our growth strategy involves the further expansion of our operations and customer base internationally. For the year ended December 31, 2018, the percentage of revenue generated from customers outside the United States was 23% of our total revenue. We currently have offices in Japan, the United Kingdom, and the United States, as well as employees located throughout the world. We are continuing to adapt to and develop strategies to address international markets but there is no guarantee that such efforts will have the desired effect. As of December 31, 2018, approximately 16% of our full-time employees were located outside of the United States. We expect that our international activities will continue to grow over the foreseeable future as we continue to pursue opportunities in existing and new international markets, which will require significant management attention and financial resources. In connection with such expansion, we may face difficulties including costs associated with, varying seasonality patterns, potential adverse movement of currency exchange rates, longer payment cycle difficulties in collecting accounts receivable in some countries, tariffs and trade barriers, a variety of regulatory or contractual limitations on our ability to operate, adverse tax events, reduced protection of intellectual property rights in some countries, and a geographically and culturally diverse workforce and customer base. Failure to overcome any of these difficulties could harm our business.

Our current and future international business and operations involve a variety of risks, including:

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changes in a specific country’s or region’s political or economic conditions;

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greater difficulty collecting accounts receivable and longer payment cycles;

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potential or unexpected changes in trade relations, regulations, or laws;

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more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information, particularly in Europe;

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differing labor regulations, especially in Europe and Japan, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

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challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs;

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challenges to our corporate culture resulting from a dispersed workforce;

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difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems;

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increased travel, real estate, infrastructure, and legal compliance costs associated with international operations;

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currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;

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challenges related to providing support and developing products in foreign languages;

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limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;

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laws and business practices favoring local competitors or general market preferences for local vendors;

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potential tariffs and trade barriers;

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limited or insufficient intellectual property protection or difficulties enforcing our intellectual property;

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political instability or terrorist activities;

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exposure to liabilities under anti-corruption and anti-money laundering laws, and similar laws and regulations in other jurisdictions; and

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adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.

Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to further expand our international operations and are unable to do so successfully and in a timely manner, our business may be harmed.

Our international operations may subject us to potential adverse tax consequences.

We are expanding our international operations and staff to better support our growth into international markets. Our corporate structure and associated transfer pricing policies contemplate future growth into the international markets, and consider the functions, risks, and assets of the various entities involved in the intercompany transactions. The amount of taxes we pay in different jurisdictions may depend on: the application of the tax laws of the various jurisdictions, including the United States, to our international business activities; changes in tax rates; new or revised tax laws or interpretations of existing tax laws and policies; and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.

Legal, political, and economic uncertainty surrounding the planned exit of the United Kingdom (UK) from the European Union (EU) may be a source of instability in international markets, create significant currency fluctuations, adversely affect our operations in the UK, and pose additional risks to our business, revenue, financial condition, and results of operations.

The UK held a referendum on June 23, 2016 to determine whether the UK should leave the EU or remain as a member state, the outcome of which was in favor of leaving the EU. The UK’s withdrawal from the EU is commonly referred to as Brexit. Under Article 50 of the 2009 Lisbon Treaty, the UK will cease to be an EU Member State when a withdrawal agreement is entered into (such agreement will also require parliamentary approval in the UK) or, failing that, two years following the notification of an intention to leave under Article 50, unless the European Council (together with the UK) unanimously decides to extend this period (the Brexit Date). On March 29, 2017, the UK formally notified the European Council of its intention to leave the EU.

It is unclear how long it will take to negotiate a withdrawal agreement, but it appears likely that Brexit will continue to involve a process of lengthy negotiations between the UK and the EU Member States to determine the future terms of the UK’s relationship with the EU. For example, in March 2018, the UK reached a provisional agreement (the Withdrawal Agreement) with the EU on transitional arrangements following the UK’s exit (which are intended to enable the UK to remain within the EU single market and customs union for a transitional period through 2020), but this Withdrawal Agreement needs to be formally agreed as part of the withdrawal arrangements currently under negotiation. Given that no formal withdrawal arrangements have been agreed upon, there have been several extensions to the Brexit Date and the UK has yet to formally leave the EU. On April 11, 2019, the EU granted the UK a further extension to the Brexit Date until October 31, 2019. The purpose of this extension is to allow for the ratification of the Withdrawal Agreement by the UK House of Commons. If the Withdrawal Agreement is ratified, the UK will leave the EU earlier than October 31, 2019. As a condition of the extension, the UK must take part in EU elections on May 23, 2019. If it does not, the UK must leave the EU on June 1, 2019 without any formal withdrawal arrangements.

Lack of clarity about future UK laws and regulations as the UK determines which EU rules and regulations to replace or replicate in the event of a withdrawal, including financial laws and regulations, tax and free trade agreements, intellectual property rights, data protection laws (including in respect of cross-border transfers of data from our entity in the UK to the EU), supply chain logistics, environmental, health and safety laws and regulations, immigration laws, and employment laws, could decrease foreign direct investment in the UK, increase costs, depress economic activity, and restrict access to capital.

Until the UK officially exits the EU, EU laws and regulations will continue to apply, and changes to the application of these laws and regulations are unlikely to occur during negotiations. However, due to the size and importance of the UK economy, the uncertainty and unpredictability concerning the UK’s legal, political, and economic relationship with the EU after Brexit may continue to be a source of instability in the international markets, create significant currency fluctuations, or otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory, or otherwise) for the foreseeable future, including beyond the date of Brexit.

These developments, or the perception that any of them could occur, have had and may continue to have a significant adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and limit the ability of key market participants to operate in certain financial markets. In particular, it could also lead to a period of considerable uncertainty in relation to the UK financial and banking markets, as well as on the regulatory process in Europe. Asset valuations, currency exchange rates, and credit ratings may also be subject to increased market volatility.

If the UK and the EU are unable to negotiate acceptable withdrawal terms or if other EU Member States pursue withdrawal, barrier-free access between the UK and other EU Member States or among the European Economic Area (EEA) overall could be diminished or eliminated. The long-term effects of Brexit will depend on

any agreements (or lack thereof) between the UK and the EU and, in particular, any arrangements for the UK to retain access to EU markets either during a transitional period or more permanently.

Such a withdrawal from the EU is unprecedented, and it is unclear how the UK’s access to the European single market for goods, capital, services, and labor within the EU, or single market, and the wider commercial, legal, and regulatory environment, will impact our UK operations and customers. Our UK operations service customers in the UK as well as in other countries in the EU and EEA and these operations could be disrupted by Brexit, particularly if there is a change in the UK’s relationship to the single market.

We may also face new regulatory costs and challenges that could have an adverse effect on our operations. Depending on the terms of the UK’s withdrawal from the EU, the UK could lose the benefits of global trade agreements negotiated by the EU on behalf of its members, which may result in increased trade barriers that could make our doing business in the EU and the EEA more difficult. Even prior to any change to the UK’s relationship with the EU, the announcement of Brexit has created economic uncertainty surrounding the terms of Brexit and its consequences could adversely impact customer confidence resulting in customers reducing their spending budgets on our solutions, which could harm our business.

Our ability to timely raise capital in the future may be limited, or may be unavailable on acceptable terms, if at all, and our failure to raise capital when needed could harm our business, and debt or equity issued to raise additional capital may reduce the value of our Class A common stock.

We have funded our operations since inception primarily through payments received from our customers, sales of equity securities, and borrowings under our credit facilities. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business and may require additional funds. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results, and financial condition. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in future offerings will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our Class A common stock and diluting their interests.

We are exposed to fluctuations in currency exchange rates.

Our sales contracts are primarily denominated in U.S. dollars, and therefore substantially all of our revenue is not subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our platform to our customers outside of the United States, which could adversely affect our operating results. In addition, an increasing portion of our operating expenses is incurred and an increasing portion of our assets is held outside the United States. These operating expenses and assets are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates. While we do not currently engage in hedging efforts, if we do not successfully hedge against the risks associated with currency fluctuations, our business may be harmed.

Changes in our effective tax rate or tax liability may harm our business.

Our effective tax rate could be adversely impacted by several factors, including:

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Changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;

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Changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Act;

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Changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;

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The outcome of current and future tax audits, examinations, or administrative appeals; and

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Limitations or adverse findings regarding our ability to do business in some jurisdictions.

Should our effective tax rate rise, our business could be harmed.

We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our clients would have to pay for our offering and harm our business.

An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. Additionally, the Supreme Court of the United States recently ruled in South Dakota v. Wayfair, Inc. et al (Wayfair) that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. A successful assertion by one or more states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors and decrease our future sales, which could harm our business.

The Tax Act could adversely affect our business and financial condition.

On December 22, 2017, President Trump signed into law H.R. 1, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” informally titled the Tax Act, which significantly revises the Code. The Tax Act, among other things, reduces the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limits the tax deduction for interest expense to 30% of adjusted taxable income (except for certain small businesses), limits the deduction for net operating losses carried forward from taxable years beginning after December 31, 2017 to 80% of current year taxable income, eliminates net operating loss carrybacks, imposes a one-time tax on offshore earnings at reduced rates regardless of whether they are repatriated, eliminates U.S. tax on foreign earnings (subject to certain important exceptions), allows immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifies or repeals many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the Tax Act. The impact of the Tax Act on holders of our Class A common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our Class A common stock.

We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws, and non-compliance with such laws can subject us to criminal and/or civil liability and harm our business.

We are subject to the U.S. Foreign Corrupt Practices Act, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the UK Bribery Act, and other anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies and their employees and third-party intermediaries from authorizing, offering or providing, directly or indirectly, improper payments, or benefits to recipients in the public or private sector. As we increase our international sales and business and sales to the public sector, we may engage with business partners and third-party intermediaries to market our platform

and to obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.

While we have policies and procedures to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable laws, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase.

Detecting, investigating, and resolving actual or alleged violations can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution or other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed or if we do not prevail in any possible civil or criminal litigation, our business could be harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. Enforcement actions and sanctions could further harm our business.

Our financial results may be adversely affected by changes in accounting principles applicable to us.

Generally accepted accounting principles in the United States (U.S. GAAP) are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC and other various bodies formed to promulgate and interpret appropriate accounting principles. For example, in May 2014, the FASB issued accounting standards update No. 2014-09 (Topic 606), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services; this new accounting standard also impacts the recognition of sales commissions. As an “emerging growth company,” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act with respect to new or revised accounting pronouncements, including Topic 606, and as a result Topic 606 became applicable to us on January 1, 2019.

Topic 606 permits the use of either a modified retrospective or full retrospective transition method. We are in the process of completing our assessment of the impact of adopting this standard and do not believe adoption will have a material impact on revenue, as currently reported. We believe the adoption of this standard will reduce the amount of commission expense previously recorded by $2.5 million to $5.0 million. We will adopt using the modified retrospective method. The final application of this new guidance could have an adverse effect on our operating results in one or more periods as compared to what they would have been under current standards.

Under Topic 606, more estimates, judgments, and assumptions are required within the revenue recognition process than were previously required. Our reported financial position and financial results may be adversely affected if our estimates or judgments prove to be wrong, assumptions change, or actual circumstances differ from those in our assumptions. We currently believe the most significant impact of the standard on our financial results relates to sales commissions. These or other changes in accounting principles could adversely affect our financial results. Any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm our business.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to allowance for doubtful accounts, fair value of financial instruments, valuation of stock-based compensation, valuation of warrant liabilities, and the valuation allowance for deferred income taxes. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock.

Current and future indebtedness could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions.

Our current credit facilities contain, and any future indebtedness would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to take actions that may otherwise be in our best interests. Our ability to meet those financial covenants can be affected by events beyond our control, and we may not be able to continue to meet those covenants. In addition, a breach of a covenant under any one of our credit facilities may result cross-default under a separate credit facility. If we seek to enter into a credit facility we may not be able to obtain debt financing on terms that are favorable to us, if at all. If we incur additional debt, the debt holders would have rights senior to holders of common stock to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we are unable to obtain adequate financing or financing on terms that are satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.

We have previously identified material weaknesses in our internal control over financial reporting, and if we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our Class A common stock may be seriously harmed.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in those internal controls, subject to any exemptions that we avail ourselves to under the JOBS Act. For example, we will be required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404. We are in the process of designing, implementing, and testing internal control over financial reporting required to comply with this obligation. That process is time-consuming, costly, and complicated.

We and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting for the years ended December 31, 2017 and 2018, related to the lack of sufficient qualified accounting personnel, which led to incorrect application of generally accepted accounting principles, insufficiently designed segregation of duties, and insufficiently designed controls over business processes, including the financial statement close and reporting processes with respect to the development of accounting policies, procedures, and estimates. After these material weaknesses were identified, management implemented a

remediation plan that included hiring key accounting personnel, creating a formal month-end close process, and establishing more robust processes supporting internal controls over financial reporting, including accounting policies, procedures, and estimates.

If we identify future material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion or expresses a qualified or adverse opinion about the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be negatively affected. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, and other regulatory authorities, which could require additional financial and management resources.

We may not be able to successfully manage the growth of our business if we are unable to improve our internal systems, processes and controls.

We need to continue to improve our internal systems, processes, and controls to effectively manage our operations and growth. We may not be able to successfully implement and scale improvements to our systems and processes in a timely or efficient manner or in a manner that does not negatively affect our operating results. For example, we may not be able to effectively monitor certain extraordinary contract requirements or provisions that are individually negotiated by our sales force as the number of transactions continues to grow. In addition, our systems and processes may not prevent or detect all errors, omissions, or fraud. We may experience difficulties in managing improvements to our systems, processes, and controls or in connection with third-party software, which could impair our ability to offer our platform to our customers in a timely manner, causing us to lose customers, limit us to smaller deployments of our products, or increase our technical support costs.

We could incur substantial costs in protecting or defending our proprietary rights, and any failure to adequately protect our rights could impair our competitive position and we may lose valuable assets, experience reduced revenue, and incur costly litigation to protect our rights.

Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual provisions in an effort to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. While we have issued patents in the United States and other countries and have additional pending patent applications, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Any of our patents, trademarks, or other intellectual property rights may be challenged or circumvented by others or invalidated through administrative process or litigation. There can be no guarantee that others will not independently develop similar products, duplicate any of our products, or design around our patents. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer, and disclosure of our products may be unenforceable under the laws of jurisdictions outside the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information may increase.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our platform.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our platform, impair the functionality of our platform, delay introductions of new products, result in our substituting inferior or more costly technologies into our products, or injure our reputation. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Moreover, policing unauthorized use of our technologies, trade secrets, and intellectual property may be difficult, expensive, and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. If we fail to meaningfully protect our intellectual property and proprietary rights, our business may be harmed.

We may in the future be subject to legal proceedings and litigation, including intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business. Our business may suffer if it is alleged or determined that our technology infringes the intellectual property rights of others.

The software industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets, and other intellectual property rights. Companies in the software industry are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims or rights against their use. In addition, many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Any litigation may also involve patent holding companies or other adverse patent owners that have no relevant product revenue and against which our patents may therefore provide little or no deterrence. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop selling products impacted by the claim or injunction or cease business activities covered by such intellectual property, and may be unable to compete effectively. Any inability to license third party technology in the future would have an adverse effect on our business or operating results, and would adversely affect our ability to compete. We may also be contractually obligated to indemnify our customers in the event of infringement of a third party’s intellectual property rights. We receive demands for such indemnification from time to time and expect to continue to do so. Responding to such claims, including those currently pending, regardless of their merit, can be time consuming, costly to defend in litigation, and damage our reputation and brand.

Lawsuits are time-consuming and expensive to resolve and they divert management’s time and attention. Although we carry insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. We cannot predict the outcome of lawsuits, and the results of any such actions may harm our business.

Elements of our platform use open source software, which may restrict the functionality of our platform or require that we release the source code of certain products subject to those licenses.

Our platform incorporates software licensed under open source licenses. Such open source licenses typically require that source code subject to the license be made available to the public and that any modifications or derivative works to open source software continue to be licensed under open source licenses. Few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. We rely on multiple software programmers to design our

proprietary technologies, and we do not exercise complete control over the development efforts of our programmers and we cannot be certain that our programmers have not incorporated open source software into our proprietary products and technologies or that they will not do so in the future. In the event that portions of our proprietary technology are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our platform and technologies and materially and adversely affect our ability to sustain and grow our business.

Provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, data protection, and other losses.

Our agreements with customers and other third parties generally include provisions under which we are liable or agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our platform, services, or other contractual obligations. Some of these agreements provide for uncapped liability for which we would be responsible, and some provisions survive termination or expiration of the applicable agreement. Large liability payments could harm our business, results of operations, and financial condition. Although we normally contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them, and in case of an intellectual property infringement indemnification claim, we may be required to cease use of certain functions of our platform as a result of any such claims. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and harm our business. Even when we have contractual protections against such customer claims, we may choose to honor a customer’s request for indemnification or otherwise seek to maintain customer satisfaction by issuing customer credits, assisting our customer in defending against claims, or in other ways.

