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 March 31, 2024

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 April 26, 2024, 136.6 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 March 31, 2024 and December 31, 2023	5
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023	6
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023	7
	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2024 and 2023	8
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	45
	Part II - Other Information	47
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosures	85
Item 5.	Other Information	85
Item 6.	Exhibits	86
	Signatures	87

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.

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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 X (formerly known as Twitter) account (@Fastly), our blog (www.fastly.com/blog), our corporate LinkedIn account (www.linkedin.com/company/fastly), 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 March 31, 2024		As of December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	150,809	$	107,921
Marketable securities, current	178,677		214,799
Accounts receivable, net of allowance for credit losses of $7,870 and $7,054 as of March 31, 2024 and December 31, 2023, respectively	107,517		120,498
Prepaid expenses and other current assets	23,207		20,455
Total current assets	460,210		463,673
Property and equipment, net	177,574		176,608
Operating lease right-of-use assets, net	54,420		55,212
Goodwill	670,356		670,356
Intangible assets, net	57,576		62,475
Marketable securities, non-current	1,743		6,088
Other assets	84,044		90,779
Total assets	$	1,505,923	$	1,525,191
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,485	$	5,611
Accrued expenses	35,555		61,818
Finance lease liabilities, current	11,974		15,684
Operating lease liabilities, current	22,580		24,042
Other current liabilities	44,633		40,539
Total current liabilities	120,227		147,694
Long-term debt	343,837		343,507
Finance lease liabilities, non-current	440		1,602
Operating lease liabilities, non-current	46,857		48,484
Other long-term liabilities	2,756		4,416
Total liabilities	514,117		545,703
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock	3		3
Additional paid-in capital	1,870,503		1,815,245
Accumulated other comprehensive loss	(521)		(1,008)
Accumulated deficit	(878,179)		(834,752)
Total stockholders’ equity	991,806		979,488
Total liabilities and stockholders’ equity	$	1,505,923	$	1,525,191

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 March 31,
	2024		2023
Revenue	$	133,520	$	117,564
Cost of revenue	60,286		57,310
Gross profit	73,234		60,254
Operating expenses:
Research and development	38,248		37,431
Sales and marketing	49,607		44,271
General and administrative	31,639		25,827
Total operating expenses	119,494		107,529
Loss from operations	(46,260)		(47,275)
Interest income	3,848		4,186
Interest expense	(579)		(1,213)
Other expense, net	(89)		(250)
Loss before income tax expense	(43,080)		(44,552)
Income tax expense	347		135
Net loss	$	(43,427)	$	(44,687)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.32)	$	(0.36)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	134,587		125,418

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 March 31,
	2024		2023
Net loss	$	(43,427)	$	(44,687)
Other comprehensive income:
Foreign currency translation adjustment	—		84
Gain on investments in available-for-sale-securities	487		3,608
Total other comprehensive income	$	487	$	3,692
Comprehensive loss	$	(42,940)	$	(40,995)

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 March 31, 2024
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2023	132,992	$	3	$	1,815,245	$	(1,008)	$	(834,752)	$	979,488
Exercise of vested stock options	71	—		111		—		—		111
Vesting of restricted stock units	1,532	—				—		—		—
Shares issued under bonus program	1,889	—		26,849		—		—		26,849
Stock-based compensation	—	—		28,298		—		—		28,298
Net loss	—	—		—		—		(43,427)		(43,427)
Other comprehensive income	—	—		—		487		—		487
Balance at March 31, 2024	136,484	$	3	$	1,870,503	$	(521)	$	(878,179)	$	991,806

	Three months ended March 31, 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	44	—		336		—		—		336
Vesting of restricted stock units	1,211	—		—		—		—		—
Shares issued under bonus program	1,193	—		16,599		—		—		16,599
Stock-based compensation	—	—		27,457		—		—		27,457
Net loss	—	—		—		—		(44,687)		(44,687)
Other comprehensive loss	—	—		—		3,692		—		3,692
Balance at March 31, 2023	126,784	$	2	$	1,710,498	$	(5,594)	$	(746,351)	$	958,555

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

8

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands; unaudited)

