UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________

FORM 10-Q

____________________________

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

For the quarterly period ended June 30, 2023

or

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

For the transition period from              to      

Commission File Number: 001-38897

____________________________

FASTLY, INC.

(Exact name of registrant as specified in its charter)

____________________________

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

475 Brannan Street, Suite 300

San Francisco, CA 94107

(Address of principal executive offices) (Zip code)

(844) 432-7859

(Registrant's telephone number, including area code)

Not Applicable

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

____________________________

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.00002 par value	FSLY	The New York Stock Exchange

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

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

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

As of July 28, 2023, 129.2 million shares of the registrants’ Class A common stock were outstanding.

1

TABLE OF CONTENTS

		Page
	Part I - Financial Information
Item 1.	Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	5
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022	6
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022	7
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2023 and 2022	8
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	10
	Notes to Condensed Consolidated Financial Statements	12
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	52
	Part II - Other Information	54
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91
Item 3.	Defaults Upon Senior Securities	91
Item 4.	Mine Safety Disclosures	91
Item 5.	Other Information	91
Item 6.	Exhibits	93
	Signatures	94

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

•our ability to attract new enterprise customers and to have existing enterprise customers continue and increase their use of our platform;

•the potential loss or significant reduction in usage by one or more of our major customers;

•component delays, shortages, and price increases;

•our limited operating history and history of operating losses;

•the potential that security measures, or those of third parties upon which we rely, are compromised, or the security, confidentiality, integrity or availability of our information technology, software, services, networks, communications or data is compromised, limited or fails;

•our ability to efficiently develop and sell new products and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements, or preferences;

•our ability to forecast our revenue accurately and manage our expenditures;

•our ability to effectively develop and expand our marketing and sales capabilities;

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

•our ability to maintain and enhance our brand;

•our ability to identify and integrate acquisitions, strategic investments, partnerships, or alliances;

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

•our reliance on the performance of highly skilled personnel, including our senior management and other key employees, and the loss or transition of one or more of such personnel, or of a significant number of our team members;

•our potential involvement in class-action lawsuits and other litigation matters; and

•stock price volatility, and the potential decline in the value of our Class A common stock.

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

3

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

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

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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

4

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FASTLY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	As of June 30, 2023		As of December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	273,742	$	143,391
Marketable securities, current	123,605		374,581
Accounts receivable, net of allowance for credit losses of $6,129 and $5,029 as of June 30, 2023 and December 31, 2022, respectively	78,295		89,578
Prepaid expenses and other current assets	29,500		28,933
Total current assets	505,142		636,483
Property and equipment, net	179,045		180,378
Operating lease right-of-use assets, net	56,733		68,440
Goodwill	670,356		670,185
Intangible assets, net	72,550		82,900
Marketable securities, non-current	78,042		165,105
Other assets	95,550		92,622
Total assets	$	1,657,418	$	1,896,113
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,561	$	4,786
Accrued expenses	47,001		61,161
Finance lease liabilities, current	22,233		28,954
Operating lease liabilities, current	20,575		23,026
Other current liabilities	36,234		34,394
Total current liabilities	131,604		152,321
Long-term debt	472,369		704,710
Finance lease liabilities, non-current	7,026		15,507
Operating lease liabilities, non-current	51,448		61,341
Other long-term liabilities	7,217		7,076
Total liabilities	669,664		940,955
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock	2		2
Additional paid-in capital	1,747,959		1,666,106
Accumulated other comprehensive loss	(3,152)		(9,286)
Accumulated deficit	(757,055)		(701,664)
Total stockholders’ equity	987,754		955,158
Total liabilities and stockholders’ equity	$	1,657,418	$	1,896,113

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

5

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Revenue	$	122,831	$	102,518	$	240,395	$	204,900
Cost of revenue	58,617		56,466		115,927		110,381
Gross profit	64,214		46,052		124,468		94,519
Operating expenses:
Research and development	37,421		38,717		74,852		79,154
Sales and marketing	47,797		46,760		92,068		88,240
General and administrative	28,823		29,543		54,650		59,097
Total operating expenses	114,041		115,020		221,570		226,491
Loss from operations	(49,827)		(68,968)		(97,102)		(131,972)
Net gain on extinguishment of debt	36,760		54,391		36,760		54,391
Interest income	4,508		1,502		8,694		2,183
Interest expense	(1,232)		(1,530)		(2,445)		(3,152)
Other expense	(803)		(1,673)		(1,053)		(1,952)
Loss before income tax expense	(10,594)		(16,278)		(55,146)		(80,502)
Income tax expense	110		159		245		199
Net loss	$	(10,704)	$	(16,437)	$	(55,391)	$	(80,701)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.08)	$	(0.14)	$	(0.44)	$	(0.67)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	127,863		121,242		126,648		120,295