We are subject to governmental regulation and other legal obligations, particularly those related to privacy, data protection, and information security, and our actual or perceived failure to comply with such obligations could harm our business, by resulting in litigation, fines, penalties, or adverse publicity and reputational damage that may negatively affect the value of our business and decrease the price of our common stock. Compliance with such laws could also result in additional costs and liabilities to us or inhibit sales of our products.

We receive, store, and process personal information and other data from and about actual and prospective customers and users, in addition to our employees and service providers. In addition, our customers use our platform to collect personally identifiable information, personal health information, and personal financial information from their end-users. Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, such as the U.S. Federal Trade Commission (FTC), and various state, local, and foreign agencies. Our data handling also is subject to contractual obligations and industry standards.

The U.S. federal and various state and foreign governments have adopted or proposed limitations on the collection, distribution, use, and storage of data relating to individuals and businesses, including the use of contact information and other data for marketing, advertising, and other communications with individuals and businesses. In the United States, various laws and regulations apply to the collection, processing, disclosure, and security of certain types of data, including the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of 1996, the Gramm Leach Bliley Act, and state laws relating to privacy and data security, including the California Consumer Privacy Act. Additionally, the FTC and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination, and security of data. The laws and regulations relating to privacy and data security are evolving, can be subject to significant change and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

In addition, several foreign countries and governmental bodies, including the EU, have laws and regulations dealing with the handling and processing of personal information obtained from their residents, which in certain cases are more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses, and in some jurisdictions, Internet Protocol (IP) addresses. Such laws and regulations may be modified or subject to new or different interpretations, and new laws and regulations may be enacted in the future.

Within the EU, the General Data Protection Regulation (GDPR) significantly increases the level of sanctions for non-compliance from those in existing EU data protection law and imposes direct obligations on data processors in addition to data controllers and may require us to make further changes to our policies and procedures in the future, beyond what we have already done. EU data protection authorities will have the power to impose administrative fines for violations of the GDPR of up to a maximum of €20 million or 4% of the data controller’s or data processor’s total worldwide global turnover for the preceding fiscal year, whichever is higher, and violations of the GDPR may also lead to damages claims by data controllers and data subjects. Such penalties are in addition to any civil litigation claims by data controllers, customers, and data subjects. Since we act as a data processor for our customers, we are taking steps to cause our processes to be compliant with applicable portions of the GDPR, but we cannot assure you that such steps will be effective. In particular, although the UK enacted a Data Protection Act in May 2018 that is designed to be consistent with the GDPR, due to Brexit (see “—Legal, political, and economic uncertainty surrounding the planned exit of the United Kingdom, or UK, from the European Union, or EU, may be a source of instability in international markets, create significant currency fluctuations, adversely affect our operations in the UK, and pose additional risks to our business, revenue, financial condition, and results of operations”), uncertainty remains regarding how data transfers to and from the UK will be regulated.

The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly laws outside the United States, as a result of the rapidly evolving regulatory framework for privacy issues worldwide. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. As a result of the laws that are or may be applicable to us, and due to the sensitive nature of the information we collect, we have implemented policies and procedures to preserve and protect our data and our customers’ data against loss, misuse, corruption, misappropriation caused by systems failures, unauthorized access, or misuse. If our policies, procedures, or measures relating to privacy, data protection, marketing, or customer communications fail to comply with laws, regulations, policies, legal obligations, or industry standards, we may be subject to governmental enforcement actions, litigation, regulatory investigations, fines, penalties, and negative publicity and could cause our application providers, customers, and partners to lose trust in us, and have an adverse effect on our business, operating results, and financial condition.

In addition to government regulation, privacy advocates, and industry groups may propose new and different self regulatory standards that may apply to us. Because the interpretation and application of privacy and data protection laws, regulations, rules, and other standards are still uncertain, it is possible that these laws, rules, regulations, and other actual or alleged legal obligations, such as contractual or self-regulatory obligations, may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the functionality of our platform. If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our software, which could have an adverse effect on our business.

Any failure or perceived failure by us to comply with laws, regulations, policies, legal, or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security, may result in governmental investigations and enforcement actions (including, for example, a ban by EU Supervisory

Authorities on the processing of EU personal data under the GDPR), litigation, fines and penalties, or adverse publicity, and could cause our customers and partners to lose trust in us, which could have an adverse effect on our reputation and business. Our obligation to assist our customers in their compliance with laws, regulations, and policies, like data processing and data protection requirements under the GDPR may also result in government enforcement actions litigation, fines and penalties, or adverse publicity. We expect that there will continue to be new proposed laws, regulations, and industry standards relating to privacy, data protection, marketing, consumer communications, and information security in the United States, the EU, and other jurisdictions, and we cannot determine the impact such future laws, regulations, and standards may have on our business. Future laws, regulations, standards, and other obligations or any changed interpretation of existing laws or regulations could impair our ability to develop and market new functionality and maintain and grow our customer base and increase revenue. Future restrictions on the collection, use, sharing, or disclosure of data or additional requirements for express or implied consent of our customers, partners, or end-users for the use and disclosure of such information could require us to incur additional costs or modify our platform, possibly in a material manner, and could limit our ability to develop new functionality.

If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products, which would negatively affect our business, financial condition, and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise adversely affect the growth of our business. Furthermore, any costs incurred as a result of this potential liability could harm our operating results.

We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate such controls.

Our products are subject to U.S. export controls, including the Export Administration Regulations administered by the U.S. Commerce Department, and economic sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (OFAC), and we incorporate encryption technology into certain of our products. These encryption products and the underlying technology may be exported outside of the United States only with the required export authorizations.

Furthermore, our activities are subject to U.S. economic sanctions laws and regulations that generally prohibit the direct or indirect exportation or provision of products and services without the required export authorizations to countries, governments, and individuals and entities targeted by U.S. embargoes or sanctions, except to the extent authorized by OFAC or exempt from sanctions. Additionally, the Trump administration has been critical of existing trade agreements and may impose more stringent export and import controls. Obtaining the necessary export license or other authorization for a particular sale may not always be possible, and, even if the export license is ultimately granted, the process may be time-consuming and may result in the delay or loss of sales opportunities. Violations of U.S. sanctions or export control laws can result in significant fines or penalties, and possible incarceration for responsible employees and managers could be imposed for criminal violations of these laws.

Other countries also regulate the import and export of certain encryption products and technology through import and export licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Changes in our products or future changes in export and import regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products globally, or, in some cases, prevent the export or import of our products to certain countries, governments, or persons altogether. From time to time, various governmental agencies have proposed additional regulation of encryption products and technology, including the escrow and government recovery of private encryption keys. Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons, or technologies targeted by such regulations

could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would harm our business.

Risks Related to This Offering and Ownership of Our Class A Common Stock

The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, including our executive officers, employees, and directors and their affiliates, and limiting your ability to influence corporate matters.

Our Class B common stock has 10 votes per share, and our Class A common stock, which is the stock we are offering in this initial public offering, has one vote per share. Stockholders who hold shares of Class B common stock, including our executive officers and directors and their affiliates, will together hold approximately % of the voting power of our outstanding capital stock following this offering, and our founder and Chief Executive Officer, Artur Bergman, will hold approximately % of our outstanding classes of common stock as a whole, but will control approximately % of the voting power of our outstanding common stock, following this offering. As a result, our executive officers, directors, and other affiliates and potentially our CEO on his own will have significant influence over our management and affairs and over all matters requiring stockholder approval, including election of directors and significant corporate transactions, such as a merger or other sale of the company or our assets, for the foreseeable future. If Mr. Bergman’s employment with us is terminated, he will continue to have the same influence over matters requiring stockholder approval.

In addition, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock holdings represent less than 50% of the outstanding shares of our common stock. Because of the 10-to-1 voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stock represent as little as 10% of the combined voting power of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit your ability to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class A common stock could be adversely affected.

Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, which will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Mr. Bergman retains a significant portion of his holdings of Class B common stock for an extended period of time, he could, in the future, control a majority of the combined voting power of our Class A and Class B common stock. As a board member, Mr. Bergman owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Bergman is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally.

Our stock price may be volatile, and the value of our Class A common stock may decline.

The market price of our Class A common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control or are related in complex ways, including:

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actual or anticipated fluctuations in our financial condition and operating results;

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variance in our financial performance from expectations of securities analysts or investors;

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changes in the pricing we offer our customers;

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changes in our projected operating and financial results;

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changes in laws or regulations applicable to our platform or related products;

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announcements by us or our competitors of significant business developments, acquisitions, or new offerings;

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publicity associated with network downtime and problems;

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our involvement in litigation;

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future sales of our Class A common stock or other securities, by us or our stockholders, as well as the anticipation of lock-up releases;

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changes in senior management or key personnel;

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the trading volume of our Class A common stock;

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changes in the anticipated future size and growth rate of our market; and

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general economic, regulatory, and market conditions.

Broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions, may negatively impact the market price of our Class A common stock. In addition, given the relatively small public float of shares of our Class A common stock on the NYSE, the trading market for our shares may be subject to increased volatility. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial costs and divert our management’s attention.

There has been no prior market for our Class A common stock. An active market may not develop or be sustainable and investors may not be able to resell their shares at or above the initial public offering price.

There has been no public market for our Class A common stock prior to this offering. The initial public offering price for our Class A common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our Class A common stock following this offering. If you purchase shares of our Class A common stock in this offering, you may not be able to resell those shares at or above the initial public offering price, if at all. An active or liquid market in our Class A common stock may not develop after this offering or, if it does develop, it may not be sustainable.

You will experience immediate and substantial dilution in the net tangible book value of the shares of Class A common stock you purchase in this offering.

The initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A common stock immediately after this offering. If you purchase shares of our Class A common stock in this offering, you will suffer immediate dilution of $ per share, or $ per share if the underwriters exercise their option to purchase additional shares in full, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to the sale of Class A common stock in this offering and the assumed public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus. See “Dilution.” If outstanding options or warrants are exercised in the future, you will experience additional dilution.

Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause the price of our Class A common stock to decline.

We may issue additional securities following the closing of this offering. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell Class A common stock, convertible securities, and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences, and privileges senior to those of holders of our Class A common stock.

We will have broad discretion in the use of proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return.

We will have broad discretion over the use of proceeds from this offering. Investors may not agree with our decisions, and our use of the proceeds may not yield any return on your investment. We currently intend to use the net proceeds from this offering for working capital and other general corporate purposes. Our failure to apply the net proceeds of this offering effectively could impair our ability to pursue our growth strategy or could require us to raise additional capital. In addition, pending their use, the proceeds of this offering may be placed in investments that do not produce income or that may lose value.

Future sales of our Class A common stock in the public market could cause the market price of our Class A common stock to decline.

Sales of a substantial number of shares of our Class A common stock in the public market following the completion of this offering, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Class A common stock.

Based on shares outstanding as of December 31, 2018, upon the closing of this offering, we will have outstanding a total of no shares of Class A common stock and 157,865,413 shares of Class B common stock, assuming no exercise of the underwriters’ option to purchase additional shares and no exercise of outstanding options or warrants, after giving effect to the conversion of all outstanding shares of our preferred stock into shares of Class B common stock immediately upon the closing of this offering. Of these shares, only the shares of Class A common stock sold in this offering will be freely tradable, without restriction, in the public market immediately after the offering. All of our executive officers and directors and the holders of substantially all the shares of our capital stock are subject to lock-up agreements that restrict their ability to transfer shares of our capital stock during the period ending on, and including, the 180th day after the date of this prospectus, subject to specified exceptions. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., and Credit Suisse Securities (USA) LLC may, in their discretion, permit our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements. After the lock-up agreements expire, all 157,865,413 shares of Class B common stock outstanding as of December 31, 2018 will become eligible for sale, of which 88,751,338 shares held by directors, executive officers, and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended (Securities Act), and various vesting agreements.

In addition, as of December 31, 2018, there were 24,357,214 shares of Class B common stock subject to outstanding options. We intend to register all of the shares of Class A common stock issuable upon conversion of the shares of Class B common stock issuable upon exercise of outstanding options, and upon exercise of settlement of any options or other equity incentives we may grant in the future, for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, subject to the lock-up agreements described above. The shares

of Class A common stock issuable upon conversion of these shares will become eligible for sale in the public market to the extent such options or warrants are exercised, subject to the lock-up agreements described above and compliance with applicable securities laws.

Holders of 108,297,289 shares of our Class B common stock issuable upon the conversion of outstanding shares of preferred stock and shares of preferred stock issuable upon the exercise of outstanding warrants have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file on our behalf or for other stockholders. See “Shares Eligible for Future Sale” and “Underwriting.”

If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, our Class A common stock price and trading volume could decline.

Our stock price and trading volume are heavily influenced by the way analysts and investors interpret our financial information and other disclosures. If securities or industry analysts do not publish research or reports about our business, delay publishing reports about our business, or publish negative reports about our business, regardless of accuracy, our Class A common stock price and trading volume could decline.

The trading market for our Class A common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. We expect that only a limited number of analysts will cover our company following our initial public offering. If the number of analysts that cover us declines, demand for our Class A common stock could decrease and our Class A common stock price and trading volume may decline.

Even if our Class A common stock is actively covered by analysts, we do not have any control over the analysts or the measures that analysts or investors may rely upon to forecast our future results. Over-reliance by analysts or investors on any particular metric to forecast our future results may result in forecasts that differ significantly from our own.

Regardless of accuracy, unfavorable interpretations of our financial information and other public disclosures could have a negative impact on our stock price. If our financial performance fails to meet analyst estimates, for any of the reasons discussed above or otherwise, or one or more of the analysts who cover us downgrade our Class A common stock or change their opinion of our Class A common stock, our stock price would likely decline.

We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock.

We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and may be restricted by the terms of any then-current credit facility. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

We are an “emerging growth company” and our compliance with the reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we expect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, the auditor attestation requirements of Section 404 reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the

requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved and extended adoption period for accounting pronouncements. We cannot predict whether investors will find our Class A common stock less attractive as a result of our reliance on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.

As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We expect such expenses to further increase after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE, and other applicable securities rules and regulations impose various requirements on public companies. Furthermore, the senior members of our management team do not have significant experience with operating a public company. As a result, our management and other personnel will have to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs.

As a result of being a public company, we are obligated to develop and maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock.

We will be required, pursuant to Section 404 to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company.” We have not yet commenced the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation required under Section 404, and we may not be able to complete our evaluation, testing, and any required remediation in a timely fashion once initiated. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404.

During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to certify that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline and we could be subject to sanctions or investigations by the exchange on which our shares of Class A common stock are listed, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:

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authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock;

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require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

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specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer;

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establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

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establish that our board of directors is divided into three classes, with each class serving three-year staggered terms;

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prohibit cumulative voting in the election of directors;

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provide that our directors may be removed for cause only upon the vote of the holders of a majority of our outstanding shares of common stock;

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provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

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require the approval of our board of directors or the holders of at least sixty-six and two-thirds percent (66²⁄₃%) of our outstanding shares of common stock to amend our bylaws and certain provisions of our certificate of incorporation; and

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reflect our two classes of common stock as described above.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any delay or prevention of a change of control transaction or changes in our management could cause the market price of our Class A common stock to decline.

Our amended and restated certificate of incorporation that will be in effect at the closing of this offering will provide that the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated certificate of incorporation that will be in effect at the closing of this offering will provide that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law for:

•

any derivative action or proceeding brought on our behalf;

•

any action asserting a breach of fiduciary duty;

•

any action asserting a claim against us arising under the Delaware General Corporation Law,

•

our amended and restated certificate of incorporation, or our amended and restated bylaws; and

•

any action asserting a claim against us that is governed by the internal-affairs doctrine.

In addition, our amended and restated certificate of incorporation will provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable, we may incur additional costs associated with resolving the dispute in other jurisdictions. For example, the Court of Chancery of the State of Delaware recently determined that the exclusive forum provision of federal district courts of the United States of America for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. However, this decision may be reviewed and ultimately overturned by the Delaware Supreme Court. If this ultimate adjudication were to occur, the federal district court exclusive forum provision in our amended and restated certificate of incorporation would no longer be contingent.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial condition, business strategy, plans, and objectives of management for future operations and statements that are necessarily dependent upon future events are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,” “will,” or the negative of these terms or other similar expressions.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, and assumptions, including risks described in the section titled “Risk Factors.” These risks are not exhaustive. Other sections of this prospectus include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus or to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations and market position, market opportunity, and market size is based on information from various sources, including independent industry publications. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our knowledge of, and in our experience to date in, the markets for our platform. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Although neither we nor the underwriters have independently verified the accuracy or completeness of any third-party information, we believe the market position, market opportunity, and market size information included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Certain information in the text of this prospectus is contained in industry publications or data provided by third parties. The sources of these industry publications and data are provided below:

•

Forrester, “The Sorry State Of Digital Transformation In 2018,” dated April 24, 2018.