	Three months ended March 31,
	2024		2023
Cash flows from operating activities:
Net loss	$	(43,427)	$	(44,687)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation expense	13,277		12,040
Amortization of intangible assets	4,899		5,175
Non-cash lease expense	5,556		6,115
Amortization of debt discount and issuance costs	354		716
Amortization of deferred contract costs	4,573		3,425
Stock-based compensation	31,821		28,151
Deferred income taxes	228		—
Provision for credit losses	953		533
Loss on disposals of property and equipment	399		251
Amortization of premiums (discounts) on investments	(1,158)		449
Other adjustments	(259)		(243)
Changes in operating assets and liabilities:
Accounts receivable	12,028		3,701
Prepaid expenses and other current assets	(2,700)		(634)
Other assets	(1,814)		(7,212)
Accounts payable	101		(175)
Accrued expenses	(8,760)		(6,827)
Operating lease liabilities	(7,606)		(5,750)
Other liabilities	2,667		(3,889)
Net cash provided by (used in) operating activities	11,132		(8,861)
Cash flows from investing activities:
Purchases of marketable securities	(56,948)		—
Maturities of marketable securities	99,080		227,211
Purchases of property and equipment	(1,603)		(3,494)
Proceeds from sale of property and equipment	—		22
Capitalized internal-use software	(6,845)		(4,209)
Net cash provided by investing activities	33,684		219,530
Cash flows from financing activities:
Repayments of finance lease liabilities	(4,872)		(8,645)
Proceeds from exercise of vested stock options	111		336
Proceeds from employee stock purchase plan	2,881		2,596
Net cash used in financing activities	(1,880)		(5,713)
Effects of exchange rate changes on cash, cash equivalents, and restricted cash	(48)		116
Net increase in cash, cash equivalents, and restricted cash	42,888		205,072
Cash, cash equivalents, and restricted cash at beginning of period	108,071		143,541
Cash, cash equivalents, and restricted cash at end of period	$	150,959	$	348,613

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

9

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued

(in thousands)

(unaudited)

	Three months ended March 31,
	2024		2023
Supplemental disclosure of cash flow information:
Cash paid for interest	$	225	$	497
Cash paid for income taxes, net of refunds received	$	292	$	182
Cash paid for finance lease interest	$	162	$	633
Noncash investing and financing activities:
Net increase (decrease) in property and equipment included in accounts payable and accrued expenses	$	(459)	$	1,368
Stock-based compensation capitalized to internal-use software	$	2,942	$	1,286
Assets obtained in exchange for operating lease obligations	$	3,857	$	1,324
Net non-cash change in operating lease assets and liabilities associated with modifications and terminations	$	912	$	3,027
Deployments of prepaid capital equipment	$	3,724	$	1,413
Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows:
Cash and cash equivalents	$	150,809	$	348,463
Restricted cash, current	150		150
Total cash, cash equivalents, and restricted cash	$	150,959	$	348,613

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

10

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. 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, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 21, 2024. 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, 2023.

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 long-lived assets as well as goodwill, 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, 2023.

Recently Adopted and Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07 “Segment Reporting - Improvements to Reportable Segment Disclosures,” which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. The guidance is effective for the Company's annual periods beginning in 2024 and interim periods beginning in the first quarter of fiscal year 2025. The Company is currently evaluating the impact of the new guidance.

In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The guidance is effective for the Company's annual periods beginning in 2025. The Company

11

is currently evaluating the impact of the new guidance and intends to adopt the guidance prospectively when it becomes effective in 2025.

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 failure of Silicon Valley Bank (“SVB”) in March 2023, 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. No customer accounted for more than 10% of revenue for both the three months ended March 31, 2024 and 2023. One customer accounted for more than 10% of the total accounts receivable balance as of both March 31, 2024 and December 31, 2023. Affiliated customers that are business units of a single company in the streaming entertainment space generated an aggregate of 12% and 10% of the Company’s revenue for the three months ended March 31, 2024 and 2023, respectively. The same affiliated customers accounted for an aggregate of 14% and 23% of the Company’s accounts receivable balance as of March 31, 2024 and December 31, 2023, 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 months ended March 31, 2024 and March 31, 2023. The following table presents the Company’s net revenue by geographic region:

	Three months ended March 31,
	2024		2023
	(in thousands)
United States	$	98,498	$	85,364
Asia Pacific	19,098		16,431
Europe	11,246		10,515
All other	4,678		5,254
Total revenue	$	133,520	$	117,564

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The majority of the Company’s revenue is derived from enterprise customers, which are 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:

	Three months ended March 31,
	2024		2023
	(in thousands)
Enterprise customers	$	122,060	$	107,373
Non-enterprise customers	11,460		10,191
Total revenue	$	133,520	$	117,564

The Company reports its revenue by three product lines: Network Services, Security and Other. Network Services include solutions designed to improve performance of websites, apps, application programming interfaces (“APIs”) and digital media. Security includes products designed to protect websites, apps, APIs and users. Other includes Compute solutions that allow developers to build and deploy modern web applications on Fastly's edge cloud platform, and Observability solutions that provide real-time logs, data and metrics streamed from Fastly's edge platform for actionable insights. The following table presents the Company’s revenue by product line:

	Three months ended March 31,
	2024		2023
	(in thousands)
Network Services	$	105,996	$	94,307
Security	24,600		21,208
Other	2,924		2,049
Total revenue	$	133,520	$	117,564

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 unbilled receivable, when revenue is recognized prior to invoicing. The Company records a contract liability, or deferred revenue, when a contract is billed in advance of revenue being recognized.

Deferred revenue pertains to amounts billed to customers for which revenue has not been recognized, which primarily consists of the unearned portions of billings for the Company’s security subscription services and the unearned portion of edge cloud platform usage. 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 March 31, 2024 and as of December 31, 2023:

	As of March 31, 2024		As of December 31, 2023
	(in thousands)
Contract assets	$	—	$	621
Contract liabilities	$	41,136	$	38,150

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The following table presents revenue recognized during the three months ended March 31, 2024 and 2023 from amounts included in the contract liability at the beginning of the period:

	Three months ended March 31,
	2024		2023
	(in thousands)
Revenue recognized in the period from amounts included in contract liability at the beginning of the period	$	12,760	$	12,221

Remaining performance obligations

As of March 31, 2024, the aggregate amount of the transaction price in our contracts allocated to remaining performance obligations that are unsatisfied or partially unsatisfied was $227.0 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 March 31, 2024, the Company expects to recognize approximately 78% 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 March 31, 2024 and December 31, 2023, the Company's costs to obtain contracts were as follows:

	As of March 31, 2024		As of December 31, 2023
	(in thousands)
Deferred contract costs, net	$	59,011	$	61,981

During the three months ended March 31, 2024 and 2023, the Company recognized $4.6 million and $3.4 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.

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4.     Investments and Fair Value Measurements

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

	As of March 31, 2024		As of December 31, 2023
	(in thousands)
Cash and cash equivalents:
Cash	$	19,621	$	21,269
U.S. Treasury securities	1,800		52,830
Money market funds	124,417		21,166
Commercial paper	4,971		12,656
Total cash and cash equivalents(1)	$	150,809	$	107,921
Marketable securities:
U.S. Treasury securities	$	21,799	$	73,448
Corporate notes and bonds	83,789		105,566
Commercial paper	63,111		25,934
Agency bonds	9,978		9,851
Total marketable securities, current(2)	$	178,677	$	214,799
Corporate notes and bonds	1,743		5,999
Asset-backed securities	—		89
Total marketable securities, non-current(3)	$	1,743	$	6,088
Total marketable securities	$	180,420	$	220,887
Total cash and cash equivalents and marketable securities	$	331,229	$	328,808

(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.