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

6

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Net loss	$	(10,704)	$	(16,437)	$	(55,391)	$	(80,701)
Other comprehensive income (loss):
Foreign currency translation adjustment	474		17		558		(170)
Gain (loss) on investments in available-for-sale-securities	1,968		(3,063)		5,576		(9,745)
Total other comprehensive income (loss)	$	2,442	$	(3,046)	$	6,134	$	(9,915)
Comprehensive loss	$	(8,262)	$	(19,483)	$	(49,257)	$	(90,616)

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

7

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands; unaudited)

	Three months ended June 30, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at March 31, 2023	126,784	$	2	$	1,710,498	$	(5,594)	$	(746,351)	$	958,555
Exercise of vested stock options	77	—		535		—		—		535
Vesting of restricted stock units	1,469	—		—		—		—		—
Shares issued under ESPP	697	—		4,977		—		—		4,977
Stock-based compensation	—	—		31,949		—		—		31,949
Net loss	—	—		—		—		(10,704)		(10,704)
Other comprehensive income	—	—		—		2,442		—		2,442
Balance at June 30, 2023	129,027	$	2	$	1,747,959	$	(3,152)	$	(757,055)	$	987,754

	Three months ended June 30, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at March 31, 2022	120,777	$	2	$	1,561,371	$	(9,496)	$	(575,154)	$	976,723
Exercise of vested stock options	273	—		1,721		—		—		1,721
Vesting of restricted stock units	506	—		—		—		—		—
Issuance of restricted stock awards	37	—		—		—		—		—
Shares issued under ESPP	292	—		2,962		—		—		2,962
Stock-based compensation	—	—		31,815		—		—		31,815
Net loss	—	—		—		—		(16,437)		(16,437)
Other comprehensive loss	—	—		—		(3,046)		—		(3,046)
Balance at June 30, 2022	121,885	$	2	$	1,597,869	$	(12,542)	$	(591,591)	$	993,738

8

	Six months ended June 30, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	124,336	$	2	$	1,666,106	$	(9,286)	$	(701,664)	$	955,158
Exercise of vested stock options	121	—		871		—		—		871
Vesting of restricted stock units	2,680	—		—		—		—		—
Issuance of restricted stock units related to bonus program	1,193	—		16,599		—		—		16,599
Shares issued under ESPP	697	—		4,977		—		—		4,977
Stock-based compensation	—	—		59,406		—		—		59,406
Net loss	—	—		—		—		(55,391)		(55,391)
Other comprehensive income	—	—		—		6,134		—		6,134
Balance at June 30, 2023	129,027	$	2	$	1,747,959	$	(3,152)	$	(757,055)	$	987,754

	Six months ended June 30, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	118,811	$	2	$	1,527,468	$	(2,627)	$	(510,890)	$	1,013,953
Exercise of vested stock options	1,624	—		4,769		—		—		4,769
Vesting of restricted stock units	1,083	—		—		—		—		—
Issuance of restricted stock awards	75	—		—		—		—		—
Shares issued under ESPP	292	—		2,962		—		—		2,962
Stock-based compensation	—	—		62,670		—		—		62,670
Net loss	—	—		—		—		(80,701)		(80,701)
Other comprehensive loss	—	—		—		(9,915)		—		(9,915)
Balance at June 30, 2022	121,885	$	2	$	1,597,869	$	(12,542)	$	(591,591)	$	993,738

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

9

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands; unaudited)