•

Gartner, “Modernization and Digital Transformation Projects are Behind Growth in Enterprise Application Software Market,” dated August 27, 2015.

•

Gartner, “What Edge Computing Means for Infrastructure and Operations Leaders,” dated October 3, 2018.

•

Google, “Find Out How You Stack Up to New Industry Benchmarks for Mobile Page Speed,” dated February 2018.

•

IDC, “IDC Predictions Provide a Blueprint and Key Building Blocks for Becoming a Digital Native Enterprise,” dated October 31, 2017.

•

IDC, “Worldwide Application Delivery Controller Forecast, 2018-2022,” dated December 2018.

•

IDC, “Worldwide DDoS Prevention Products and Services Forecast, 2018-2022,” dated July 2018.

•

LogicMonitor, “Cloud Vision 2020: The Future of the Cloud Study,” dated November 2017.

•

MarketsandMarkets “Botnet Detection Market Global Forecast to 2023,” dated April 2018.

•

MarketsandMarkets “Content Delivery Network Market Global Forecast to 2022,” dated November 2017.

•

MarketsandMarkets “Edge Computing Market Global Forecast to 2022,” dated October 2017.

•

MarketsandMarkets “Web Application Firewall Market Global Forecast to 2022,” dated September 2017.

•

Pew Research Center, “About a quarter of U.S. adults say they are ‘almost constantly’ online,” dated March 14, 2018.

•

Verizon, “2018 Data Breach Investigations Report, 11th Edition,” dated March 2018.

The content of the foregoing sources, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein.

USE OF PROCEEDS

We estimate that the net proceeds from our issuance and sale of shares of our Class A common stock in this offering will be approximately $ million, or approximately $ million if the underwriters exercise their option to purchase additional shares in full, based upon an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us from this offering by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. A 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease the net proceeds to us from this offering by approximately $ million, assuming that the assumed initial offering price to the public remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the initial offering price to the public or the number of shares by these amounts would have a material effect on uses of the proceeds from this offering, although it may accelerate the time at which we will need to seek additional capital.

The principal purposes of this offering are to increase our financial flexibility, create a public market for our Class A common stock, and facilitate our future access to the capital markets. Although we have not yet determined with certainty the manner in which we will allocate the net proceeds of this offering, we expect to use the net proceeds from this offering for working capital and other general corporate purposes. We may use a portion of the net proceeds we receive from this offering to repay up to approximately $47.5 million of indebtedness under our credit facilities, which, to date, has been used for general operating expenses, including personnel related costs as we expanded our employee base, and capital expenditures for our network. We may also use a portion of the net proceeds from this offering for acquisitions or strategic investments in complementary businesses or technologies. We do not currently have any plans for any such acquisitions or investments. We have not allocated specific amounts of net proceeds for any of these purposes.

$27.5 million of the outstanding indebtedness that we may repay under our credit facilities is scheduled to mature in November 2021 and interest on such amount accrues at a rate of prime plus 1.75%. $20.0 million of the outstanding indebtedness that we may repay under our credit facilities is scheduled to mature in December 2021 and interest on such amount accrues at a rate of prime plus 4.25%. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities.”

The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions. We cannot predict with certainty all of the particular uses for the proceeds of this offering or the amounts that we will actually spend on the uses set forth above. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We currently intend to retain all available funds and any future earnings for the operation and expansion of our business and, therefore, we do not anticipate declaring or paying cash dividends in the foreseeable future. The payment of dividends will be at the discretion of our board of directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in our current and future debt agreements, and other factors that our board of directors may deem relevant. We are subject to covenants under our credit facilities that place restrictions on our ability to pay dividends.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2018:

•

on an actual basis;

•

on a pro forma basis to reflect (1) the automatic conversion of all shares of preferred stock outstanding as of December 31, 2018 into shares of Class B common stock immediately upon the closing of this offering; (2) the reclassification of all shares of common stock into an equal number of shares of our Class B common stock and the authorization of our Class A common stock; (3) the conversion of warrants to purchase up to 884,640 shares of our preferred stock into warrants to purchase up to 884,640 shares of Class B common stock; and (4) the filing of our amended and restated certificate of incorporation; and

•

on a pro forma as adjusted basis to reflect (1) the pro forma items described immediately above, and (2) the sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.


	As of December 31, 2018
	Actual			Pro Forma			Pro Forma, as Adjusted
	(in thousands, except share and per share data)
Cash and cash equivalents	$	36,963		$	36,963		$

Convertible preferred stock warrant liabilities		3,261
Convertible preferred stock; $0.00002 par value; 108,297,289 shares authorized, actual; 107,260,454 shares issued and outstanding; no shares authorized, no shares issued and outstanding, pro forma		219,584			—

Stockholders’ deficit:
Preferred stock; par value $0.00002 par value; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted
Common stock; $0.00002 par value; 195,000,000 shares authorized, actual; 50,051,765 shares issued and outstanding, actual; shares authorized, pro forma; no shares issued and outstanding, pro forma and pro forma as adjusted		1			—
Class A common stock; $0.00002 par value; no shares authorized, issued and outstanding, actual; shares authorized, pro forma; no shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted		—			—
Class B common stock; $0.00002 par value; no shares authorized, issued and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted		—			3
Additional paid-in-capital		16,403			239,246
Treasury stock		(2,109	)		(2,109	)
Accumulated other comprehensive loss		(36	)		(36	)
Accumulated deficit		(146,186	)		(146,186	)

Total stockholders’ equity (deficit)		(131,927	)		90,918

Total capitalization	$	87,657		$	90,918

The outstanding share information in the table above is based on no shares of our Class A common stock and 157,865,413 shares of our Class B common stock (including preferred stock on an as-converted basis and reclassified as Class B common stock) outstanding as of December 31, 2018, and excludes:

•

24,357,214 shares of Class B common stock issuable upon the exercise of options outstanding as of December 31, 2018, at a weighted average exercise price of $1.48 per share;

•

DILUTION

If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after the completion of this offering.

Our historical net tangible book value as of December 31, 2018 was $ million, or $ per share of common stock. Our historical net tangible book value per share represents our total tangible assets less our total liabilities and preferred stock (which is not included within stockholders’ deficit), divided by the number of shares of common stock outstanding as of December 31, 2018.

Our pro forma net tangible book value as of December 31, 2018 was $ million, or $ per share of common stock. Pro forma net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding as of December 31, 2018, after giving effect to (1) the automatic conversion of all shares of preferred stock outstanding as of December 31, 2018 into shares of common stock immediately upon the closing of this offering, (2) the reclassification of all shares of common stock in to an equal number of shares of our Class B common stock and the authorization of our Class A common stock, and (3) the conversion our outstanding warrants to purchase preferred stock into warrants to purchase Class B common stock.

Our pro forma as adjusted net tangible book value represents our pro forma net tangible book value, plus the effect of the sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Our pro forma as adjusted net tangible book value as of December 31, 2018 was $ million, or $ per share of common stock. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to investors participating in this offering. We determine dilution per share to investors participating in this offering by subtracting pro forma as adjusted net tangible book value per share after this offering from the assumed initial public offering price per share paid by investors participating in this offering.

The following table illustrates this dilution on a per share basis to new investors:


Assumed initial public offering price per share						$
Historical net tangible book value per share as of December 31, 2018
Increase per share attributable to the pro forma transactions described above
Pro forma net tangible book value per share as of December 31, 2018
Increase in pro forma net tangible book value per share attributed to new investors purchasing shares from us in this offering

Pro forma as adjusted net tangible book value per share after giving effect to this offering

Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering						$

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted net tangible book value per share by $ per share and the dilution per share to investors participating in this offering by $ per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the

same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. A 1,000,000 share increase in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share by $ and decrease the dilution per share to investors participating in this offering by $ , assuming the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A 1,000,000 share decrease in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by $ and increase the dilution per share to new investors participating in this offering by $ , assuming the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial offering price to public and other terms of this offering determined at pricing.

If the underwriters exercise their option in full to purchase additional shares of our Class A common stock in this offering, the pro forma as adjusted net tangible book value of our common stock would increase to $ per share, representing an immediate increase to existing stockholders of $ per share and an immediate dilution of $ per share to investors participating in this offering.

The following table summarizes as of December 31, 2018, on the pro forma as adjusted basis described above, the number of shares of our Class A common stock, the total consideration and the average price per share (1) paid to us by our existing stockholders and (2) to be paid by investors purchasing our Class A common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.


	Shares Purchased				Total Consideration				Weighted- Average Price Per Share
	Number	Percent			Amount	Percent			Weighted- Average Price Per Share
Existing stockholders					$				$
New investors
Total			100	%	$		100	%	$

•

24,357,214 shares of Class B common stock issuable upon the exercise of options outstanding as of December 31, 2018, at a weighted-average exercise price of $1.48 per share;

•

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

We derived the selected consolidated statements of operations data for the years ended December 31, 2017 and 2018 and the selected consolidated balance sheet data as of December 31, 2017 and 2018 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future.

When you read this selected consolidated financial and other data, it is important that you read it together with the historical consolidated financial statements and related notes to those statements, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus.


	Year Ended December 31,
(in thousands, except per share data)	2017			2018
Revenue	$	104,900		$	144,563
Cost of revenue		48,672			65,499

Gross profit		56,228			79,064

Operating expenses:
Research and development⁽¹⁾		28,989			34,618
Sales and marketing⁽¹⁾		40,818			50,134
General and administrative⁽¹⁾		17,451			23,450

Total operating expenses		87,258			108,202

Loss from operations		(31,030	)		(29,138	)
Interest income		443			939
Interest expense		(1,116	)		(1,810	)
Other expense, net		(539	)		(741	)

Loss before income taxes		(32,242	)		(30,750	)
Income taxes		208			185

Net loss	$	(32,450	)	$	(30,935	)

Net loss attributable to common stockholders	$	(32,450	)	$	(30,935	)

Net loss per share attributable to common shareholders, basic and diluted	$	(0.69	)	$	(0.63	)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		46,799,801			48,754,382

Key Business Metrics⁽²⁾
Number of Customers (as of end of period)		1,439			1,582

Number of Enterprise Customers (as of end of period)		170			227

Dollar-Based Net Expansion Rate		147.3	%		132.0	%

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


	Year Ended December 31,
(in thousands)	2017		2018
Cost of revenue	$	190	$	265
Research and development		1,040		1,332
Sales and marketing		493		1,023
General and administrative		1,086		1,459

Total	$	2,809	$	4,079

(2)	See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” for our definitions of these metrics.


	As of December 31, 2018
	Actual			Pro Forma⁽¹⁾			Pro Forma, as adjusted⁽²⁾⁽³⁾
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	36,963		$	36,963
Working capital⁽⁴⁾		85,517			85,517

Total assets	$	162,754		$	162,754

Convertible preferred stock warrant liabilities		3,261
Convertible preferred stock		219,584			—
Common Stock		1			3
Additional paid-in-capital		16,403			239,246
Accumulated deficit		(146,186	)		(146,186	)

Total stockholders’ equity (deficit)	$	(131,927	)	$	90,918

(1)	The pro forma column reflects the automatic conversion of all outstanding shares of our convertible preferred stock into 107,260,454 shares of Class B common stock immediately upon the closing of this offering.

(2)

The pro forma as adjusted column further reflects the receipt of $ million in net proceeds from our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, the amount of cash and cash equivalents, working capital, total assets, and total stockholders’ deficit by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1,000,000 in the number of shares we are offering would increase or decrease, respectively, the amount of cash and cash equivalents, working capital, total assets, and total stockholders’ deficit by approximately $ million, assuming the initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

(4)	Working capital is defined as current assets less current liabilities.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Overview

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

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

Organizations must keep up with complex and ever-evolving end-user requirements. We help them surpass their end-users’ expectations by powering fast, secure, and scalable digital experiences. We built a powerful edge cloud platform, designed from the ground up to be programmable and support agile software development. We believe our platform gives our customers a significant competitive advantage, whether they were born into the digital age or are just embarking on their digital transformation journey. Our platform consists of three key components: a programmable edge, a software-defined modern network, and a philosophy of customer empowerment. Our programmable edge provides developers with real-time visibility and control, where they can write and deploy code to push application logic to the edge. It supports modern application delivery processes, freeing developers to innovate without constraints. Our software-defined modern network is built for the software-defined future. It is powerful, efficient, and flexible, designed to enable us to rapidly scale to meet the needs of the most demanding customers and never be a barrier to their growth. Our 45 terabit software-centric network is located in 60 uniquely designed POPs across the world as of March 31, 2019. Finally, being developers ourselves, we empower customers to build great things while supporting their efforts through frictionless tools and a deeply technical support team that facilitates ongoing collaboration.

understand the world through deeply reported independent journalism. Our customers’ software applications use our edge cloud platform to ensure concert goers can buy tickets to the live events they love, travelers can book flights seamlessly and embark on their next great adventure, and sports fans can stream events in real time, across all devices. The range of applications that developers build with our edge cloud platform continues to surpass our expectations.

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

Our edge cloud platform has experienced a rapid increase in the number of customers from 530 as of December 31, 2014 to 1,582 as of December 31, 2018. Potential customers have the opportunity to test our platform for free. If they choose to make use of our platform for live production delivery, they have the ability to sign up online by providing their credit card information and agreeing to a minimum monthly fee of $50.

We focus our direct selling efforts on medium to large organizations as well as smaller companies that are exhibiting rapid growth. We engage with and support these customers with our field sales representatives, account managers, and technical account managers who focus on customer satisfaction and drive expansion of their usage of our platform and products. These teams work with technical and business leaders to help our customers’ end-users receive the best possible digital experience, while also lowering our customers’ total cost of ownership. We have established and continue to maintain our position by improving upon our programmable edge platform and software-defined modern network architecture. We continue to focus on empowering our developer community through events and conferences, including our Altitude conferences. The success of these direct selling efforts is reflected by our 227 enterprise customers as of December 31, 2018 that generated 84% of our total revenue.

As our customers become more successful and grow, they increase their usage of our platform and adopt additional Fastly products. A meaningful indicator of the increased activity from our existing customer accounts and overall customer satisfaction is our DBNER, which was 147.3% and 132.0% for the years ended December 31, 2017 and 2018, respectively. We believe that an annual cohort analysis of our customers, as depicted in the chart below, demonstrates our success in customer expansion. Once a customer begins to generate revenue for us, they tend to increase their usage of our platform, in particular in their second year. Customer accounts acquired in 2014, 2015, 2016, 2017 and 2018 are referred to as the 2014 Cohort, 2015 Cohort, 2016 Cohort, 2017 Cohort and 2018 Cohort, respectively. Our 2014 cohort increased its revenue 3 times after its first year and has grown at approximately a 50% CAGR over the last four years.

In 2014, we generated $4.9 million of revenue from the 2014 Cohort. Revenue from the 2014 Cohort grew to $14.9 million in 2015, year-over-year growth rate of 204%. In 2015, we generated $7.8 million of revenue from the 2015 Cohort. Revenue from the 2015 Cohort grew to $20.1 million in 2016, representing a year-over-year growth rate of 157%. In 2016, we generated $6.6 million of revenue from the 2016 Cohort. Revenue from the 2016 Cohort grew to $22.0 million in 2017, representing 233% year-over-year growth. In 2017, we generated $5.6 million of revenue from the 2017 Cohort. Revenue from the 2017 Cohort grew to $16.8 million in 2018, representing 200% year-over-year growth.

Summary of Revenue Generated by Customer Cohorts Over Time:

LOGO

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

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

We have achieved significant growth in recent periods. For the years ended December 31, 2017 and 2018, our revenue was $104.9 million and $144.6 million, respectively. Our 10 largest customers generated an aggregate of 37% and 32% of our revenue in 2017 and 2018, respectively. We incurred a net loss of $32.5 million and $30.9 million for the years ended December 31, 2017 and 2018, respectively.

Factors Affecting Our Performance

Winning New Customers

We are focused on continuing to attract new customers. Our customer base includes both large, established enterprises that are undergoing digital transformation and emerging companies spanning a wide array of industries and verticals. In both instances, developers within these companies often use and advocate the adoption of our platform by their companies. We also benefit from word-of-mouth promotion across the broader

developer community. We will continue to invest in our developer outreach, leveraging it as a cost-efficient approach to attracting new customers. We also plan to dedicate significant resources to sales and marketing programs, including various online marketing activities as well as targeted account-based advertising.

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

Expanding within our Existing Customer Base

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

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

International Customer Growth

We intend to continue expanding our efforts to attract customers outside of the United States by augmenting our sales teams and strategically increasing the number of POPs in select international locations. As of December 31, 2017 and 2018, 42% and 46% of our customers were headquartered outside of the United States.