15

The following table summarizes adjusted cost, gross unrealized gains and losses, and fair value related to cash equivalents and available-for-sale securities on the accompanying condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023:

	As of March 31, 2024
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in thousands)
Cash equivalents:
Money market funds	$	124,417	$	—	$	—	$	124,417
U.S. Treasury securities	1,800		—		—		1,800
Commercial paper	4,975		—		(4)		4,971
Marketable securities:
U.S. Treasury securities	21,806		—		(7)		21,799
Corporate notes and bonds	85,880		30		(378)		85,532
Commercial paper	63,174		—		(63)		63,111
Agency bonds	9,984		—		(6)		9,978
Total	$	312,036	$	30	$	(458)	$	311,608
	As of December 31, 2023
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in thousands)
Cash equivalents:
U.S. Treasury securities	$	52,824	$	6	$	—	$	52,830
Commercial paper	12,663		—		(7)		12,656
Marketable securities:
U.S. Treasury securities	73,444		8		(4)		73,448
Corporate notes and bonds	112,487		9		(931)		111,565
Commercial paper	25,946		—		(12)		25,934
Asset-backed securities	89		—		—		89
Agency bonds	9,854		—		(3)		9,851
Total	$	287,307	$	23	$	(957)	$	286,373

There were no material realized gains or losses from sales of marketable securities that were reclassified out of accumulated other comprehensive loss into other income during the three months ended March 31, 2024 and 2023. Investments are reviewed periodically to identify possible other-than-temporary impairments. For the three months ended March 31, 2024 and 2023, 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

16

participants on the measurement date. There is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

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 March 31, 2024
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents:
Money market funds	$	124,417	$	—	$	—	$	124,417
U.S. Treasury securities	—		1,800		—		1,800
Commercial paper	—		4,971		—		4,971
Total cash equivalents	124,417		6,771		—		131,188
Marketable securities:
U.S. Treasury securities	—		21,799		—		21,799
Corporate notes and bonds	—		85,532		—		85,532
Commercial paper	—		63,111		—		63,111
Agency bonds	—		9,978		—		9,978
Total marketable securities	—		180,420		—		180,420
Restricted cash:
Restricted cash, current	150		—		—		150
Total restricted cash	150		—		—		150
Total financial assets	$	124,567	$	187,191	$	—	$	311,758

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	As of December 31, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents:
Money market funds	$	21,166	$	—	$	—	$	21,166
U.S. Treasury securities	—		52,830		—		52,830
Commercial paper	—		12,656		—		12,656
Total cash equivalents	21,166		65,486		—		86,652
Marketable securities:
U.S. Treasury securities	—		73,448		—		73,448
Corporate notes and bonds	—		111,565		—		111,565
Commercial paper	—		25,934		—		25,934
Asset-backed securities	—		89		—		89
Agency bonds	—		9,851		—		9,851
Total marketable securities	—		220,887		—		220,887
Restricted cash:
Restricted cash, current	150		—		—		150
Total restricted cash	150		—		—		150
Total financial assets	$	21,316	$	286,373	$	—	$	307,689

Restricted cash was $0.2 million as of both March 31, 2024 and December 31, 2023. 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 March 31, 2024 and December 31, 2023, were both classified as current on the Company’s 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 months ended March 31, 2024 and 2023.

5.     Balance Sheet Information

Property and Equipment, Net

Property and equipment, net consisted of the following:

	As of March 31, 2024		As of December 31, 2023
	(in thousands)
Computer and networking equipment	$	228,835	$	224,313
Leasehold improvements	8,605		8,605
Furniture and fixtures	2,150		2,142
Office equipment	1,228		1,228
Internal-use software	100,839		97,623
Property and equipment, gross	$	341,657	$	333,911
Accumulated depreciation and amortization	(164,083)		(157,303)
Property and equipment, net	$	177,574	$	176,608

Depreciation on property and equipment for the three months ended March 31, 2024 and 2023 was approximately $13.3 million and $12.0 million, respectively. Included in these amounts was amortization expense for capitalized internal-use software costs of approximately $3.9 million and $2.9 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, the unamortized balance of capitalized internal-use software costs on the Company’s condensed consolidated balance sheets was approximately $68.2 million and $62.6 million, respectively.

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The Company leases certain networking equipment from various third parties through equipment finance leases. The Company’s networking equipment assets as of March 31, 2024 and December 31, 2023, included a total of $74.6 million and $74.7 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 $43.5 million and $40.1 million as of March 31, 2024 and December 31, 2023, respectively.