	Six months ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(55,391)	$	(80,701)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation expense	24,960		20,586
Amortization of intangible assets	10,350		10,618
Non-cash lease expense	11,763		11,522
Amortization of debt discount and issuance costs	1,519		1,739
Amortization of deferred contract costs	7,171		3,989
Stock-based compensation	65,143		75,000
Provision for credit losses	1,100		529
Loss on disposals of property and equipment	547		854
Amortization and accretion of discounts and premiums on investments	747		1,851
Impairment of operating lease right-of-use assets	187		—
Net gain on extinguishment of debt	(36,760)		(54,391)
Other adjustments	(328)		61
Changes in operating assets and liabilities:
Accounts receivable	10,183		(4,122)
Prepaid expenses and other current assets	(417)		(4,812)
Other assets	(11,983)		(6,399)
Accounts payable	944		844
Accrued expenses	(6,593)		1,162
Operating lease liabilities	(12,432)		(10,981)
Other liabilities	5,419		2,781
Net cash provided by (used in) operating activities	16,129		(29,870)
Cash flows from investing activities:
Purchases of marketable securities	—		(355,479)
Sales of marketable securities	774		161,853
Maturities of marketable securities	342,095		367,880
Business acquisitions, net of cash acquired	—		(25,999)
Advance payment for purchase of property and equipment	—		(29,310)
Purchases of property and equipment	(7,958)		(8,815)
Proceeds from sale of property and equipment	36		241
Capitalized internal-use software	(10,439)		(8,736)
Net cash provided by investing activities	324,508		101,635
Cash flows from financing activities:
Cash paid for debt extinguishment	(196,934)		(177,082)
Repayments of finance lease liabilities	(15,202)		(11,029)
Cash received for restricted stock sold in advance of vesting conditions	—		10,655
Cash paid for early sale of restricted shares	—		(7,037)
Payment of deferred consideration for business acquisitions	(4,393)		—
Proceeds from exercise of vested stock options	871		4,769
Proceeds from employee stock purchase plan	4,787		3,977
Net cash used in financing activities	(210,871)		(175,747)
Effects of exchange rate changes on cash, cash equivalents, and restricted cash	585		(319)
Net increase in cash, cash equivalents, and restricted cash	130,351		(104,301)
Cash, cash equivalents, and restricted cash at beginning of period	143,541		166,961
Cash, cash equivalents, and restricted cash at end of period	$	273,892	$	62,660

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

10

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued

(in thousands)

(unaudited)

	Six months ended June 30,
	2023		2022
Supplemental disclosure of cash flow information:
Cash paid for interest	$	926	$	1,304
Cash paid for income taxes, net of refunds received	$	451	$	180
Cash paid for finance lease interest	$	806	$	—
Property and equipment additions not yet paid in cash	$	623	$	3,636
Stock-based compensation capitalized to internal-use software	$	3,227	$	3,522
Assets obtained in exchange for operating lease obligations	$	1,324	$	15,676
Assets obtained in exchange for finance lease obligations	$	—	$	22,178
Net non-cash change in operating lease assets and liabilities associated with modifications and terminations	$	1,090	$	2,960
Purchase consideration associated with business combination, accrued but not paid	$	—	$	8,126
Costs associated with business combination, accrued but not paid	$	—	$	1,873
Deployments of prepaid capital equipment	$	1,639	$	—
Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows:
Cash and cash equivalents	$	273,742	$	62,510
Restricted cash, current	150		150
Total cash, cash equivalents, and restricted cash	$	273,892	$	62,660

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

11

1.     Nature of Business

Fastly, Inc. has built an edge cloud platform that can process, serve, and secure its customers' applications as close to their end users as possible. As of June 30, 2023, the Company’s edge network spans across 79 markets around the world. The Company was incorporated in Delaware in 2011 and is headquartered in San Francisco, California.

As used herein, “Fastly,” “the Company,” “its” and similar terms include Fastly, Inc. and its subsidiaries, unless the context indicates otherwise.

2.     Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements and footnotes have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2023. The Company’s condensed consolidated financial statements include its accounts and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company’s condensed consolidated financial statements are unaudited but include all adjustments of a normal recurring nature necessary for a fair presentation of its quarterly results. The Company’s condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Certain changes to presentation have been made to conform the prior period presentation to the current period reporting. The Company has made certain presentation changes to consolidate the interest paid on finance lease line into other liabilities working capital changes and components of the non-cash lease expense related to operating lease liability changes into operating lease liability working capital changes within operating cash flows in the consolidated statements of cash flows. Such reclassifications did not affect the condensed consolidated balance sheets, total revenues, operating income, net income, or cash flows from operating, investing or financing activities.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management 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 the Company’s estimates, judgments, and assumptions. Significant estimates, judgments, and assumptions used in these financial statements include, but are not limited to, those related to revenue, accounts receivable and related reserves, internal-use software development costs, the incremental borrowing rate related to the Company’s lease liabilities, fair value of assets acquired and liabilities assumed during business combinations, useful lives of acquired intangible assets and property and equipment, fair value of the Company’s reporting unit, income tax reserves, and accounting for stock-based compensation. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements in the period of change and prospectively from the date of the change in estimate.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies as compared to those described in “Note 2 – Summary of Significant Accounting Policies” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Recently Adopted and Issued Accounting Pronouncements