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

Investing in Sales and Marketing

Our customers have been pivotal in driving brand awareness and broadening our reach. While we continue to leverage our self-service approach to drive adoption by developers, we intend to continue to expand our sales and marketing efforts, with an increased focus on sales to enterprises globally. Utilizing our direct sales force, we have multiple selling points within organizations to acquire new customers and increase usage from our existing customers. We intend to increase our discretionary marketing spend, including account based and brand spend, to drive the effectiveness of our sales teams. As a result, we expect our total operating expenses to increase as we continue to expand. Our investments in our sales and marketing teams are intended to help accelerate our sales, onboarding, and ramp cycles. As of December 31, 2018, we had 56 sales representatives and sales managers across our company.

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

Continued Investment in Our Platform and Network Infrastructure

We must continue to invest in our platform and network infrastructure to maintain our position in the market. We expect our revenue growth to be dependent on an expanding customer base and continued adoption of our edge cloud platform. In anticipation of winning new customers and staying ahead of our customers’ needs, we plan to continue to invest to expand the scale and capacity of our software-defined modern network, resulting in increased network service provider fees, which could adversely affect our gross margins if we are unable to offset these costs with revenue from new customers and increase revenue from existing customers. Our customers require constant innovation within their own organizations and expect the same from us. Therefore, we will continue to invest resources to enhance our development capabilities and introduce new products and features on our platform. We believe that investment in research and development will contribute to our long-term growth but may also negatively impact our short-term profitability. For the year ended December 31, 2018, our research and development expenses as a percentage of revenue was 24%.

Developers use our platform to build custom applications and require a state-of-the-art infrastructure to test and run these applications. We will continue to invest in our network infrastructure by strategically increasing our POPs. We also anticipate making investments in upgrading our technology and hardware to continue providing our customers a fast and secure platform. Our capital expenditures for the years ended December 31, 2017 and 2018 were $20.0 million and $18.7 million, respectively, representing 19% and 13% of our revenue in such periods. We expect our capital expenditures to increase on an absolute basis and may increase as a percentage of revenue in future periods. Our gross margins and operating results are impacted by these investments. As of March 31, 2019, we had 60 POPs across 21 countries.

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

Key Business Metrics

We regularly review a number of metrics, including the key metrics presented in the table below, to evaluate our business, measure our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. The calculation of the key metrics and other measures discussed below may differ from other similarly titled metrics used by other companies, securities analysts or investors.


	Year Ended December 31,
	2017			2018
Number of Customers (as of end of period)		1,439			1,582
Number of Enterprise Customers (as of end of period)		170			227
Dollar-Based Net Expansion Rate		147.3	%		132.0	%

Number of Customers

We believe that the number of customers is an important indicator of the adoption of our platform. Our definition of a customer consists of identifiable operating entities with which we have a billing relationship in good standing and from which we recognized revenue during the period. In addition to our paying customers, we also have trial, developer, nonprofit and open source program, and other non-paying accounts that are excluded from our customer count metric. As of December 31, 2017 and 2018, we had 1,439 and 1,582 customers, respectively.

Number of Enterprise Customers

Historically our revenue has been driven primarily by a subset of customers who have leveraged our platform substantially from a usage standpoint. These enterprise customers are defined as customers with revenue in excess of $100,000 over the previous 12-month period. As of December 31, 2017, we had 170 enterprise customers which generated 82% of revenue for the year ended December 31, 2017. As of December 31, 2018, we had 227 enterprise customers which generated 84% of revenue for the year ended December 31, 2018. We believe the recruitment and cultivation of enterprise customers is critical to our long term success.

Dollar-Based Net Expansion Rate

Our ability to generate and increase our revenue is dependent upon our ability to increase the number of new customers and increase the usage of our platform and increase the purchase of additional products by our existing customers. We track our performance in this area by measuring our DBNER. Our DBNER increases when customers increase their usage of our platform or purchase additional products and declines when they reduce their usage, benefit from lower pricing on their existing usage or curtail their purchases of additional products. We believe DBNER is a key metric in measuring the long-term value of our customer relationships and our ability to grow our revenue through increased usage of our platform and purchase of additional products by our existing customers. However, our calculation of DBNER indicates only expansion among continuing customers and does not indicate any decrease in revenue attributable to former customers, which may differ from similar metrics of other companies. We calculate DBNER by dividing the revenue for a given period from customers who remained customers as of the last day of the given period (current period) by the revenue from the same customers for the same period measured one year prior (base period). The revenue included in the current period excludes revenue from (i) customers that churned after the end of the base period and (ii) new customers that entered into a customer agreement after the end of the base period. For example, to calculate our DBNER for the year ended December 31, 2018, we divided (i) revenue for the 12 months ended December 31, 2018, from customers that entered into a customer agreement prior to January 1, 2018, and that remained customers as of December 31, 2018, by (ii) revenue for the 12 months ended December 31, 2017 from the same set of customers.

For the years ended December 31, 2017 and 2018, our DBNER was 147.3% and 132.0%, respectively. As described above, our customers tend to increase their usage of our platform in their second year, which is typically followed by more modest increases in usage, if any, in ensuing years. As a result, while DBNER may fluctuate from quarter to quarter based on, among other things, the timing associated with new customer accounts, we expect our DBNER to continue to decrease on an annual basis as customers that have used our platform for more than two years become a larger portion of both our overall customer base and the revenue that we use to calculate DBNER.

We separately monitor customer retention and churn on an annual basis by measuring our annual revenue retention rate, which we calculate by multiplying the final full month of revenue from a customer that terminated its contract with us (a Churned Customer) by the number of months remaining in the same calendar year (Annual Revenue Churn). The quotient of the Annual Revenue Churn from all of our Churned Customers divided by our annual revenue of the same calendar year is then subtracted from 100% to determine our annual revenue retention rate. We believe this calculation is helpful in that it is based on the amount of revenue that we would expect to have received in the remaining portion of a particular period had a customer not terminated its contract with us. It is not indicative of the actual revenue contribution from churned customers in past periods. By comparing this amount to actual revenue for the period, we are able to assess our ability to replace terminated

revenue by generating revenue from new and continuing customers. Our annual revenue retention rate for the years ended December 31, 2017 and 2018 was 99.0% and 98.9%, respectively.

Key Components of Statement of Operations

Revenue

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

Customers are generally invoiced in arrears on a monthly basis. Many customers have tiered usage pricing which reflects discounted rates as usage increases. Our larger customers often enter into contracts that contain minimum billing commitments and reflect discounted pricing associated with such usage levels.

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

Cost of Revenue and Gross Margin

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

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

Research and Development

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

We continue to focus our research and development efforts on adding new features and products including new use cases, improving the efficiency and performance of our network, and increasing the functionality of our existing products. We expect our research and development expenses to continue to increase on an absolute basis and may increase as a percentage of revenue in future periods.

Sales and Marketing

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

We focus our sales and marketing efforts on generating awareness of our company, platform, and products, creating sales leads, and establishing and promoting our brand, both domestically and internationally. We plan to increase our investment in sales and marketing by hiring additional sales and marketing personnel, expanding our sales channels, driving our go-to-market strategies, building our brand awareness, and sponsoring additional marketing events. We expect our sales and marketing expenses to continue to increase on an absolute basis and may increase as a percentage of revenue in future periods.

General and Administrative

General and administrative expenses consist primarily of personnel costs, including salaries, benefits, bonuses, and stock-based compensation, for our accounting, finance, legal, human resources, and administrative support personnel and executives. General and administrative expenses also include costs related to legal and other professional services fees, sales and other taxes, depreciation and amortization, an allocation of our general overhead expenses, and bad debt expense. We expect that we will incur costs associated with supporting the growth of our business, our transition to, and operation as, a public company and to meet the increased compliance requirements associated with our international expansion.

Our general and administrative expenses include a significant amount of sales and other taxes to which we are subject based on the manner we sell and deliver our products. Historically, we have not collected such taxes from our customers and have therefore recorded such taxes as general and administrative expenses. We expect that these expenses will decline in future years as we continue to implement our sales tax collection mechanisms and start collecting these taxes from our customers. We expect our general and administrative expenses to continue to increase on an absolute basis and may increase as a percentage of revenue in future periods.

Income Taxes

Our income tax expense consists primarily of income taxes in certain foreign jurisdictions where we conduct business and state minimum income taxes in the United States. We have a valuation allowance for deferred tax assets, including net operating loss carryforwards. We expect to maintain this valuation allowance for the foreseeable future.

Results of Operations

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


	Year Ended December 31,
	2017			2018
	(in thousands)
Consolidated Statement of Operations:
Revenue	$	104,900		$	144,563
Cost of revenue⁽¹⁾		48,672			65,499

Gross profit		56,228			79,064

Operating expenses:
Research and development⁽¹⁾		28,989			34,618
Sales and marketing⁽¹⁾		40,818			50,134
General and administrative⁽¹⁾		17,451			23,450

Total operating expenses		87,258			108,202

Loss from operations		(31,030	)		(29,138	)
Other expenses, net		(1,212	)		(1,612	)

Loss before income taxes		(32,242	)		(30,750	)

Income taxes		208			185

Net loss attributable to common stockholders	$	(32,450	)	$	(30,935	)

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


	Year Ended December 31,
	2017		2018
	(in thousands)
Cost of revenue	$	190	$	265
Research and development		1,040		1,332
Sales and marketing		493		1,023
General and administrative		1,086		1,459

Total	$	2,809	$	4,079



	Year Ended December 31,
	2017			2018
Consolidated Statement of Operations, as a percentage of revenue:**
Revenue		100	%		100	%
Cost of revenue		46			45

Gross profit		54			55

Operating expenses:
Research and development		27			24
Sales and marketing		39			35
General and administrative		17			16

Total operating expenses		83			75

Loss from operations		(30	)		(20	)
Other expenses, net		(1	)		(1	)

Loss before income taxes		(31	)		(21	)
Income taxes		*			*

Net loss attributable to common stockholders		(31	)%		(21	)%

*	Less than 0.5% of revenue.

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

Years Ended December 31, 2017 and 2018

Revenue


	Year Ended December 31,
	2017		2018		Change
	(in thousands)
Revenue	$	104,900	$	144,563		38	%

Revenue was $104.9 million for 2017 compared to $144.6 million for 2018, an increase of $39.7 million, or 38%. We had 1,439 customers and 170 enterprise customers as of December 31, 2017. We had 1,582 customers and 227 enterprise customers as of December 31, 2018. This is an increase of 143, or 10%, in customers and 57, or 33%, in enterprise customers from December 31, 2017. Approximately 95% of our revenue in 2018 was driven by usage on our platform. The remainder of our revenue was generated by our other products and services, including support and professional services.

U.S. revenue was $82.7 million and 79% of revenue in 2017. U.S. revenue was $110.9 million and 77% of revenue in 2018. This is an increase of $28.2 million, or 34%, from U.S. revenue in 2017. International revenue was $22.2 million and 21% of revenue in 2017. International revenue was 33.7 million and 23% of revenue in 2018. This is an increase of $11.5 million, or 52%, from international revenue in 2017. We had 830 domestic customers and 609 international customers in 2017. We had 861 domestic customers and 721 international customers in 2018. This is an increase in domestic customers of 31, or 4%, from 2017 and an increase in international customers of 112, or 18%, from 2017.

Cost of Revenue


	Year Ended December 31
	2017		2018		Change
	(in thousands)
Cost of revenue	$	48,672	$	65,499		35	%

Cost of revenue was $48.7 million for 2017 compared to $65.5 million for 2018, an increase of $16.8 million, or 35%. In 2017 and 2018, our cost of revenue consisted of bandwidth, peering, and colocation fees as well as personnel costs, including salaries, benefits, bonuses, and stock-based compensation for employees who support the buildout and operation of the network. Our cost of revenue also includes depreciation expense for network equipment, amortization of capitalized internal-use software, and other network costs. The increase in cost of revenue was due to an increase in bandwidth costs of $3.5 million, an increase of colocation costs of $2.3 million, and an increase in other network costs of $2.3 million due to increased traffic on our platform. Depreciation and amortization expense increased by $3.2 million due to increased investments in our platform. Personnel costs increased by $2.7 million due to an increase in headcount.

Gross Profit and Gross Margin


	Year Ended December 31
	2017			2018			Change
	(in thousands)
Gross profit	$	56,228		$	79,064			41	%
Gross margin		53.6	%		54.7	%		1.1	%

Gross profit was $56.2 million for 2017 compared to $79.1 million for 2018, an increase of $22.8 million, or 41%. The increase in gross profit is due to an increase in revenue from usage of our platform.

Gross margin was 53.6% for 2017 compared to 54.7% for 2018, an increase of 1.1%. The increase is due to better optimization of our platform.

Operating Expenses


	Year Ended December 31,
	2017			2018			Change
	(in thousands)
Research and development	$	28,989		$	34,618			20	%
Sales and marketing		40,818			50,134			23	%
General and administrative		17,451			23,450			34	%

Total operating expenses	$	87,258		$	108,202			24	%


Percentage of revenue:
Research and development		27	%		24	%		(3)	%
Sales and marketing		39	%		35	%		(4)	%
General and administrative		17	%		16	%		(1	)%

Research and development expenses were $29.0 million for 2017 compared to $34.6 million for 2018, an increase of $5.7 million, or 20%. This increase is due to an increase of $6.2 million of personnel related costs, such as salaries, benefits, bonuses, and stock-based compensation. This was offset by an increase in capitalized internal-use software of $1.9 million.

Sales and marketing expenses were $40.9 million for 2017 compared to $50.1 million for 2018, an increase of $9.3 million, or 23%. This increase is due to a $5.1 million increase in personnel related costs, such as salaries, sales commissions, benefits and stock-based compensation, due to an increase in headcount, an increase of $1.5 million in the allocation of corporate costs for facilities and information systems costs, an increase in travel costs of $1.1 million, and an increase in external marketing costs of $0.8 million, such as marketing events, including our Altitude conferences, sponsorship, and advertising.

General and administrative costs were $17.5 million in 2017 compared to $23.5 million in 2018, an increase of $6.0 million, or 34%. This increase is due to an increase of $6.2 million of personnel related costs, such as salaries, benefits, and stock-based compensation due to an increase in headcount, and an increase of $1.0 million in external professional services such as legal, accounting, and enterprise systems. Transaction taxes decreased by $1.3 million primarily due to the release of a reserve of $1.9 million that was no longer required.

Other Income and Expense

Interest Income


	Year Ended December 31
	2017		2018		Change
	(in thousands)
Interest income	$	443	$	939		112	%

Interest income was $443,000 for 2017 as compared to $939,000 for 2018, an increase of $496,000, or 112%. This increase is due to interest on cash raised from our Series F convertible Preferred Stock financing in 2018.

Interest Expense


	Year Ended December 31
	2017		2018		Change
	(in thousands)
Interest expense	$	1,116	$	1,810		62	%

Interest expense was $1.1 million for 2017 as compared to $1.8 million for 2018, an increase of $0.7 million, or 62%. This increase is due to additional borrowings during 2018.

Other expense, net


	Year Ended December 31
	2017		2018		Change
	(in thousands)
Other expense, net	$	539	$	741		37	%

Other expense, net was $539,000 for 2017 as compared to $741,000 for 2018, an increase of $202,000, or 37%. This increase is primarily due to mark-to-market adjustments for warrant liabilities.

Quarterly Results of Operations and Other Data

The following table sets forth our unaudited quarterly statements of operations data for each of the quarters indicated. The unaudited quarterly statements of operations data set forth below have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair statement of such

data. Our historical results are not necessarily indicative of the results that may be expected in the future, and the results for any quarter are not necessarily indicative of results to be expected for a full year or any other period. The following quarterly financial data should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus.