Other Assets

Other assets consisted of the following:

	As of March 31, 2024		As of December 31, 2023
	(in thousands)
Deferred contract costs, net	$	59,011	$	61,981
Advance payment for purchase of property and equipment	20,485		24,509
Other assets	4,548		4,289
Total other assets	$	84,044	$	90,779

Accrued Expenses

Accrued expenses consisted of the following:

	As of March 31, 2024		As of December 31, 2023
	(in thousands)
Accrued compensation and related benefits	$	13,046	$	14,918
Accrued bonus	2,930		24,614
Accrued colocation and bandwidth costs	10,771		14,362
Other tax liabilities	4,071		4,344
Other accrued expenses	4,737		3,580
Total accrued expenses	$	35,555	$	61,818

Other Current Liabilities

Other current liabilities consisted of the following:

	As of March 31, 2024		As of December 31, 2023
	(in thousands)
Deferred revenue	$	38,240	$	33,824
Accrued computer and networking equipment	1,460		1,673
Holdback payable	3,771		3,771
Other current liabilities	1,162		1,271
Total other current liabilities	$	44,633	$	40,539

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Accumulated Other Comprehensive Loss

For the three months ended March 31, 2024 and 2023, components of accumulated other comprehensive loss, net of taxes, were as follows (in thousands):

	Foreign Currency Translation		Available-for-sale investments		Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2023	$	(12)	$	(996)	$	(1,008)
Other comprehensive income	—		487		487
Balance, March 31, 2024	$	(12)	$	(509)	$	(521)

	Foreign Currency Translation		Available-for-sale investments		Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2022	$	(577)	$	(8,709)	$	(9,286)
Other comprehensive income	84		3,608		3,692
Balance, March 31, 2023	$	(493)	$	(5,101)	$	(5,594)

There were no material reclassifications out of accumulated other comprehensive loss during the three months ended March 31, 2024 and 2023. Additionally, there was no material tax impact on the amounts presented.

6.     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 6 years, some of which include options to extend the leases. The Company’s finance leases have remaining lease terms up to 1 year. The Company also subleases a portion of its corporate office spaces. The Company’s subleases have remaining lease terms ranging from less than 1 year to 6 years. The Company’s sublease income was $0.4 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

The components of lease cost were as follows:

	Three months ended March 31,
	2024		2023
	(in thousands)
Operating lease costs:
Operating lease cost	$	6,606	$	7,201
Variable lease cost	4,247		3,576
Total operating lease costs	$	10,853	$	10,777
Finance lease costs:
Amortization of assets under finance lease	$	3,595	$	3,623
Interest	162		439
Total finance lease costs	$	3,757	$	4,062

The short-term lease costs were not material for either of the three months ended March 31, 2024 and 2023. The Company did not recognize any material impairment on its operating lease right-of-use assets for either of the three months ended March 31, 2024 and 2023.

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	As of March 31, 2024		As of December 31, 2023
Weighted Average Remaining Lease Term (in years):
Operating leases	3.35		3.48
Finance leases	0.82		1.00
Weighted Average Discount Rate:
Operating leases	6.24	%	6.03	%
Finance leases	4.67	%	4.67	%

Future minimum lease payments under non-cancellable leases as of March 31, 2024 were as follows:

	Operating Leases		Finance Leases
	(in thousands)
Remaining 2024	$	20,820	$	11,029
2025	22,187		1,617
2026	19,969		—
2027	11,286		—
2028	2,996		—
Thereafter	1,836		—
Total future minimum lease payments	$	79,094	$	12,646
Less: imputed interest	(7,686)		(232)
Total liability	$	71,408	$	12,414

As of March 31, 2024, the Company has undiscounted commitments of $2.0 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 second quarter of 2024 with lease terms of 3 years.

7.     Goodwill and Intangible Assets

Goodwill

As of each of March 31, 2024 and December 31, 2023, the Company’s goodwill was $670.4 million. The Company did not record an impairment charge on goodwill during each of the three months ended March 31, 2024 and 2023.