The Company has not adopted any new accounting pronouncements in the three and six months ended June 30, 2023. Other recently issued accounting pronouncements are not expected to have a material impact on its condensed consolidated financial statements.

12

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable.

The Company’s cash, cash equivalents, and marketable securities primarily consisted of bank deposits, money market funds, investment-grade commercial paper, corporate notes and bonds, U.S. treasury securities, municipal securities, foreign government and supranational securities and asset-backed securities held at major financial institutions that the Company believes to be of high credit standing. The primary focus of its investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy limits the amount of credit exposure with any one financial institution or commercial issuer. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents to the extent recorded in the balance sheets. While the Company has not experienced any losses in such accounts and the Company has historically maintained its cash in multiple financial institutions, the recent failure of Silicon Valley Bank (“SVB”), at which the Company held cash and cash equivalents in multiple accounts, exposed the Company to limited credit risk prior to the completion by the Federal Deposit Insurance Corporation (“FDIC”) of the resolution of SVB in a manner that fully protected all depositors.

Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which the Company makes substantial sales. The Company’s customer base consists of a large number of geographically dispersed customers diversified across several industries. In the three and six months ended June 30, 2023 and June 30, 2022, no single customer accounted for more than 10% of revenue. Affiliated customers that are business units of a single company in the streaming entertainment space generated an aggregate of 12% and 11% of the Company’s revenue for the three months ended June 30, 2023 and 2022, respectively and 11% for both the six months ended June 30, 2023 and 2022. As of both June 30, 2023 and December 31, 2022, no customer accounted for more than 10% of the total accounts receivable balance. The same affiliated customers, as referenced earlier on in the paragraph, accounted for an aggregate of 5% and 15% of the Company’s accounts receivable balance as of June 30, 2023 and December 31, 2022 respectively.

3.     Revenue

Revenue by geography is based on the billing address of the customer. Aside from the United States, no other single country accounted for more than 10% of revenue for both the three and six months ended June 30, 2023 and June 30, 2022. The following table presents the Company’s net revenue by geographic region:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(in thousands)
United States	$	89,873	$	76,052	$	175,237	$	151,666
Asia Pacific	17,267		12,869		33,698		24,589
Europe	10,868		9,242		21,384		18,595
All other	4,823		4,355		10,076		10,050
Total revenue	$	122,831	$	102,518	$	240,395	$	204,900

13

The majority of the Company’s revenue is derived from enterprise customers. In the first quarter of 2023, the Company updated its methodology (“new methodology”) by which it calculates its customer count metrics, including Total Customer Count, Enterprise Customer Count and associated metrics.

Under the prior methodology, enterprise customers is defined as customers with revenue in excess of $100,000 over the trailing 12-month period. The following table presents the Company’s net revenue for enterprise and non-enterprise customers based on the prior methodology:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(in thousands)
Enterprise customers	$	111,194	$	91,253	$	217,251	$	182,354
Non-enterprise customers	11,637		11,265		23,144		22,546
Total revenue	$	122,831	$	102,518	$	240,395	$	204,900

Under the new methodology, enterprise customers is defined as customers with annualized current quarter revenue in excess of $100,000. This is calculated by taking the sum of revenue for each customer within the quarter and multiplying it by four. The following table presents the Company's net revenue for enterprise and non-enterprise customers based on the new methodology:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(in thousands)
Enterprise customers	$	112,660	$	92,611	$	220,033	$	185,123
Non-enterprise customers	10,171		9,907		20,362		19,777
Total revenue	$	122,831	$	102,518	$	240,395	$	204,900

Contract balances

The timing of revenue recognition may differ from the timing of invoicing to customers. The Company has an unconditional right to consideration when it invoices its customers and records a receivable. The Company records a contract asset, or a receivable, when revenue is recognized prior to invoicing. The Company records a contract liability, or deferred revenue, when revenue is recognized subsequent to invoicing.