	(Unaudited) Three Months Ended
	March 31, 2017			June 30, 2017			September 30, 2017			December 31, 2017			March 31, 2018			June 30, 2018			September 30, 2018			December 31, 2018
										(in thousands)
Revenue	$	24,401		$	24,271		$	26,191		$	30,037		$	32,498		$	34,448		$	36,820		$	40,797
Cost of revenue⁽¹⁾		10,469			10,915			12,794			14,494			15,384			15,695			16,711			17,709

		13,932			13,356			13,397			15,543			17,114			18,753			20,109			23,088

Gross profit
Operating Expense
Research and development⁽¹⁾		6,139			6,751			8,188			7,911			7,979			8,099			9,233			9,307
Sales and marketing⁽¹⁾		8,839			9,910			10,784			11,285			12,343			11,973			12,331			13,487
General and administrative⁽¹⁾		3,280			3,857			4,873			5,441			5,703			4,130			6,265			7,352

Total operating expenses		18,258			20,518			23,845			24,637			26,025			24,202			27,829			30,146

Loss from operations		(4,326	)		(7,162	)		(10,448	)		(9,094	)		(8,911	)		(5,449	)		(7,720	)		(7,058	)
Interest income		46			117			156			124			137			147			293			362
Interest expense		(231	)		(226	)		(340	)		(319	)		(381	)		(359	)		(479	)		(591	)
Other income (expense), net		(171	)		(118	)		(184	)		(66	)		(94	)		(140	)		(530	)		23

Loss before income taxes		(4,682	)		(7,389	)		(10,816	)		(9,355	)		(9,249	)		(5,801	)		(8,436	)		(7,264	)
Income taxes		31			48			71			58			56			35			51			43

Net loss	$	(4,713	)	$	(7,437	)	$	(10,887	)	$	(9,413	)	$	(9,305	)	$	(5,836	)	$	(8,487	)	$	(7,307	)

(1) Includes stock based compensation as follows:

Cost of revenue	$	43		$	40		$	43		$	64		$	52		$	71		$	55		$	87
Research and development		244			239			276			281			276			324			307			425
Sales and marketing		128			82			123			160			225			226			242			330
General and administrative		236			268			292			290			295			369			357			438

	$	651		$	629		$	734		$	795		$	848		$	990		$	961		$	1,280


	(Unaudited) Three Months Ended
	March 31, 2017			June 30, 2017			September 30, 2017			December 31, 2017			March 31, 2018			June 30, 2018			September 30, 2018			December 31, 2018
	(percentage values)
Revenue		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%
Cost of revenue		43	%		45	%		49	%		48	%		47	%		46	%		45	%		43	%

		57	%		55	%		51	%		52	%		53	%		54	%		55	%		57	%

Gross profit
Operating Expense
Research and development		25	%		28	%		31	%		26	%		25	%		24	%		25	%		23	%
Sales and marketing		36	%		41	%		41	%		38	%		38	%		35	%		33	%		33	%
General and administrative		13	%		16	%		19	%		18	%		18	%		12	%		17	%		18	%

Total operating expenses		75	%		85	%		91	%		82	%		80	%		70	%		76	%		74	%

Loss from operations		(18	)%		(30	)%		(40	)%		(30	)%		(27	)%		(16	)%		(21	)%		(17	)%
Interest income		0	%		0	%		1	%		0	%		0	%		0	%		1	%		1	%
Interest expense		(1	)%		(1	)%		(1	)%		(1	)%		(1	)%		(1	)%		(1	)%		(1	)%
Other income (expense), net		(1	)%		0	%		(1	)%		0	%		0	%		0	%		(1	)%		0	%

Loss before income taxes		(19	)%		(30	)%		(41	)%		(31	)%		(28	)%		(17	)%		(23	)%		(18	)%
Income taxes		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%

Net loss		(19	)%		(31	)%		(41	)%		(32	)%		(29	)%		(17	)%		(23	)%		(18	)%


	Three Months Ended
	March 31, 2017			June 30, 2017			September 30, 2017			December 31, 2017			March 31, 2018			June 30, 2018			September 30, 2018			December 31, 2018
Key Business Metrics⁽¹⁾
Number of Customers (as of end of period)		1,261			1,284			1,365			1,439			1,444			1,529			1,516			1,582
Number of Enterprise Customers (as of end of period)		132			143			157			170			182			189			212			227
Dollar-Based Net Expansion Rate		146.7	%		145.0	%		148.6	%		147.3	%		140.3	%		139.1	%		136.1	%		132.0	%

(1)	See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” for our definitions of these metrics.

Quarterly Revenue Trends

Our quarterly revenue increased in each period presented, with the exception of the three months ended June 30, 2017, primarily due to an increase in the usage of our platform by our existing customers and the addition of new customers. There was a decrease in revenue for the three months ended June 30, 2017 due to several customers renewing at lower rates.

Quarterly Cost of Revenue Trends

Our cost of revenue increased sequentially in each of the quarters presented, primarily driven by expanded use of our platform by existing and new customers, which resulted in increased network costs. We expect our cost of revenue to continue to increase on an absolute basis in future quarters and may increase as a percentage of revenue based on the timing of investments made in our network.

Quarterly Gross Margin Trends

Our gross margin can fluctuate quarter to quarter due to the timing of investments made in our network.

Quarterly Operating Expense Trends

Our operating expenses generally have increased in almost every fiscal quarter primarily due to increases in headcount and other related expenses to support our growth. Our research and development costs in the quarter ended September 30, 2017 reflect an increase in allocation due to an increase in hiring as compared to the rest of the Company. The allocation decreased in the quarter ended December 31, 2017 as hiring in other areas of the Company increased. Our sales and marketing costs can fluctuate based on the timing of our external conferences, such as Altitude. Our general and administrative expenses for the quarter ended June 30, 2018 reflect the release of $1.9 million of reserves related to a transaction tax matter that was favorably resolved. We expect our operating expenses to continue to increase on an absolute basis in future quarters.

Liquidity and Capital Resources

To date, our principal sources of liquidity have been payments received from customers, the net proceeds we received through sales of equity securities, as well as borrowings under our credit facilities. From our inception through December 31, 2018, we have completed several rounds of equity financings through the sales of shares of our convertible preferred stock for total net proceeds of $219.6 million. We believe that our cash and cash equivalents balances, our credit facilities, and the cash flows generated by our operations will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.

Credit Facilities

In November 2017 we entered into a $30 million term loan pursuant to a Second Amended and Restated Loan and Security Agreement (Senior Loan Agreement). All amounts outstanding under the Senior Loan Agreement accrue interest at a rate of prime plus 1.75%. All obligations owed in connection with the Senior Loan Agreement are secured by a lien on substantially all of our assets other than our intellectual property. All outstanding loans under the Senior Loan Agreement, if not paid earlier, will become due and payable on November 1, 2021. We are required to comply with certain affirmative and negative covenants in the Senior Loan Agreement, including a requirement that we maintain a ratio of cash and cash equivalents plus net unbilled accounts receivable to current liabilities plus long term debt minus the current portion of any deferred revenue (an Adjusted Quick Ratio) at all times of at least 1.15 to 1.0, as well as a requirement that we achieve trailing three-month revenue tested on a monthly basis in amounts not less than 80% of our board approved annual budget. We are also required to maintain at least $10 million in unrestricted cash with the lender or its affiliates at all times.

In December 2018, we entered into a Second Lien Credit Agreement pursuant to which the lenders thereunder committed to lend us up to an additional $30 million in term loans. We were required by the terms of the Second Lien Credit Agreement to draw at least $20 million by not later than December 31, 2018. As of December 31, 2018 we have drawn a total of $20 million under the Second Lien Credit Agreement. All amounts outstanding under the Second Lien Credit Agreement accrue interest at a floating rate that is based on the prime rate plus 4.25%. All obligations that are owed in connection with the Second Lien Credit Agreement are secured by a second priority lien on substantially all of our assets other than our intellectual property. All outstanding loans under the Second Lien Credit Agreement, if not paid earlier, will become due and payable in December 2021. We are required to comply with certain affirmative and negative covenants in the Second Lien Credit Agreement, including a requirement that we achieve trailing three-month revenue tested on a monthly basis in amounts not less than 75% of our board approved annual budget.

We were in compliance with our covenants as of December 31, 2018.

Cash Flows

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


	Year Ended December 31,
	2017			2018
	(in thousands)
Cash used in operating activities	$	(25,861	)	$	(16,985	)
Cash used in investing activities		(15,780	)		(47,020	)
Cash provided by financing activities		55,406			69,637

Net increase in cash and cash equivalents	$	13,733		$	5,654

Cash Flows from Operating Activities

In 2017, cash used in operating activities consisted primarily of our net loss of $32.5 million adjusted for non-cash items, including $2.8 million of stock-based compensation expense, $9.6 million of depreciation and amortization, and an increase in our bad debt expense of $1.0 million. With respect to changes in operating assets and liabilities, accounts payable, accrued expenses, and other liabilities increased $2.2 million. This was partially offset by an increase in accounts receivable and prepaid expenses of $9.6 million, which primarily resulted from the growth of our business and the timing of cash receipts from certain of our larger customers, pre-payments for travel, benefits, and commissions as well as an increase in short-term deposits and VAT receivables.

In 2018, cash used in operating activities consisted primarily of our net loss of $30.9 million adjusted for non-cash items, including $13.4 million of depreciation and amortization expense, $4.1 million of stock-based compensation expense, and an increase in our bad debt expense of $0.6 million. With respect to changes in operating assets and liabilities, accounts payable, accrued expenses and other liabilities increased by $4.7 million. This was partially offset by an increase in accounts receivable of $6.2 million and prepaid expenses of $2.3 million, respectively, due to the growth of our business and the timing of cash receipts from certain of our larger customers, pre-payments for insurance, rent, and software licenses, as well as an increase in VAT receivable.

Cash Flows from Investing Activities

In 2017, cash used in investing activities was $15.8 million, primarily consisting of $13.2 million of payments related to purchases of property and equipment to expand our network. We also purchased an additional $46.1 million of marketable securities and sold $43.5 million of marketable securities.

In 2018, cash used in investing activities was $47.0 million, primarily consisting of $19.7 million of payments related to purchases of property and equipment to expand our network. We also purchased an additional $62.7 million of marketable securities and sold $35.2 million of marketable securities.

Cash Flows from Financing Activities

In 2017, cash provided by financing activities was $55.4 million, primarily consisting of $49.8 million in proceeds from our sale of Series E convertible preferred stock, net of issuance expenses, $4.9 million of net borrowings, and $0.6 million in proceeds from stock option exercises by our employees.

In 2018, cash provided by financing activities was $69.6 million, primarily consisting of $39.9 million in proceeds from our sales of Series F convertible preferred stock, net of issuance expenses, $27.1 million of net borrowings, and $2.6 million in proceeds from stock option exercises by our employees and directors.

Contractual Obligations and Other Commitments

The following table summarizes our non-cancelable contractual obligations as of December 31, 2018:


	Less than 1 Year		1-3 Years		3-5 Years		After 5 Years		Total
	(in thousands)
Operating lease obligations⁽¹⁾	$	5,097	$	2,390	$	—	$	—	$	7,487
Purchase obligations⁽²⁾		43,691		12,447		402		—		56,540
Debt⁽³⁾		15,169		46,776		24		—		61,969

Total	$	63,957	$	61,613	$	426	$	—	$	125,996

(1)	Operating lease obligations represent total future minimum rent payments under non-cancelable operating lease agreements, net of sublease income of $1.5 million.

(2)	Purchase obligations represent total future minimum payments under contracts with our cloud infrastructure provider, network service providers, and other vendors. Purchase obligations exclude agreements that are cancelable without penalty.

(3)	Debt represents principal and interest payments under our loan and security agreements.

Off-Balance Sheet Arrangements

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

Segment Information

We have one business activity and operate in one reportable segment.

Quantitative and Qualitative Disclosures about Market Risk

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

Interest Rate Risk

We had cash and cash equivalents of $37.0 million as of December 31, 2018, which consisted of bank deposits and money market funds. The cash and cash equivalents are held for working capital purposes. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. The primary objective of our investment activities is to preserve principal while generating income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Under our Senior Loan Agreement, amounts borrowed prior to December 2018 bear interest at a rate of prime plus 1.75%. Amounts borrowed under the Second Lien Credit Agreement bear interest at a rate of prime plus 4.25%. A hypothetical 10% change in interest rates during the period presented would not have had a material impact on our consolidated financial statements.

Currency Exchange Risks

The functional currency of our foreign subsidiaries is the U.S. dollar. Therefore, we are exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars. The local currencies of our foreign subsidiaries are the British pound and Japanese Yen. Our subsidiaries remeasure

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

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Actual results and outcomes could differ significantly from our estimates, judgments, and assumptions. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates.

Revenue Recognition

We recognize revenue in accordance with the authoritative guidance for revenue recognition, including guidance on revenue arrangements with multiple deliverables. Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.

We primarily derive revenue from customer usage of our platform. Customers can commit to a minimum monthly level of usage and specify the rate at which they will pay for actual usage above the monthly minimum. For contracts with a monthly commitment, we recognize the monthly minimum as revenue each month, provided that an enforceable contract has been executed, the service has been delivered to the customer, the fee is fixed or determinable, and collection is reasonably assured. Should a customer’s usage of our platform exceed the monthly minimum, we recognize revenue for such excess in the period of additional usage. For customers without a monthly commitment, we recognize revenue monthly based upon the customer’s actual usage provided that an enforceable contract has been executed, the service has been delivered to the customer, the fee is fixed or determinable, and collection is reasonably assured.

When more than one element is contained in a revenue arrangement, we determine the fair value for each element in the arrangement based on vendor-specific objective evidence (VSOE) or third-party evidence (TPE) for each respective element. For arrangements in which we are unable to establish VSOE or TPE for each element, we use the best estimate of selling price (BESP) to determine the fair value of the separate deliverables. We allocate arrangement consideration across the multiple elements using the relative selling price method. If we subsequently determine that collection from a customer is not reasonably assured, we record an allowance for doubtful accounts and bad debt expense for all of that customer’s unpaid invoices.

Stock-Based Compensation

We account for stock-based compensation in accordance with the authoritative guidance on stock compensation. Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period of the respective award. We account for forfeitures as they occur.

Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options granted to our employees and directors.

The determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include the fair value of our common stock, the expected term of the options, our expected stock price volatility over the expected term of the options, risk-free interest rates, and expected dividends, which are estimated as follows:

•

Fair Value of Common Stock. Because our common stock is not yet publicly traded, we must estimate the fair value of common stock, as discussed in “Common Stock Valuations” below.

•

Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms, and contractual lives of the options. The expected term was estimated using the simplified method allowed under SEC guidance.

•

Volatility. Since we do not have a trading history of our common stock, the expected volatility is determined based on the historical stock volatilities of our comparable companies. Comparable companies consist of public companies in our industry, which are similar in size, stage of life cycle, and financial leverage. We intend to continue to apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.

•

Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option pricing model on the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equivalent to that of the options for each expected term.

•

Dividend Yield. The expected dividend assumption is based on our current expectations about our anticipated dividend policy. As we have no history of paying any dividends, we use an expected dividend yield of zero.

We account for forfeitures as they occur.

Common Stock Valuation

The fair value of the common stock underlying our stock options was determined by our board of directors, after considering contemporaneous third-party valuations and input from management. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:

•

contemporaneous valuations performed at periodic intervals by unrelated third-party valuation firms;

•

the prices, rights, preferences, and privileges of our convertible preferred stock relative to outside investors in arms-length transactions;

•

the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;

•

our actual and expected operating and financial performance as well as capital resources;

•

current business conditions and projections;

•

our hiring of key personnel and the experience of our management;

•

the risks inherent in the development and expansion of our platform and products;

•

our stage of development and material risks related to our business;

•

the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our business given prevailing market conditions;

•

the illiquidity of stock-based awards involving securities in a private company;

•

the market performance of comparable publicly traded companies; and

•

secondary stock transactions, including secondary stock purchase transactions that were executed among certain of our employees and board members and an unrelated third party.

The valuations performed by unrelated third-party specialists were just one factor used by our board of directors to assist with the valuation of the common stock. In valuing our common stock, the equity value was determined using two different methods, which includes back-solving overall equity value to the price paid by recent financing transactions, and the market-based approach. The fair value of our equity was then allocated to various securities within our capital structure by applying an option pricing method. The market-based approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market value multiple is determined and then applied to the subject company’s financial results to estimate the value of the subject company.

The resulting equity value was then allocated to each class of stock using an Option Pricing Model (OPM). The OPM treats common stock and convertible preferred stock as call options on an enterprise value, with exercise prices based on the liquidation preference of our convertible preferred stock. The common stock is modeled as a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after our convertible preferred stock is liquidated. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. After the equity value is determined and allocated to the various classes of shares, a discount for lack of marketability (DLOM), is applied to arrive at the fair value of common stock. A DLOM is applied based on the theory that as an owner of a private company stock, the stockholder has limited opportunities to sell this stock, and any such sale would involve significant transaction costs, thereby reducing overall fair market value.

Our assessments of the fair value of common stock for grant dates between the dates of the valuations were based in part on the currently available financial and operational information and the common stock value provided in the most recent valuation as compared to the timing of each grant. For financial reporting purposes, we considered the amount of time between the valuation date and the grant date to determine whether to use the latest common stock valuation. This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date.

Following this offering, it will not be necessary to determine the fair value of our Class A common stock using these valuation approaches as shares of our Class A common stock will be traded in the public market.

Based on the assumed initial public offering price per share of $ , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, the aggregate intrinsic value of our outstanding stock options as of was $ million, with $ million related to vested stock options.

Internal-Use Software Development Costs

We capitalize certain costs related to the development of our platform and other software applications for internal use. In accordance with authoritative guidance, we begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. We stop capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant testing. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. We also capitalize costs related to specific enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within research and development expenses in our consolidated statement of operations. We exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized. To the extent that we change the manner in which we develop and test new features and functionalities related to our platform, assess the ongoing value of capitalized assets, or determine the estimated useful lives over which the costs are amortized, the amount of internal-use software development costs we capitalize and amortize could change in future periods.