As of March 31, 2024 and December 31, 2023, the Company’s intangible assets consisted of the following:

	As of March 31, 2024						As of December 31, 2023
	Gross carrying value		Accumulated amortization		Net carrying value		Gross carrying value		Accumulated amortization		Net carrying value
	(in thousands)
Intangible assets:
Customer relationships	$	69,860	$	(30,696)	$	39,164	$	69,860	$	(28,473)	$	41,387
Developed technology	50,130		(34,939)		15,191		50,130		(32,424)		17,706
Trade names	3,910		(3,580)		330		3,910		(3,542)		368
Internet protocol addresses	4,984		(2,093)		2,891		4,984		(1,970)		3,014
Total intangible assets	$	128,884	$	(71,308)	$	57,576	$	128,884	$	(66,409)	$	62,475

The Company’s customer relationships, developed technology, trade names and internet protocol addresses represent intangible assets subject to amortization. Amortization expense was $4.9 million and $5.2 million for the three months ended March 31, 2024 and 2023, respectively.

21

The Company did not purchase any intangible assets during both the three months ended March 31, 2024 and 2023. The Company did not record any impairment charges on its intangible assets during both the three months ended March 31, 2024 and 2023.

The expected amortization expense of intangible assets subject to amortization as of March 31, 2024 is as follows:

	As of March 31, 2024
	(in thousands)
Remainder of 2024	$	14,699
2025	16,976
2026	9,193
2027	9,051
2028	6,892
Thereafter	765
Total	$	57,576

8.     Debt Instruments

Senior Secured Credit Facilities Agreement

On February 16, 2021, the Company entered into a Senior Secured Credit Facilities Agreement (“Credit Agreement”) with the lenders from time to time party thereto (the “Lenders”) and Silicon Valley Bank, as a lender and as administrative agent and collateral agent for the Lenders, for an aggregate commitment amount of $100.0 million with a maturity date of February 16, 2024. The Company recorded $0.6 million of debt issuance costs associated with the Credit Agreement in other assets on the Company’s condensed consolidated balance sheet.

The Credit Agreement originally bore interest at a rate per annum equal to the sum of LIBOR for the applicable interest period plus 1.75% to 2.00%, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement. On June 28, 2023, the Company entered into the First Amendment to Credit Agreement with the Lenders and First-Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A. (as successor to Silicon Valley Bank)), as a lender and as administrative agent and collateral agent for the Lenders, which, among other things, amended the interest rate provisions of the Credit Agreement to replace LIBOR with the Secured Overnight Finance Rate (“SOFR”) as the interest rate benchmark. On February 16, 2024, the Company entered into the Second Amendment to Credit Agreement with the Lenders and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as a lender and as administrative agent and collateral agent for the Lenders, which, among other things, extended the maturity date of the loans under the Credit Agreement to June 14, 2024. On April 30, 2024, the Company entered into the Third Amendment to Credit Agreement with the Lenders and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as a lender and as administrative agent and collateral agent for the Lenders, which, among other things, extended the maturity date of the loans under the Credit Agreement to April 30, 2027 and decreased the commitment amount from $100.0 million to $60.0 million, including a $10.0 million sublimit for the issuance of letters of credit, and a swingline subfacility of up to $20.0 million. As amended, the revolving loans bear interest, at the Company’s election, at an annual rate based on SOFR or a base rate. Loans based on SOFR bear interest at a rate per annum equal to SOFR, plus an adjustment of 0.10%, plus 1.75% to 2.00%, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement. Loans based on the base rate bear interest at a rate per annum equal to the base rate plus 0.75% to 1.00%, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement.

Interest payments on outstanding borrowings are due on the last day of each interest period. The Credit Agreement has a commitment fee on the unused portion of the borrowing commitment, which is payable on the last day of each calendar quarter at a rate per annum of 0.20% to 0.25% depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement. In addition, the Company’s Credit Agreement contains a financial covenant that requires the Company to maintain a consolidated adjusted quick ratio of at least 1:25 to 1:00 tested on a quarterly basis as well as a springing revenue growth covenant for certain periods if the Company’s consolidated adjusted quick ratio falls below 1.75 to 1:00 on the last day of any fiscal quarter. The Credit Agreement requires the Company to comply with various affirmative and negative covenants, and contains customary events of default.