Deferred revenue includes amounts billed to customers for which revenue has not been recognized and consists of the unearned portions of edge cloud platform usage and billings to customers for the Company’s security subscription services. Amounts that have been invoiced for annual subscriptions, but not collected, are recorded in accounts receivable and in unearned revenue or in revenue depending on whether services have been delivered to the customer. The Company’s payment terms and conditions vary by contract type, and generally range from 30 to 90 days.

The following table presents the Company’s contract assets and contract liabilities as of June 30, 2023 and as of December 31, 2022:

	As of June 30, 2023		As of December 31, 2022
	(in thousands)
Contract assets	$	193	$	19
Contract liabilities	$	35,250	$	30,544

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The following table presents revenue recognized during the three and six months ended June 30, 2023 and 2022 from amounts included in the contract liability at the beginning of the period:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(in thousands)
Revenue recognized in the period from amounts included in contract liability at the beginning of the period	$	12,046	$	10,674	$	21,195	$	19,164

Remaining performance obligations

As of June 30, 2023, the aggregate amount of the transaction price in our contracts allocated to remaining performance obligations that are unsatisfied or partially unsatisfied was $230.9 million. This amount includes future committed revenue for periods within current contracts with customers, as well as deferred revenue arising from consideration invoiced for which the related performance obligations have not been satisfied. The Company has elected to not provide certain information about its remaining performance obligations for service contracts with an original contract duration of one year or less. As of June 30, 2023, the Company expects to recognize approximately 85% of its remaining performance obligations over the next 12 months. The Company’s typical contractual term with its customers is one year, although terms may vary by contract.

Costs to obtain a contract

As of June 30, 2023 and December 31, 2022, the Company's costs to obtain contracts were as follows:

	As of June 30,		As of December 31,
	2023		2022
	(in thousands)
Deferred contract costs, net	$	60,034	$	50,523

During the three months ended June 30, 2023 and 2022, the Company recognized $3.7 million and $2.1 million of amortization related to deferred contract costs, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized $7.2 million and $4.0 million of amortization related to deferred contract costs, respectively. These costs are recorded within sales and marketing expenses on the accompanying condensed consolidated statements of operations.

15

4.     Investments and Fair Value Measurements

The Company's total cash, cash equivalents and marketable securities consisted of the following:

	As of June 30,		As of December 31,
	2023		2022
	(in thousands)
Cash and cash equivalents:
Cash	$	49,981	$	46,516
Money market funds	223,761		96,875
Total cash and cash equivalents(1)	$	273,742	$	143,391
Marketable securities:
U.S. Treasury securities	$	54,696	$	287,988
Corporate notes and bonds	66,210		71,744
Asset-backed securities	427		175
Municipal securities	2,272		2,221
Foreign government and supranational securities	—		12,453
Total marketable securities, current(2)	$	123,605	$	374,581
Corporate notes and bonds	68,913		140,949
Asset-backed securities	9,129		24,156
Total marketable securities, non-current(3)	$	78,042	$	165,105
Total marketable securities	$	201,647	$	539,686
Total cash, cash equivalents and marketable securities	$	475,389	$	683,077

(1) The Company’s cash equivalents include investments with an original maturity date of three months or less.

(2) The Company classifies its marketable securities as current, where it intends to hold the securities for less than 12 months.

(3) The Company classifies its marketable securities are non-current, where it intends to hold the securities for longer than 12 months.

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Available-for-Sale Investments

The following table summarizes adjusted cost, gross unrealized gains and losses, and fair value related to available-for-sale securities classified as marketable securities on the accompanying condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022:

	As of June 30, 2023
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in thousands)
U.S. Treasury securities	$	55,027	$	—	$	(331)	$	54,696
Corporate notes and bonds	137,775		1		(2,653)		135,123
Asset-backed securities	9,596		—		(40)		9,556
Municipal securities	2,320		—		(48)		2,272
Total available-for-sale investments	$	204,718	$	1	$	(3,072)	$	201,647
	As of December 31, 2022
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in thousands)
U.S. Treasury securities	$	291,685	$	—	$	(3,697)	$	287,988
Corporate notes and bonds	217,187		—		(4,494)		212,693
Asset-backed securities	24,617		—		(286)		24,331
Municipal securities	2,322		—		(101)		2,221
Foreign government and supranational securities	12,522		—		(69)		12,453
Total available-for-sale investments	$	548,333	$	—	$	(8,647)	$	539,686