Legal and Other Contingencies

From time to time, we have been and will continue to be subject to legal proceedings and claims. Periodically, we evaluate the status of each legal matter and assess our potential financial exposure. If the potential loss from any legal proceeding or litigation is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required to determine the probability of a loss and whether the amount of the loss is reasonably estimable. The outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential liability and the amount of accruals recorded are based only on the information available to us at the time. As additional information becomes available, we reassess the potential liability related to the legal proceeding or litigation, and may revise our estimates. Any revisions could have a material effect on our results of operations.

We conduct operations in many tax jurisdictions throughout the United States. In many of these jurisdictions, non-income-based taxes, such as sales and use and telecommunications taxes are assessed on our operations. We are subject to indirect taxes, and may be subject to certain other taxes, in some of these jurisdictions. Historically, we have not billed or collected these taxes and, in accordance with U.S. GAAP, we have recorded a provision for our tax exposure in these jurisdictions when it is both probable that a liability has been incurred and the amount of the exposure can be reasonably estimated. As a result, we have recorded a liability of $3.1 million as of December 31, 2018. These estimates are based on several key assumptions, including the taxability of our products, the jurisdictions in which we believe we have nexus and the sourcing of revenues to those jurisdictions. In the event these jurisdictions challenge our assumptions and analysis, our actual exposure could differ materially from our current estimates.

Recent Accounting Pronouncements

See “Note 2. Summary of Significant Accounting Policies” included in the Notes to the Consolidated Financial Statements.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

A LETTER FROM ARTUR BERGMAN, DEVELOPER, FOUNDER AND CEO

Why I Built Fastly: Making The Edge Work For Developers

Fastly was built by developers, to empower developers.

I founded Fastly based on my experience leading engineering at Wikia, a global community knowledge-sharing platform. As a technical leader, it was my job to deliver an equally fast, reliable, and secure online experience for passionate communities around the world. Much like Wikipedia, Wikia is a platform where people constantly make rapid-fire, simultaneous updates to shared information all day, every day, across thousands of topics. I knew that slow and out-of-date content was costing us community members and decreasing engagement, which impacted revenue. Little did I know that companies offering real-time airline bookings, online ticket sales, e-commerce inventory, hotel availability, community reviews, and breaking news on the web also faced the same challenge of securely providing highly dynamic and time-sensitive content to people all over the world, instantly.

CDNs were supposed to address this problem, but I discovered that existing solutions weren’t actually equipped to enable the global, real-time experiences we needed to deliver for our community members. Even worse, the innovative solutions our developers wanted to implement using legacy CDNs were blocked by a frustrating lack of flexibility, visibility, and scalability. I realized that we needed something radically more modern in order to provide the community with equally fast, secure, and reliable experiences at massive scale—and so did other companies.

Our Edge Cloud Platform

When I asked the legacy CDN providers for a solution that could meet the needs of my massive, rapidly changing content base, I was told it was “impossible.” When I hear the word “impossible,” I see an opportunity. Great companies aren’t manufactured, but born out of necessity to provide immensely valuable solutions. Enter Fastly. Open source software and improvements in hardware inspired me to do something that had never been done before: empower developers to build innovative software and eliminate the pain of choosing between scale, security, and speed of delivery. No growing business can afford to de-prioritize even one of those elements.

Fastly was built to put the power back into developers’ hands. Using software, we developed an edge cloud platform designed to provide unprecedented, real-time control, and visibility, removing traditional barriers to innovation. To empower other developers to write and deploy code instantly at the edge, we made the platform extremely accessible, self-service, and API-first, which differentiates Fastly from traditional approaches offered by legacy CDNs. We pushed the boundaries of what’s possible, and the developer community jumped on board with us. Fastly brings the power of the cloud closer to the user, enabling highly dynamic, personalized digital experiences in real time, at global scale. We allow organizations to engage globally distributed end-users with equally delightful and secure experiences, so they stay better connected with the things they love.

As the consumption of digital content continues to grow globally, organizations rely on Fastly to scale digital experiences for users around the world. Today, our platform handles hundreds of billions of internet requests a day. We deliver a critical service that helps our customers better delight, serve, and protect their end-users. Our core values put our customers first, because when we help them thrive, everyone benefits. It brings me great joy to know we’ve built a solution our customers both use and truly love, which has led to our customers becoming long-term friends and partners.

Our Developer Roots

At Fastly, we are in the business of enabling developers to dream bigger. The impact of our work is immense. We’ve built a team of brilliant technical minds who think outside of the box to move the industry

forward. Our engineering staff includes experts in every part of the stack that makes up the internet. We put a premium on deep technical expertise because of the critical nature and broad reach of the services we provide to our customers. It’s humbling and deeply exciting to work alongside and welcome world-class experts to our team every day.

Growing Values-First

We have built a new modern architecture for the software-defined future of the internet, but there’s more to Fastly than just technology.

We have chosen to grow with a focus on transparency, integrity, and inclusion. We are building a kind, ethical, and inclusive team that reflects our diverse customer base. The more diverse our workforce, the easier it is to attract diverse talent and build technology that provides true value for leading businesses and their end-users across the world.

We are a company of rational optimists who believe that actions speak louder than words, and anything is possible. We value privacy and do not exploit our customers’ end-user data. We also support a growing number of great nonprofit organizations and open source projects powered by our platform for free. We make the web more beautiful through our work.

You may be wondering what a more beautiful web looks like to us. Technology isn’t really about servers or serverless; it’s about people. We never forget that at the heart of our work is the goal to improve people’s daily lives. Fastly was founded on a strong culture of support and service, and we are committed to serving the very best of the internet.

The phrase “you’re only as good as the company you keep” has always been a guiding principle for me, both personally and professionally. It speaks to our hiring practices and the business ethics I’m committed to upholding as we continue to grow. Doing what’s right benefits our employees, our customers, and the internet. Just as we choose to work with individuals who are trustworthy, demonstrate integrity, and reflect our values, we choose to work with customers that we believe have integrity, are trustworthy, and do not promote violence or hate, nor will we work with customers who do so.

As a growing software company, we have the opportunity to make an immense, lasting positive impact on the world through technology. We will continue to push the edge of innovation, so we’ll always be ready to empower our customers’ biggest, boldest dreams. This is just the beginning.

I invite you to join us.

- Artur

BUSINESS

Overview

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

Organizations must keep up with complex and ever-evolving end-user requirements. We help them surpass their end-users’ expectations by powering fast, secure, and scalable digital experiences. We built a powerful edge cloud platform, designed from the ground up to be programmable and support agile software development. We believe our platform gives our customers a significant competitive advantage, whether they were born into the digital age or are just embarking on their digital transformation journey. Our platform consists of three key components: a programmable edge, a software-defined modern network, and a philosophy of customer empowerment. Our programmable edge provides developers with real-time visibility and control, where they can write and deploy code to push application logic to the edge. It supports modern application delivery processes, freeing developers to innovate without constraints. Our software-defined modern network is built for the software-defined future. It is powerful, efficient, and flexible, designed to enable us to rapidly scale to meet the needs of the most demanding customers and never be a barrier to their growth. Our 45 terabit software-centric network is located in 60 uniquely designed POPs across the world as of March 31, 2019. Finally, being developers ourselves, we empower customers to build great things while supporting their efforts through frictionless tools and a deeply technical support team that facilitates ongoing collaboration.

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

because big ideas often start small, we love it when developers experiment and iterate on our edge cloud platform, coming up with exciting new ways to solve today’s complex problems.

We have achieved significant growth in recent periods. For the year ended December 31, 2017, our revenue was $104.9 million compared to $144.6 million for the year ended December 31, 2018, an increase of $39.7 million, or 37.8%. We incurred a net loss of $32.5 million and $30.9 million for the years ended December 31, 2017 and 2018, respectively.

Industry Background

Our industry is influenced by a number of different factors which fall under three macro-level trends:

End-user online behaviors are changing rapidly and expectations have reached an all-time high, driven by constant connectivity and new, dynamic technologies.

To keep up, enterprises need to reinvent themselves by embracing digital transformation and technologies such as edge and cloud computing.

Developers are key to this success and they are empowered to innovate for enterprises to gain competitive advantage.

Online Behaviors and Expectations Have Changed

Hyper-connected end-users are increasingly impatient. We live in a digital age defined by constant connectivity and instant gratification. Recent research from the Pew Research Center shows that 39% of Americans aged 18 to 29 now go online “almost constantly.” These connected end-users have more choice, more access to information and less patience. Slower load times lead to fewer page views and lower customer satisfaction. According to a Google study, as page load times increase from one to five seconds, the probability of bounce increases 90%.

End-users expect instant, personalized, and dynamic experiences online. We believe personalized content results in increased sales and an increased likelihood of repeat purchases. The increasing popularity of the mobile application, gaming, and live-streaming markets has fueled explosive growth in dynamic content. Whether searching for a restaurant on their mobile application or streaming live sporting events on their tablet, end-users expect an instant, highly personalized, and interactive online experience.

Emerging technologies, such as the IoT and AR/VR, are only starting to take root, yet their transformative nature is readily apparent. IoT is creating compelling use cases around autonomous driving, predictive maintenance, and asset tracking. AR/VR promise to redefine how we interact with the world around us, from the gaming and entertainment industries to retail and manufacturing. These technologies will require companies to rapidly process vast amounts of data closer to the end-user, or device, for instant, accurate responses.

End-users easily part with personal data but expect privacy in return. Lured by the promise of the next truly delightful online experience, many end-users willingly part with personal data. However, they expect enterprises to put the right measures in place to guarantee the privacy of their data. Meanwhile, web and mobile applications are becoming an increasingly attractive target for attackers who use them as a backdoor into company networks. Web applications were the number one attack vector used to conduct data breaches in 2018, according to research from Verizon. These breaches expose sensitive data, resulting in brand damage, loss of business, and customer churn.

Enterprises Need To Reinvent Themselves To Compete

To stay relevant, organizations must embrace digital transformation. Enterprises are under growing pressure to deliver the next transformative online experience or risk losing their customers to the competition. This requires them to embrace digital transformation. In a Forrester survey, 56% of organizations surveyed describe their digital transformation process as “currently underway.” This process is about investing in new technologies, business models, and procedures to enhance the value delivered to end-users. This includes creating end-user experiences that delight; tapping into the flexibility and scalability of cloud computing; and enabling critical teams like DevOps to embrace a more agile development and delivery model.

Digital transformation is driving the growth of hybrid and multi-cloud deployments. A growing number of enterprises are tapping into the agility, flexibility, and scalability of the cloud to help support their digital transformation efforts. Some companies are opting for hybrid cloud deployments, which utilize both cloud and on-premise appliance-based solutions. Multi-cloud deployments are also becoming popular as a means of avoiding vendor lock-in and ensuring redundancy for mission critical websites and applications. IDC predicts that by 2021, over 90% of enterprises will use multiple cloud services and platforms.

Hybrid and multi-cloud environments pose a number of challenges when it comes to supporting cloud-based applications. Organizations can end up using multiple appliances and cloud provider solutions to support these applications. This creates costly, siloed environments with no centralized management view, making it challenging to operate. As a result, enterprises are starting to look for vendor agnostic cloud platforms that can provide functionality like load balancing, firewall, and bot detection across both data centers and clouds and between different cloud providers.

Enterprises are looking for cloud partners who can scale on demand. In this digital age, enterprises are expected to deliver exceptional online experiences that can handle sudden and unpredicted spikes in traffic. Nobody wants to be the online retailer whose website crashes during Black Friday sales or the digital streaming service that has an outage during a major sporting event. Organizations are looking for partners with broad global coverage who can scale on demand. With growing online threats, security must also scale. DDoS attacks have now grown as large as one terabit per second, so cloud partners must also have the network capacity to absorb these attacks, ensuring business continuity.

Savvy enterprises see edge computing as the next evolution of the cloud. Industry leaders looking for ways to deliver the next truly delightful application experience for their end-users are turning to edge computing for answers. In a world where milliseconds count, the central cloud no longer serves as the ideal place for all data processing. For content that is highly dynamic and time-sensitive, sending data back and forth to a central server simply takes too long. This challenge has given rise to a major new trend in internet infrastructure—edge computing. Gartner defines edge computing as “solutions that facilitate data processing at or near the source of data generation.” Gartner estimates that by 2022, 75% of enterprise-generated data will be created and processed outside a traditional data center or cloud, at the network edge.

Developers Are Empowered and Powerful

Developers are the new decision makers. As enterprises embrace digital transformation, the future will be built in software, in the cloud, by developers. Developers are being empowered to make their own technology choices around which cloud platforms, services, programming languages, and frameworks are needed to create new and improved applications. Developers want to work with platforms that are fully programmable via flexible APIs, allowing them to solve their own unique business problems. They are adopting cloud native technologies like Kubernetes, Apache Kafka, and Docker to transform how software products and services are delivered.

their own custom applications quickly and cost effectively. Freed from the constraints of a software vendor’s release schedules, developers have agility to add new features or test new ideas as they emerge. Gartner predicts that by 2020, 75% of applications will be built, not bought.

Developers are adopting modern software delivery practices. Operational efficiency needs are driving the adoption of more agile application delivery practices. Developers are embracing serverless compute and CI/CD, and collaborating with IT Operations to build, package, integrate, test, and release code on an ongoing basis. This empowers developers to push new code to production multiple times a day to quickly test out new features, fix bugs, or enhance existing offerings.

Modern software delivery practices are also extending to security with the growing popularity of DevSecOps. With DevSecOps, security is baked into software development processes from the start, instead of being an afterthought. Automated security controls are introduced earlier in the application development lifecycle, minimizing vulnerabilities, and eliminating costly rework further down the line.

Developers are Expecting More from Cloud Providers

Today’s developers seek the freedom to innovate and experiment on their own terms. As they select cloud partners to support their software delivery needs, they are demanding the same level of flexibility. They expect to be able to sign up online and experiment with a provider’s offering in a frictionless, self-service manner. Developers want providers they can grow with, who charge based on product consumption. They also care about a provider’s cultural fit, as they want to work with companies who act as an extension of their team. These expectations are raising the bar for cloud platform providers.

These Emerging Trends Pose Significant Challenges for Existing Solutions

Existing solutions for enterprises and developers, such as enterprise data centers, central cloud, small business-focused CDNs, or legacy CDNs, suffer from a number of technical limitations that make them particularly ill-equipped to address these new end-user, developer, and enterprise requirements.

Limitations of Legacy Vendors

Legacy CDN Solutions. Legacy CDNs were not designed to adequately address the rapid compute and performance requirements of today’s data-rich applications, or the demands of agile developers who build them.

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Lack of visibility and control

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Legacy CDNs are largely black box solutions. They do not adequately support key developer requirements such as API access, instant configuration changes, or real-time data insights, making them incompatible with agile development processes such as CI/CD and DevSecOps.

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Outdated architecture adds cost and limits functionality

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Legacy CDNs were built back when hundreds of thousands of smaller servers in thousands of locations were needed in order to get closer to end-users. Today, the capital expenditures, real estate, and operating costs to sustain this type of business model leads to bloated and inefficient operations.

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Legacy CDNs are ill-equipped to handle today’s performance requirements. They lack built-in routing and load balancing for more advanced content routing.

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Many of these CDNs’ offerings are a result of multiple acquisitions that have not been fully integrated into their core network. Features like compliance and security run on separate networks which can negatively impact performance.

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Costly and inflexible sales support

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Legacy CDNs are heavily focused on professional services and inflexible enterprise sales structures. While this approach may work for some organizations, the rise of software developers is rapidly changing this dynamic. Organizations now demand more flexible support options, including better documentation and the ability to contact a partner to help them troubleshoot in real time.

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Technology sub-optimal for live streaming and OTT video

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Legacy CDNs are ill-equipped to protect expensive encoding infrastructures from massive traffic spikes which cause delays in delivering live feeds.

Enterprise Data Centers. Many enterprises still manage their own physical hardware in either colocation facilities or data centers. These architectures present a number of key challenges.

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High total cost of ownership

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Hardware-based solutions require organizations to purchase expensive computing hardware and hire dedicated staff to install, configure, and maintain it. They must overprovision servers to ensure redundancy, but these machines remain largely unused except during traffic spikes. This is less cost-effective than software-driven usage-based models whereby companies can scale based on the real-time needs of their applications.

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Agile challenges

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As DevOps teams seek to embrace agile development processes like CI/CD and DevSecOps, many legacy hardware-based solutions lack key features needed to support these efforts, including full API access and instant scalability.

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Failure to handle attacks at scale

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As attacks grow in size and frequency, security-only appliances are strained. Hardware-based WAFs lack the compute power needed to keep up with the growing volume of application layer attacks. Similarly, hardware-based DDoS solutions lack the bandwidth to handle today’s massive attacks.

Central Cloud. Enterprise workloads continue to move to the central cloud, primarily to take advantage of the growing popularity of IaaS offerings. According to Logic Monitor, 83% of enterprise workloads will be in the cloud by 2020. Yet running modern applications in the central cloud poses challenges when it comes to latency, the ability to pre-scale, and cost efficiency.