22

As of March 31, 2024, the Company was in compliance with all of the Credit Agreement’s covenants. During the three months ended March 31, 2024 and 2023, no amounts were drawn down on the Credit Agreement. As of March 31, 2024 and December 31, 2023, no amounts were outstanding under the Credit Agreement.

Convertible Senior Notes

On March 5, 2021, the Company issued approximately $948.8 million aggregate principal amount of 0% convertible senior notes due 2026 (the “Notes”), including the exercise in full by the initial purchasers of their option to purchase up to an additional approximately $123.8 million principal amount of the Notes. The Notes were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Notes will mature on March 15, 2026, unless earlier converted, redeemed or repurchased. The net proceeds from the issuance of the Notes were approximately $930.0 million after deducting the initial purchasers’ discounts and transaction costs.

The Company may not redeem the Notes prior to March 20, 2024. On or after March 20, 2024, the Company may redeem for cash, all or any portion of the Notes, at the Company’s option, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date, if the last reported sale price of the Company’s Class A common stock (“common stock”) has been at least 130% of the conversion price for the Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. No sinking fund is provided for the Notes.

Holders of the Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2025, only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the Notes on each applicable trading day; (ii) during the five business day period after any ten consecutive trading day period (the “Measurement Period”) in which the trading price, as defined in the indenture agreement governing the Note filed with the Company’s Current Report on Form 8-K filed with the SEC on March 5, 2021, per $1,000 principal amount of notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (iii) if the Company calls such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the applicable redemption date, but only with respect to the Notes called (or deemed called) for redemption; or (iv) upon the occurrence of specified corporate events. On or after December 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes at any time, regardless of the foregoing circumstances.

Upon conversion, the Company may satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 9.7272 shares of common stock per $1,000 principal amount of Notes, equivalent to an initial conversion price of approximately $102.80 per share of common stock. The conversion rate is subject to adjustment as described in the indenture governing the Notes but will not be adjusted for any accrued and unpaid special interest. In addition, following certain corporate events that occur prior to the maturity date of the Notes or if the Company delivers a notice of redemption in respect of the Notes, the Company will, in certain circumstances, increase the conversion rate of the Notes for a holder who elects to convert its Notes, in connection with such a corporate event or convert its Notes called (or deemed called) for redemption during the related redemption period, as the case may be.

The indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable. If the Company undergoes a fundamental change, as defined in the indenture agreement governing the Notes, then subject to certain conditions and except as described in the indenture governing the Notes, holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.

23

The Company evaluated the terms of its debt and concluded that the instrument does not require separation and that there were no other derivatives that required separation. As such, the Company has combined these features with the host contract and the Company accounts for its convertible debt as a single liability in long-term debt on its condensed consolidated balance sheet. The initial purchasers' discounts and transaction costs of $18.6 million incurred related to the issuance of the Notes were classified as liability and represents the difference between the principal amount of the Notes and the liability component (the “debt discount”), which is amortized to interest expense using the effective interest method over the term of the Notes.

As of March 31, 2024, the conversion conditions had not been met and therefore the Notes were not yet convertible.

On May 25, 2022, the Company entered into separate, privately negotiated transactions with certain holders of the Notes to repurchase (the “Repurchases”) $235.0 million aggregate principal amount of the Notes for an aggregate cash repurchase price of $176.4 million and aggregate transaction costs of $0.7 million.

During the year ended December 31, 2023, the Company entered into several separate privately negotiated transactions with certain holders of the Notes to repurchase $367.3 million aggregate principal amount of the Notes for an aggregate cash repurchase price of $309.1 million and aggregate transaction costs of $2.0 million.

The following table reflects the carrying values of the debt agreements as of March 31, 2024 and December 31, 2023:

	As of March 31, 2024		As of December 31, 2023
	(in thousands)		(in thousands)
Convertible Senior notes (effective interest rate of 0.38%)
Principal amount	$	346,489	$	346,489
Less: unamortized debt issuance costs	(2,652)		(2,982)
Less: current portion of long-term debt	—		—
Long-term debt, less current portion	$	343,837	$	343,507

For the three months ended March 31, 2024 and 2023, interest expense related to the Company’s debt obligations was $0.4 million and $0.8 million, respectively. As of March 31, 2024 and December 31, 2023, the total estimated fair value of the Notes was $314.4 million and $301.4 million, respectively.