There were no material realized gains or losses from sales of marketable securities that were reclassified out of accumulated other comprehensive income (loss) into other income during the three and six months ended June 30, 2023 and 2022. There were 55 securities in a continuous loss position for 12 months or longer as of June 30, 2023 and 76 securities in a continuous loss position for 12 months or longer as of December 31, 2022. Investments are reviewed periodically to identify possible other-than-temporary impairments. For the three and six months ended June 30, 2023 and 2022, the Company did not record any impairment charges for its marketable debt securities in its condensed consolidated statements of operations. No impairment loss has been recorded on the securities as the Company does not intend to sell any impaired securities, nor is it more likely than not that the Company would be required to sell impaired securities before recovery of amortized cost basis. Furthermore, the Company has determined that the decline in fair value of the investment is not due to credit related factors.

Fair Value of Financial Instruments

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

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

17

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

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

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

The Company measures its cash equivalents, marketable securities, and restricted cash at fair value. The Company classifies its cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

The Company classifies its investments, which are comprised of corporate notes and bonds, U.S. treasury securities, foreign government and supranational securities and asset-backed securities within Level 2 of the fair value hierarchy because the fair value of these securities is priced by using inputs based on non-binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments.

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

	As of June 30, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents:
Money market funds	$	223,761	$	—	$	—	$	223,761
Total cash equivalents	223,761		—		—		223,761
Marketable securities:
Corporate notes and bonds	—		135,123		—		135,123
U.S. Treasury securities	—		54,696		—		54,696
Municipal securities	—		2,272		—		2,272
Asset-backed securities	—		9,556		—		9,556
Foreign government and supranational securities	—		—		—		—
Total marketable securities	—		201,647		—		201,647
Restricted cash:
Restricted cash, current	150		—		—		150
Total restricted cash	150		—		—		150
Total financial assets	$	223,911	$	201,647	$	—	$	425,558

18

	As of December 31, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents:
Money market funds	$	96,875	$	—	$	—	$	96,875
Total cash equivalents	96,875		—		—		96,875
Marketable securities:
U.S. Treasury securities	—		287,988		—		287,988
Corporate notes and bonds	—		212,693		—		212,693
Asset-backed securities	—		24,331		—		24,331
Municipal securities	—		2,221		—		2,221
Foreign government and supranational securities	—		12,453		—		12,453
Total marketable securities	—		539,686		—		539,686
Restricted cash:
Restricted cash, current	150		—		—		150
Total restricted cash	150		—		—		150
Total financial assets	$	97,025	$	539,686	$	—	$	636,711

Restricted cash was $0.2 million as of both June 30, 2023 and December 31, 2022. The restricted cash balance consisted of letters of credit related to lease arrangements that were collateralized by the Company’s cash. The amounts as of June 30, 2023 and December 31, 2022, were both classified as current on the Company’s condensed consolidated balance sheets.

There were no transfers of assets and liabilities measured at fair value between Level 1 and Level 2, or between Level 2 and Level 3, during the three and six months ended June 30, 2023 and 2022.

5.     Business Combinations

Glitch, Inc.

On May 18, 2022, the Company acquired 100% of the voting equity interest of Glitch, Inc. (“Glitch”), a software company specializing in developer project management tools, for $34.9 million in cash, of which $8.0 million was held back as security for indemnification claims under the terms of the merger agreement (“Holdback”). During the three and six months ended June 30, 2023, $4.1 million of the Holdback was distributed to certain shareholders of Glitch and the remaining will be distributed 24 months following the acquisition closing date. The acquisition expands the Company’s brand awareness within the developer community and bolsters the Company’s existing product offerings by making it easier to innovate at a layer in the Company’s software stack.

The Company accounted for the transaction as a business combination. The purchase price was allocated based on the estimated fair value of the identified intangible assets of $2.0 million, cash of $1.6 million and other net assets of $0.6 million, and goodwill of $32.5 million.

The goodwill was primarily attributed to the value of synergies created with the acquisition of Glitch’s technology offering. Goodwill is not deductible for income tax purposes.