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Latency issues

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The central cloud was designed around a model of a few very large data centers, located outside of major metropolitan areas, with sufficient power to store and process massive volumes of data. As cloud computing is done further away from the end-user, the central cloud is not designed to handle the low latency requirements of today’s highly dynamic applications.

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Inability to pre-scale

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The central cloud was built to support a multitude of languages, operating systems, and database environments for different customer applications. This has led to a bloated compute environment, that takes several seconds or even minutes to scale resources on demand.

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Vendor lock-in

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Dominant central cloud vendors are eager to lock customers into proprietary software ecosystems that can have adverse effects on pricing leverage. Vendor lock-in and the high prices that result from a lack of competition are significant challenges to cost efficiency.

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Business model that is challenged by the move to the edge

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As the edge cloud grows in popularity, it threatens to disrupt the basic business model of the central cloud. Central cloud revenue is based on the monetization of units of compute power, storage, and bandwidth. As more data is processed at the edge, less compute power will be needed in the central cloud. Similarly egress costs will be lower, since less traffic will need to transit back and forth from the central cloud to the end-user. Like central cloud spend and other non-discretionary budget lines for businesses with online applications, the edge cloud spend is part of cost of goods sold.

Small business-focused CDNs. Existing small business-focused CDNs have an extremely difficult time providing the technology, support, and culture that is required to support today’s enterprise buyer.

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Technology that is not enterprise ready

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Enterprises and their developers demand focused, high performance, and highly reliable technology stacks. Small business CDNs do not have the compute power, storage capacity, or software systems to build a reliable and scalable platform. As a result, they tend to focus on more basic innovation efforts rather than building the robust technology platform enterprises require.

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Support as a cost center

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These solutions see customer support as a cost center, instead of a service to ensure the needs of the customer are always being met. As a result, they often seek to minimize any interaction with the customer to keep costs low.

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Illegal content and immoral activities

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Some existing providers make their solutions available to sites that promote or benefit from counterfeiting, piracy, spyware, hate speech, terrorism, and other unethical activities. We believe that enterprises do not want to associate their brand with companies that make questionable choices.

A New Approach Is Needed

A new approach is needed to meet the demands of today’s modern applications and the developers who build them. Enterprise data centers are too costly to maintain and cannot scale sufficiently. The central cloud provides much needed scalability and a more cost-effective model, but it introduces latency issues and vendor lock-in. While legacy CDNs can address latency, they are ill-equipped to deal with the rapid compute requirements needed to build and run modern applications. Legacy CDNs also lack the visibility and control that developers need to embrace the kinds of agile development processes that power continuous innovation.

These problems can be solved in the cloud, but in a different kind of cloud. It must be a cloud that is a lot closer to the end-user where the data is created, altered, and exchanged. It must be a cloud that can scale to meet the needs of today’s most popular applications, such as applications that stream live video to millions of concurrent viewers or juggle the time-sensitive intricacies of flash sales or major news events. This new cloud must also firmly empower developers to lead the charge in their organizations’ digital transformation efforts.

Our Solution: The Developer’s Edge

We have built a powerful, serverless edge cloud platform, designed from the ground up to be programmable and support agile software development. We process, serve, and secure our customers’ applications as close to their end-users as possible, at the edge of the internet for enhanced performance and protection. We call this platform the Developer’s Edge and we believe it gives our customers a significant competitive advantage whether they are just embarking on their digital transformation journey or natively born into the new digital age.

Our edge cloud platform is based on three core tenets:

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Developers must be empowered to innovate;

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Platforms must innovate ahead of market demands while still being reliable, scalable, and secure; and

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Vendors must provide exceptional flexibility and support.

With this in mind, our platform, the Developer’s Edge, consists of three key components: a programmable edge, a software-defined modern network, and a philosophy of customer empowerment.

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Programmable Edge

Our programmable edge sits in an extremely privileged position, between our customers’ applications and their end-users, placing our services closer to those users. It is designed to create a space for developers to innovate at their own pace, by providing:

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Full programmability. Our powerful platform allows developers to write and deploy their custom code to push application logic to the edge. We believe that logic like A/B testing, URL redirects, paywall authentication, and location/language customization can all be executed faster and more efficiently at the edge;

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Reusable modules. Our platform includes reusable modules based on commonly deployed custom code examples. We package and add these reusable modules to our platform, which do not require developer experience to implement.

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Real-time visibility and control. Our edge cloud platform is built with instant visibility and control as a core tenet. We stream log data from our network edge in real time so developers can instantly see the impact of new code in production, troubleshoot issues as they occur and rapidly identify suspicious traffic. We also empower developers to make and roll back their own configuration or code changes on the fly;

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Agile development. Developers can build Fastly into their technology stack to power CI/CD efforts. They can use our edge cloud platform to help push new code to production multiple times a day as they test new features, fix bugs, or enhance existing offerings. Fastly also supports DevSecOps efforts, allowing developers to introduce automated security controls early in the application development cycle, thus minimizing vulnerabilities and eliminating costly rework further down the line; and

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Safety at the edge. We built a serverless development platform at the edge, designed to allow us to run code in a safe and secure manner, while maintaining the performance and scalability needed for modern applications. This frees developers to build custom applications that solve unique problems closer to the edge and test them in real time without impacting production traffic.

Edge Use Cases. Below are some examples of use cases our customers have solved for using Fastly’s programmable edge:

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API acceleration. Accelerate and secure critical API responses at the edge for delightful application experiences, such as instant hotel lookup based on location and real-time inventory updates between retail stores and their online storefronts;

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IoT. Process and secure data from connected devices at the edge for instant results for time-sensitive applications;

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Cloud migration. Seamlessly migrate from data center to cloud, hybrid or multi-cloud environments, enabling the customer to take advantage of the functionality and cost savings of one or more cloud providers; and

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Enabling blockchain. Cache and accelerate individual transactions on the blockchain in real time.

Software-Defined Modern Network

Our edge cloud platform is designed to take advantage of the modern internet. Our philosophy has been to differentiate through software by building one powerful software-centric network composed of unique and proprietary components. Our approach is designed to give us the flexibility to innovate and build so we will never be a barrier to our customers’ growth, and consists of the following key elements:

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Software-centric approach at global scale. From the start, we realized that single purpose hardware-based solutions that rely on custom designed chips are inflexible. Custom hardware, like routers, load balancers, and security appliances, do not have the flexibility to support the dynamic needs of the modern internet. We started with open source software like Varnish and Linux, then rewrote it to support the use cases of a multi-tenant, high-performance edge cloud. We created our own proprietary software defined networking stack with built-in routing and load balancing, a storage system for optimal storage usage and performance, a massive data pipeline to send

customer logs, a cache invalidation system that purges content around the world in an average of 150 milliseconds or less, and a proprietary control panel that allows our customers to update their edge application logic and configurations in seconds around the world. We architect the software to run on custom-designed servers built upon commodity components and network hardware so that we can control every aspect of the network, from request to response and drive as much utilization and scale as possible. Our software-centric approach is designed for better network efficiency and greater flexibility to scale as we add more services.

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POP design. We built Fastly for the internet of today—meaning fewer POPs, each with massive scale and located at the key interconnection points of the internet. Our POPs are connected directly to the core internet, each connecting directly to core Internet Service Provider (ISPs) and 68 Internet Exchange Points as of March 31, 2019 to offer high performance in long-tail content caching. We run smaller clusters of more powerful servers that provide superior performance for customers who expect updates to be pushed out to their global end-users nearly instantaneously. Legacy CDNs do not offer this benefit, as it is extremely difficult to update hundreds of thousands of servers around the world;

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Server efficiency. We have a highly efficient global server footprint because we combine advanced server and network hardware with our world class software at each of our POPs. As of March 31, 2019, we had 1,596 servers. Our servers are optimized to handle the complex workloads of compute at the edge by using high-end Central Processing Units and significant amount of Random Access Memory to process VCL. We use solid-state drives, for fast and constant lookup times, and modern 25 Gigabit Ethernet for robust bandwidth. This, combined with our algorithms and custom software, gives us the flexibility to scale while dramatically reducing operating burden; and

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One network. We have built a single powerful, compliant network to support customers’ security and delivery needs:

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All of our security solutions benefit from the same level of visibility and control as our core delivery offerings. Customers can use our real-time data feeds to see threats as they emerge, make rule changes on the fly, and update policies around the globe in seconds;

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Our single network is designed to provide the massive scale needed to defend against today’s growing DDoS threats without sacrificing performance. The servers in our platform provide all of the features of our product suite, allowing rapid and predictable scaling;

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We help meet customers’ Payment Card Industry (PCI), Health Insurance Portability and Accountability Act (HIPAA), and Service Organization Control (SOC) needs without impacting performance. Because of our flexible routing and server architecture, we do not need to send PCI traffic off to a separate sub-optimal network; and

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Our WAF product is built into the fabric of our edge cloud platform, allowing us to protect web-based applications with minimal latency.

Common Use Cases. Our powerful network along with our operational efficiency can easily handle use cases that are traditionally solved by CDNs. Some of these examples include:

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Infrastructure-agnostic traffic distribution. Support enterprise hybrid and multi-cloud strategies by intelligently routing traffic across different cloud providers, or between cloud and on-premise data centers, regardless of location;

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Efficient traffic spike management. Allow enterprises to accommodate traffic spikes by intelligently and rapidly distributing content requests across their network;

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Live streaming at scale. Deliver highly-reliable live streaming experiences with minimal interruptions, even when concurrently streaming to large global audiences;

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Responsive mobile applications. Serve rapidly-changing mobile content from the edge, enabling end-users to instantly access the very latest news updates, weather forecast, hotel availability, or store inventory from their mobile applications;

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Protection against disruptive DDoS attacks. Protect customers’ networks against highly disruptive DDoS attacks by leveraging a high-bandwidth, globally distributed network to absorb attacks at the edge; and

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Secure applications without impacting performance. Enforce WAF and bot detection rules at the network edge to protect organizations’ mission critical applications without impacting performance.

Customer Empowerment Philosophy

Fastly was built by developers, for developers. We believe in empowering our customers to build great things, while collaborating with them to promote their success. We have a unique understanding of what it takes to deliver a frictionless customer experience by providing:

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Freedom to try. Our free trial allows developers to sign up and start experimenting with our edge cloud platform in a frictionless, self-service manner;

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Flexible support model. Developers are free to program on our edge cloud platform, taking advantage of our rich documentation and expertise of our developer community. For enterprise customers who require more guidance, we provide a range of support packages and access to deep technical expertise from front-of-line support staff to technical account managers; and

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Partner friendly. Just as we expose the ability to program at the edge to our customer base, we extend that power and functionality to our partners as well. This allows our partners to build out applications that run at the edge, and provide a feature or service that is complementary to our platform. We enable these integrations with a focus on API-support and a large number of code libraries that allow our partners to integrate.

Strengths of Our Platform

Our edge cloud platform has many strengths including:

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Programmability. Our edge cloud platform is fully programmable. Developers can tap into our user interface to address simple use cases. More complex use cases can be addressed using our powerful edge programming language and APIs to write custom code at the edge or using reusable modules;

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Real-time visibility and control. Our edge cloud platform is built with real-time visibility and control as a core tenet. We allow developers to make instant configuration changes and see the impact of those changes nearly immediately. We stream log data from our software-centric network edge in real time so developers can rapidly identify and troubleshoot issues, and roll back code if needed;

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Consistent and superior performance. We accelerate web and mobile applications, allowing enterprises to provide delightful end-user experiences. Our modern platform design enables us to cache dynamic content for long periods of time and retrieve it quickly so web pages load faster;

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Support for agile development processes. The speed, flexibility, and control offered by our edge cloud platform empowers developers to embrace agile development practices. They can build our edge cloud platform into their technology stack to power CI/CD efforts. This frees them to innovate, pushing new code to production multiple times a day. We also support DevSecOps efforts. Developers can introduce automated security controls early in the application development cycle, improving overall security posture and avoiding costly rework later;

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Easy to scale. Our software-centric approach and software-defined modern network are designed to enable enterprises to scale on demand. As they grow their customer base and expand globally, we scale with the goal of delivering unhindered performance even during unpredictable peaks in traffic;

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One network. Using a single, compliant network, our edge cloud platform is able to support our enterprise customers’ security and delivery needs in a highly efficient manner;

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Scalable security. Our network is designed to provide the massive scale needed to defend against DDoS attacks without sacrificing performance. Enterprises can use our real-time data feeds to gain insights into threats as they emerge and update security policies globally within seconds;

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Large and growing developer community. We have a unique approach to nurturing our developer community. Unlike many developer-focused products that have to build a community from scratch in order to aggregate millions of developers, our approach yields the same benefits but is significantly more scalable. First, our platform shares a configuration language with Varnish, a powerful open source caching software currently used by 3.4 million websites worldwide. Developers are familiar with this configuration language, which makes adopting our platform easier. Second, our edge cloud is the backend of choice for many of the largest PaaS vendors serving the developer community. These PaaS vendors, which aggregate millions of unique web properties under one brand, use Fastly as their edge cloud. For example, Brightcove, Shopify, Github, Drupal, Magento, WIX and Adobe Portfolio expose millions of developers to our plaftorm. These PaaS vendors continue to aggregate more and more web properties and provide unique exposure and upsell opportunities. Third, we provide support to some of the most important open source tools used by developers such as Python, Ruby, Jenkins, and the Linux Kernel Organization. Powering the tools that developers use provides us with significant exposure to the developer ecosystem;

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Good neighborhood. We choose to do business with customers who we believe uphold similar values to our own. We do not knowingly do business with websites which promote violence or hate. From innovative startups to larger, well-known enterprises, our customers are in good company when they entrust us with their traffic; and

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Partner integrations. We offer full-featured APIs for seamless integration into any technology stack. PaaS partners can build on top of our edge cloud platform to extend their offering to our customers, while logging and analytics partners can build hooks into our platform to consume our real-time logs.

Market Opportunity

We believe that our market opportunity is large and growing and predominately untapped. We offer a viable solution for many use cases, which have not historically been addressed by legacy technologies. On top of our edge computing capabilities, we offer content delivery, streaming, cloud security, and application delivery control.

When incorporating these additional offerings, we estimate a total market opportunity of approximately $18.0 billion in 2019, based on expected growth from 2017. We estimate this total market opportunity will grow to $35.8 billion by 2022, growing with an expected CAGR of 25.6%, based on the sum of the following markets, each of which we address:

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Edge computing. MarketsandMarkets estimates the edge computing market to be worth approximately $2.7 billion in 2019, growing with an expected CAGR of 35.4% to $6.7 billion by 2022. MarketsandMarkets defines edge computing as products that assist real-time applications in processing and analyzing data collected from various sensors and connected devices at the edge of the network. Our platform addresses this market by enabling our customers to execute previously packaged or customer specific applications as close to the end-user as possible instead of at their own data center or core cloud provider.

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Content delivery and streaming. According to MarketsandMarkets, the web performance optimization market, which gives enterprises the ability to deliver online content to users securely and reliably, will expand from approximately $3.0 billion in 2019 to $6.6 billion in 2022, growing with an expected CAGR of 29.5%. Over that same period, MarketsandMarkets predicts that the media delivery market, which focuses on delivering media content to end-users at a much faster pace, reducing the latency time, will expand from approximately $4.3 billion to $10.1 billion, growing with an expected CAGR of 32.3%. Our edge cloud platform addresses these markets by enabling our customers to deliver content to their customers at scale in a secure and highly-reliable manner.

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Cloud security. Our platform addresses the WAF, bot detection, and DDoS prevention markets by protecting customers’ networks against highly disruptive DDoS attacks and enforcing WAF and bot detection rules at the edge. MarketsandMarkets expects that the market for WAF solutions will expand from $3.3 billion in 2019 to $5.5 billion in 2022, growing with an expected CAGR of 18.3%, and the market for bot detection will grow from $0.3 billion in 2019 to $0.8 billion in 2022, growing with an expected CAGR of 42.4%. According to IDC, the addressable market for DDoS prevention will grow from $1.5 billion in 2019 to $2.4 billion in 2022, growing with an expected CAGR of 17.8%.

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Application delivery controller. According to IDC, an Application Delivery Controller determines the type of user or device requesting content and type of content being requested to make traffic management decisions. IDC expects this market to expand from $2.9 billion in 2019 to $3.7 billion by 2022, growing with an expected CAGR of 8.1%. We address this market with our proprietary software defined networking stack with built-in routing and load balancing, allowing customers to manage traffic across multiple IaaS providers, data centers, and hybrid clouds.