Identifiable finite-lived intangible assets were comprised of the following (in thousands):

	Total		Estimated useful life (in years)
Developed technology	$	630	4
Customer relationships	760		3
Trade name	610		4
Total intangible assets acquired	$	2,000

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For both the three and six months ended June 30, 2022, we incurred $2.0 million in acquisition-related expenses. For both the three and six months ended June 30, 2023, we did not incur any acquisition-related expenses. The acquired intangible assets have a total weighted average amortization period of 3.6 years.

From the date of the acquisition, the financial results of Glitch have been included in and are not material to the Company’s condensed consolidated financial statements. Pro forma revenue and results of operations have not been presented because the historical results are not material to the condensed consolidated financial statements in any period presented.

6.     Balance Sheet Information

Property and Equipment, Net

Property and equipment, net consisted of the following:

	As of June 30,		As of December 31,
	2023		2022
	(in thousands)
Computer and networking equipment	$	228,482	$	225,009
Leasehold improvements	8,565		8,374
Furniture and fixtures	2,051		1,792
Office equipment	1,178		1,176
Internal-use software	80,023		66,488
Property and equipment, gross	$	320,299	$	302,839
Accumulated depreciation and amortization	(141,254)		(122,461)
Property and equipment, net	$	179,045	$	180,378

Depreciation on property and equipment for the three months ended June 30, 2023 and 2022 was approximately $12.9 million and $10.7 million, respectively. Included in these amounts was amortization expense for capitalized internal-use software costs of approximately $3.2 million and $2.2 million for the three months ended June 30, 2023 and 2022, respectively.

Depreciation on property and equipment for the six months ended June 30, 2023 and 2022 was approximately $25.0 million and $20.6, respectively. Included in these amounts was amortization expense for capitalized internal-use software costs of approximately $6.1 million and $3.7 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and December 31, 2022, the unamortized balance of capitalized internal-use software costs on the Company’s condensed consolidated balance sheets was approximately $52.9 million and $45.5 million, respectively.

The Company leases certain networking equipment from various third parties through equipment finance leases. The Company’s networking equipment assets as of June 30, 2023 and December 31, 2022, included a total of $76.7 million and $77.3 million acquired under finance lease agreements, respectively. These leases are capitalized in property and equipment, and the related amortization of assets under finance leases is included in depreciation and amortization expense. The accumulated depreciation of the associated networking equipment assets under finance leases totaled $35.0 million and $28.1 million as of June 30, 2023 and December 31, 2022, respectively.

20

Other Assets

Other assets consisted of the following:

	As of June 30,		As of December 31,
	2023		2022
	(in thousands)
Deferred contract costs, net	$	60,034	$	50,523
Advance payment for purchase of property and equipment	32,657		37,013
Other assets	2,859		5,086
Total other assets	$	95,550	$	92,622

Accrued Expenses

Accrued expenses consisted of the following:

	As of June 30,		As of December 31,
	2023		2022
	(in thousands)
Accrued compensation and related benefits	$	16,736	$	20,204
Accrued bonus	7,835		15,818
Accrued colocation and bandwidth costs	12,511		10,448
Other tax liabilities	5,099		8,698
Other accrued liabilities	4,820		5,993
Total accrued expenses	$	47,001	$	61,161

Other Current Liabilities

Other current liabilities consisted of the following:

	As of June 30,		As of December 31,
	2023		2022
	(in thousands)
Deferred revenue	$	28,124	$	28,047
Accrued computer and networking equipment	1,929		1,467
Holdback payable	3,771		4,013
Other current liabilities	2,410		867
Total other current liabilities	$	36,234	$	34,394

21

Accumulated Other Comprehensive Income (Loss)

For the three and six months ended June 30, 2023 and 2022, components of accumulated other comprehensive (loss) income, net of taxes, were as follows (in thousands):

	Foreign Currency Translation		Available-for-sale investments		Accumulated Other Comprehensive Income (Loss)
Balance, March 31, 2023	$	(493)	$	(5,101)	$	(5,594)
Other comprehensive income	474		1,968		2,442
Balance, June 30, 2023	$	(19)	$	(3,133)	$	(3,152)

	Foreign Currency Translation		Available-for-sale investments		Accumulated Other Comprehensive Income (Loss)
Balance, March 31, 2022	$	(572)	$	(8,924)	$	(9,496)
Other comprehensive income (loss)	17		(3,063)		(3,046)
Balance, June 30, 2022	$	(555)	$	(11,987)	$	(12,542)