Growth Strategy

Key elements of our growth strategy include the following:

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Invest in our technology platform. We intend to continue to invest in our large-scale, enterprise-grade edge cloud platform which is both developer-friendly and fully programmable. We will strengthen our investment in research and development so that we can add new and differentiated products on top of our edge cloud platform. Since the end of 2014, we have grown our research and development team by a factor of four, from 36 to 150 people as of December 31, 2018, deepening our talent across multiple functional groups;

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Expansion into additional vertical markets. Our platform offers a broad range of capabilities, and our customers have diverse needs. To best serve these needs we have successfully adopted a

vertical approach to our sales and marketing efforts. We will build upon our initial success in digital publishing, media and entertainment, technology, online retail, travel and hospitality, and financial services, while expanding into new markets over time;

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Further enable channel partners. Our edge cloud platform is the backend of choice for many of the largest PaaS vendors serving the developer community. These PaaS vendors aggregate millions of unique web properties under one brand, using Fastly as their edge cloud. We believe that more and more web applications will be built on convenient and powerful out-of-the-box solutions offered by large PaaS vendors. Many of our solution partners are PaaS providers who built us into their platform by default to offer faster, more secure and scalable experience. Current examples include Brightcove, Shopify, Drupal, Magento, WIX and Adobe Portfolio. As our partners expand their customer base, we will grow alongside them, providing us with exposure to millions of developers who will become familiar with us, and potentially become customers themselves;

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Grow our developer community and continue our open source commitment. Our edge cloud platform is built on Varnish, a powerful open source caching software currently used by 3.4 million websites worldwide. Developers are familiar with this technology, which makes adopting our platform easier. Developers are also familiar with the PaaS vendors we empower and the large number of open source tools we deliver and secure. This familiarity helps us in the sales process, and we will continue to invest in this ecosystem. We will continue to contribute to open source projects, by supporting their distribution with our services or through contributing code back to the projects. This creates more familiarity with us and will empower developers to build applications in multiple languages and run them faster and more securely at our edge;

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Invest in marketing. Our developer customers have been our best marketers. Historically, we have grown based on word-of-mouth and delivering a great product, and have invested relatively small amounts in marketing. In 2018, we spent a total of $50.1 million in sales and marketing. As we look towards our next stage of growth, we plan on significantly increasing our brand and digital marketing efforts, running campaigns that target both developers and business decision makers across different verticals;

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Expand existing customer relationships. Over time, our customers have expanded their use of our platform. For the years ended December 31, 2017 and 2018, our DBNER was 147.3% and 132.0%, respectively, highlighting the strength of our platform. Many of our largest customers have grown through a “land and expand” strategy. On average, our customers have increased their annual spend by more than 20% year over year since 2014, growing from an average last 12-months revenue of $35,000 to over $90,000 as of the fourth quarter of 2018. In more technically savvy organizations, developers have championed our solution, paving the way for us to engage with business decision makers. For more traditional organizations, we are often brought in to initially help facilitate a move to the cloud and from there we extend our product to support many other use cases. We plan to continually increase wallet-share over time for existing customers as we build out new products and features, and as customers continue to fully recognize the value of our platform;

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Further enable channel partners. We have built an ecosystem of reseller, referral, and solution partners. Many of our solution partners are PaaS providers who built us into their platform to offer faster, more secure and scalable hosting services. Current examples include Brightcove, Shopify, Drupal, Magento, and Adobe Portfolio. As these partners expand their customer base, we will grow alongside them;

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Grow our technology ecosystem. We operate between the “big 3” origin cloud platforms and a growing community of companies that provide big data, machine learning, and security solutions. In this sense, we act as the unifying layer for a growing number of cloud services. Current

partnerships and integrations include Sumo Logic, AWS, Azure, and Google Cloud Platform. As customers consume more cloud and SaaS offerings, we can create additional value and grow with our partners;

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Continue our open source commitment. Our platform is built on Varnish, a powerful open source caching software currently used by 3.4 million websites worldwide. Developers are familiar with this technology, which makes adopting our platform easier. We will continue to work on open source projects, which will empower developers to build applications in multiple languages, and run them faster and more securely at our edge; and

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Extend our global footprint. As our customer base grows, we plan to aggressively scale our network accordingly. In 2018, 23% of our revenue was generated from customers headquartered outside of the United States. We are expanding our global corporate footprint to support these international customers. As of March 31, 2019, we had 60 POPs strategically located around the world, with more additions planned. We believe significant opportunity exists for further international growth.

Our Products

Our edge cloud is a globally distributed, programmable platform designed for highly performant and secure web and application delivery. Our platform supports modern software development processes. We call it the Developer’s Edge, because it empowers developers to innovate without constraints, as they lead the charge for their organizations’ digital transformation.

We operate a single, software-centric network. Our POPs reside between a customer’s end-users and computing and data storage solutions, whether on-premise, in the cloud or a mixture of both. Our position on the network allows us to move functionality closer to end-users at the network edge for faster, more secure experiences. This includes edge delivery, edge security, edge applications like load balancing and image optimization, video on demand, and managed edge delivery.

Edge Delivery

Our edge delivery offerings include edge compute, full site delivery, and streaming for high value media.

Edge Compute. We enable developers to write their own custom logic to solve complex business problems at the network edge. We also expose pre-written blocks of code to help them do this, such as the following edge features:

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Client Insights. Allow developers to rapidly adjust the content they serve to end-users based on their location, device type, and language detection;

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Edge Dictionaries. Empower developers to make real-time decisions from every server in our network. They act as a distributed database at the edge, made up of key-value pairs. For example, Edge Dictionaries allow our customers to redirect end-users to a specific country site or update large referrer spam blacklists in real time; and

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Edge Access Control Lists (ACLs). Help mitigate evolving threats from attackers by letting developers make changes at scale. ACLs block bad IP addresses from visiting customer sites, and for added security, they can create their own whitelists.

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Full Site Delivery

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Dynamic Site Acceleration. Speeds up requests and responses between cache nodes in our POPs and customers’ origin servers, so their web and mobile content is served faster;

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Origin Shield. Allows us to designate a specific POP to serve as a shield for a customer’s origin servers. When web content is refreshed, and multiple end-users request the new content simultaneously, it can lead to a deluge of requests hitting a customer’s origin server. This can result in poor web or application performance. With Origin Shield, we collapse all these content requests into a single request and hold it in queue at the Origin Shield POP. That allows us to go back to the customer’s origin server only once to retrieve the new content, then serve it to all end-users who requested it. This approach reduces costs for our customers, while improving performance for their end-users;

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Instant Purge. Lets customers clear the cached copy of their content in an average of 150 milliseconds or less. We allow customers to send a command to our platform that invalidates an old version of their content throughout our global edge infrastructure. This causes a new version of content be retrieved from the application server the next time it is requested. This feature enables our customers to serve highly dynamic content at the edge more quickly and allows for delightful application experiences. Rapidly changing content like shopping cart items, flight search results, sports scores, or current weather conditions in any given location can all be served faster from the network edge;

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Surrogate Keys. Allow customers to fine-tune purging by tagging related objects across their site with a key name and description, then purging by that key. They can purge their entire site of a given object or objects at once, without impacting performance. For example, they could purge any images and content related to discontinued sale items, discounted products, or outdated news across their site all in one go; and

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Real-time Logging and Stats. Provide metrics and full visibility into end-user requests in real time from the network edge. Log traffic is encrypted using Transport Layer Security (TLS) and logs can be streamed to most major logging endpoint solutions.

Streaming

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Live Streaming. Our platform is designed to concurrently deliver millions of near real-time, high-quality live streams to our customers’ viewers. Our edge cloud supports the delivery of all major HTTP video streaming formats, and we partner with multiple online video platform vendors to improve the flexibility and scale of live streaming workflows, while also reducing total cost of ownership; and

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Media Shield. Large streaming customers often route traffic across multiple CDNs for redundancy. Our Media Shield solution supports these efforts, while reducing total cost of ownership and improving visibility and performance. It does so by collapsing requests for the same video streaming content across all CDNs into one single request to the customer’s origin server. This reduces requests to origin and allows us to serve streaming content faster.

Edge Security

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DDoS. Our high-bandwidth, globally distributed network is built to absorb DDoS attacks without impacting performance. Customers can respond to attacks in real time, filtering malicious requests at the network edge, before they reach their origin.

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WAF. Our WAF is designed to protect applications from malicious attacks that would otherwise compromise web servers. It is integrated into our edge cloud platform, minimizing the impact on performance, since we only inspect requests going to a customer’s origin. Customers get real-time access to security events and notifications from the edge and can make instant changes to their WAF rules via our API.

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TLS. As part of our standard product, our platform terminates HTTPS connections at our network edge, offloading encrypted traffic from customer’s web servers for better performance. We provide a number of different certificate hosting options.

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Platform TLS. Our Platform TLS offering is designed to allow customers with multiple web properties to manage TLS certificates at scale, while enabling a fast, secure experience for their end-users. It supports delivery and management of hundreds of thousands of certificates, supported by our worldwide TLS termination and acceleration solution.

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Compliance. We speed up the caching and delivery of sensitive content at the edge, helping customers meet data compliance and privacy regulations such as HIPAA and GDPR, in addition to industry standards such as PCI Data Security Standard and SOC. Our Assurance Services offering includes support for additional documentation and audit procedures for customers with these needs.

Edge Applications

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Load Balancer. Our Layer 7 load balancer manages HTTP/HTTPS requests to a customer’s origin using granular content-aware routing decisions. We allow customers to manage traffic across multiple IaaS providers, data centers, and hybrid clouds. We also provide improved performance and cost savings over ADCs, especially during a spike or surge in traffic.

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Image Optimizer. We offer a real-time image manipulation and delivery service and store transformations at the edge. When an image is requested, we resize it, adjust quality, crop/trim, change orientations, convert formats, and more, all on demand. Transforming images at the edge eliminates latency and reduces traffic to a customer’s origin servers, allowing them to save on infrastructure and egress costs.

Video on Demand

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Our edge cloud platform is designed to cache and rapidly deliver both frequently and infrequently requested on-demand videos. We significantly reduce the load on a customer’s origin servers while accelerating time to first frame. Our on-the-fly-packaging feature facilitates immediate playback, enhancing viewer experiences across multiple devices and platforms.

Managed Edge Delivery

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Our managed delivery service provides customers with maximum flexibility and control. We deploy our edge cloud platform on dedicated POPs within a customer’s private network, at locations of their choosing. This service can be used exclusively, or as part of a hybrid, multi-CDN strategy.

Partner Ecosystem

Our partner ecosystem consists of companies who build edge applications to integrate with our platform, logging and analytics providers, and PaaS providers. Our partners are all looking to extend the power of our edge cloud platform to their customers.

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Edge Application Partners

Our edge cloud platform exposes blocks of code that allow trusted partners to develop real-time analysis and enforcement applications. Building out a massive edge presence is beyond the financial and technical capabilities of all but a handful of companies. By opening our platform to third parties, we allow these partners to focus on building new and innovative edge applications, without the capital outlay and complexity of doing it themselves. It opens up new markets and business models for them.

Logging and Analytics Partners

Logging and analytics partners integrate with our edge cloud platform to deliver enhanced functionality to our joint customers. Our logging feature provides insights into web and mobile requests and response, such as slow or missing URLs, most requested URLs, site performance by region, and much more. Our statistics provide insights into things like percentage of requests per second, request misses, errors, latency, traffic spikes, and global traffic profiles. Both logs and statistics can be streamed in real time to our logging and analytics partners. This empowers our joint customers to monitor performance, troubleshoot issues as they occur, and view this data alongside other metrics in consolidated dashboards. Logging and analytics partners include the following:

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Google. A tight integration with Google Cloud Platform allows real-time logs to be streamed to any Google Cloud Platform big data service, including Google Cloud Storage, BigQuery, and Bigtable;

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Microsoft. Our integration with Microsoft Azure allows real-time logs to be streamed to both Azure Blob Storage and Kusto;

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Datadog. Datadog uses our API to pull in real-time stats and analytics for display in their dashboard;

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Looker. Looker combines log data with other data sources in BigQuery, such as Google Analytics, Google Ads data, or security and firewall data. Customers can then run multiple queries against these data sets and present findings in Looker dashboards;

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Sumo Logic. Sumo Logic integrates with our platform to offer more granular logging data for customers with large-scale analytics. Customers gain real-time insights into slow URLs, missing or most requested URLs, site performance by region, and more; and

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Logentries. Logentries provides a one-click integration with our platform, making it easy for customers to quickly set up real-time logs.

PaaS Partners

PaaS partners integrate with our edge cloud platform to make it easier for their developers to scale and secure websites.

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Heroku. Heroku empowers companies to build, deliver, monitor, and scale applications. Our Heroku add-on lets developers seamlessly integrate their Heroku hosted applications with our edge cloud platform through the click of a button;

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Magento. Magento, an Adobe company, provides a commerce platform that enables merchants to integrate digital and physical shopping experiences. Our Magento extension lets developers manage their entire content caching strategy from the Magento control panel while maintaining fast, reliable performance; and

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Drupal and Wordpress. Drupal and Wordpress are CMS partners. They provide self-hosted solutions for customers to create and manage all the content on their websites. Our Drupal and Wordpress extensions allow developers to easily configure and manage their content caching strategy from within these CMS dashboards.

Customers

We focus on customers with a sizable or growing online footprint who need to deliver rapid, personalized, and secure web and mobile experiences in order to stay competitive. These customers typically have various levels of cloud adoption. Some have fully embraced the central cloud through either hybrid or multi-cloud deployments and are building cloud-native applications. Others are making their first foray into the cloud and are adopting our platform to help with integration. Given our strong developer heritage, our platform also appeals to smaller, highly innovative companies looking to disrupt their respective industries through agile software development. As of December 31, 2018, we had 1,582 customers in more than 60 countries around the world, including 227 enterprise customers.

Our customers operate in a variety of different industries including digital publishing, media and entertainment, technology, online retail, travel and hospitality, and financial services. We define a customer as a single organization that purchases our products. A single customer may have multiple paid business accounts for separate divisions, segments, or subsidiaries.

A representative list of our customers as of December 31, 2018 is set forth below by industry:


Financial CashStar KickStarter ConsenSys WealthFront	Ecommerce Shopify Magento Nordstrom Rack Wayfair Ticketmaster	Travel Kayak Alaska Airlines Priceline

High Tech Microsoft Brightcove Slack New Relic	Digital Publishing Gannett Reddit Imgur New York Times	Streaming Hulu Sling TV Spotify Philo

Case Studies

The following case studies are examples of how some of our customers have selected, deployed, and benefited from our platform.

The New York Times

The New York Times is a popular U.S. newspaper with worldwide influence and readership. Founded in 1851, the paper has won 125 Pulitzer prizes, and is ranked 2nd in the country in terms of circulation.

Situation. In preparation for the 2016 U.S. presidential election, The New York Times wanted to bring on board a CDN to help support the anticipated increase in website traffic. Their website had experienced outages during the 2012 election night, which The New York Times did not want to see repeated.

Fastly worked with the Chief Technology Officer’s office to consolidate traffic from four different data centers and integrate Fastly’s platform into The New York Times’ IT stack, successfully turning on production traffic just two weeks before the election date.

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Solution. Full Site Delivery, DDoS, Image Optimizer, WAF, TLS, Fastly Support

Fastly allowed The New York Times to seamlessly scale on demand, handling up to 20 to 30 million requests per minute. Using our platform, their traffic increased up to 8,371% from the previous week as readers rushed to engage with the final election results.

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The New York Times was able to reduce costs by $25,000 per month by minimizing traffic to its origin servers using Fastly’s full site delivery capabilities.

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Fastly provided The New York Times with an effective caching strategy. During election night their origin performance actually improved, showing more predictability and stability despite the huge peak in traffic.

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The New York Times also improved its security posture by taking advantage of Fastly’s DDoS protection and other security services.

“I’m a huge fan of Fastly. On election night, we had 100,000 requests per second, and Fastly performed flawlessly — we had no problems at all.” Nick Rockwell, Chief Technology Officer, The New York Times.

New Relic

New Relic is a software company that provides real-time insights to software-driven businesses to allow them to securely monitor, manage, and operate their production software in diverse environments. New Relic’s cloud platform makes every aspect of modern software and infrastructure observable, so companies can find and fix problems faster, build high-performing DevOps teams, and speed up transformation projects.

Situation. With thousands of businesses relying on New Relic’s platform, the company needed the ability to roll out updates and enhancements instantly. New Relic uses agile development processes to deploy new software many times each day and they needed a CDN provider who could support these requirements.

Solution. Full Site Delivery, TLS certificates, Fastly Support

New Relic turned to Fastly for access to a powerful set of tools that would facilitate real-time changes.

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Fastly’s developer-centric capabilities allowed New Relic to easily create new services, make configuration changes on the fly, and automatically push validated code to production without human intervention. This supported New Relic’s agile development process, freeing them to deploy new software multiple times a day.

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Fastly provided New Relic with live traffic stats and logs to augment their own host and application monitoring data and provide full observability for all changes.

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Fastly’s TLS features allowed New Relic to quickly address potential vulnerabilities and offload expensive mobile device handshake management while maintaining a secure end-to-end pipeline for their data.

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