	Foreign Currency Translation		Available-for-sale investments		Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2022	$	(577)	$	(8,709)	$	(9,286)
Other comprehensive income	558		5,576		6,134
Balance, June 30, 2023	$	(19)	$	(3,133)	$	(3,152)

	Foreign Currency Translation		Available-for-sale investments		Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2021	$	(385)	$	(2,242)	$	(2,627)
Other comprehensive income loss	(170)		(9,745)		(9,915)
Balance, June 30, 2022	$	(555)	$	(11,987)	$	(12,542)

There were no material reclassifications out of accumulated other comprehensive loss during the three and six months ended June 30, 2023 and 2022. Additionally, there was no material tax impact on the amounts presented.

22

7.     Leases

The Company has operating leases for corporate offices and data centers (“colocation” leases), and finance leases for networking equipment. The Company’s operating leases have remaining lease terms ranging from less than 1 year to 7 years, some of which include options to extend the leases. The Company’s finance leases have remaining lease terms ranging from less than 1 year to 2 years. The Company also subleases a portion of its corporate office spaces. The Company’s subleases have remaining lease terms ranging from 1 year to 7 years. The Company’s sublease income was $0.3 million and $0.2 million for the three months ended June 30, 2023, and 2022, respectively. The Company’s sublease income was $0.6 million and $0.5 million for the six months ended June 30, 2023 and 2022, respectively.

The components of lease cost were as follows:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(in thousands)
Operating lease costs:
Operating lease cost	$	6,832	$	6,631	$	14,033	$	13,499
Variable lease cost	3,790		3,463		7,367		6,182
Total operating lease costs	$	10,622	$	10,094	$	21,400	$	19,681
Finance lease costs:
Amortization of assets under finance lease	$	3,619	$	3,818	$	7,242	$	7,080
Interest	367		650		806		1,241
Total finance lease costs	$	3,986	$	4,468	$	8,048	$	8,321

The short-term lease costs were not material for three and six months ended June 30, 2023, and 2022. The Company did not recognize any material impairment on its operating lease right-of-use assets for either of the three and six months ended June 30, 2023, and 2022.

	As of June 30,		As of December 31,
	2023		2022
Weighted Average Remaining Lease Term (in years):
Operating leases	3.81		4.09
Finance leases	1.34		1.74
Weighted Average Discount Rate:
Operating leases	5.74	%	5.36	%
Finance leases	4.70	%	4.73	%

23

Future minimum lease payments under non-cancellable leases as of June 30, 2023 were as follows:

	Operating Leases		Finance Leases
	(in thousands)
Remainder of 2023	$	13,278	$	14,278
2024	20,616		14,282
2025	17,957		1,618
2026	16,620		—
2027	9,619		—
Thereafter	2,935		—
Total future minimum lease payments	$	81,025	$	30,178
Less: imputed interest	(8,491)		(919)
Total liability	$	72,534	$	29,259

As of June 30, 2023, the Company has undiscounted commitments of $0.5 million for operating leases that have not yet commenced, and therefore are not included in the right-of-use asset or operating lease liability. These operating leases will commence in the third quarter of 2023 with lease terms of 2 years.

8.     Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the six months ended June 30, 2023 are as follows:

	Six months ended June 30, 2023
	(in thousands)
Balance as of December 31, 2022	$	670,185
Foreign currency translation and other adjustments	171
Balance as of June 30, 2023	$	670,356

The Company did not record an impairment charge on goodwill during both the three and six months ended June 30, 2023 or 2022.

Intangible Assets, net

As of June 30, 2023 and December 31, 2022, the Company’s intangible assets consisted of the following:

	As of June 30, 2023						As of December 31, 2022
	Gross carrying value		Accumulated amortization		Net carrying value		Gross carrying value		Accumulated amortization		Net carrying value
	(in thousands)
Intangible assets:
Customer relationships	$	69,860	$	(24,028)	$	45,832	$	69,860	$	(19,582)	$	50,278
Developed technology	50,130		(27,396)		22,734		50,130		(22,367)		27,763
Trade names	3,910		(3,190)		720		3,910		(2,564)		1,346
Internet protocol addresses	4,984		(1,720)		3,264		4,984		(1,471)