9.     Commitments and Contingencies

Purchase Commitments

As of March 31, 2024, the Company had long-term commitments for cost of revenue related agreements (i.e., bandwidth usage, peering and other managed services with various networks, fixed asset vendors, Internet service providers and other third-party vendors). The Company also has non-cost of revenue long-term commitments for various non-cancelable agreements.

24

Aside from the Company’s finance and operating lease commitments, including its colocation operating commitments, which have been disclosed in Note 6—Leases, the minimum future commitments related to the Company's purchase commitments as of March 31, 2024 were as follows:

	Cost of Revenue Commitments		Operating Expense Commitments		Total Purchase Commitments
	(in thousands)
Remainder of 2024	$	37,203	$	5,131	$	42,334
2025	7,418		4,799		12,217
2026	8,122		3,069		11,191
2027	111		—		111
2028	40		—		40
Thereafter	—		—		—
Total	$	52,894	$	12,999	$	65,893

Sales and Use Tax

The Company conducts its operations in many tax jurisdictions throughout the United States. In some of these jurisdictions the Company is subject to indirect taxes, such as sales and use taxes, and may be subject to certain other taxes. In accordance with GAAP, the Company has recorded a provision for its 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. The Company has accrued $4.1 million and $4.3 million as of March 31, 2024 and December 31, 2023, respectively, for sales and use tax. These estimates are based on several key assumptions, including the taxability of the Company’s operations and the jurisdictions in which the Company believes it has nexus. In the event these jurisdictions challenge the Company’s assumptions and analysis, its actual exposure could differ materially from its current estimates.

Legal Matters

From time to time, the Company has been and may be subject to legal proceedings and claims. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues for contingencies when it believes that a loss is probable and that the Company can reasonably estimate the amount of any such loss.

The Company is not presently a party to any legal proceedings that, if determined adversely to it, would individually or taken together have a material effect on the Company’s business, results of operations, financial condition, or cash flows. As of March 31, 2024, the Company has not recorded any significant accruals for loss contingencies associated with such legal proceedings, determined that an unfavorable outcome is probable or reasonably possible, or determined that the amount or range of any possible loss is reasonably estimable.

Indemnification

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with its provision of its services. Generally, these obligations are limited to claims relating to infringement of a patent, copyright, or other intellectual property right, breach of the Company’s security or data protection obligations, or its negligence, willful misconduct, or violation of law. Subject to applicable statutes of limitation, the term of these indemnification agreements is generally for the duration of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company carries insurance that covers certain third-party claims relating to the Company’s services and could limit its exposure in that respect.

The Company has agreed to indemnify each of its officers and directors during his or her lifetime for certain events or occurrences that happen by reason of the fact that the officer or director is, was, or has agreed to serve as an officer or director of the Company. The Company has director and officer insurance policies that may limit its exposure and may enable it to recover a portion of certain future amounts paid.

To date, the Company has not encountered material costs as a result of such indemnification obligations and has not

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accrued any related liabilities in its financial statements. In assessing whether to establish an accrual, the Company considers such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

10.     Stockholders' Equity

Equity Incentive Plans

The Company maintains four equity incentive plans: the 2019 Equity Incentive Plan (the “2019 Plan”), 2011 Equity Incentive Plan (“2011 Plan”), Employee Stock Purchase Plan and the Signal Sciences Corp. 2014 Stock Option and Grant Plan, as amended (the “Signal Plan”). The 2019 Plan became effective in May 2019 and replaced the 2011 Plan. The Company’s 2019 Plan provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock awards, performance-based stock awards (“PSUs”), and other forms of equity compensation, which are collectively referred to as stock awards to its employees, directors, and consultants. The Signal Plan includes 251,754 registered shares which can be exercised to purchase shares of Fastly’s common stock.

As of March 31, 2024 and December 31, 2023, there were 12.0 million and 8.9 million shares of common stock available for issuance under the 2019 Plan, respectively. As of March 31, 2024 and December 31, 2023, 136.5 million and 133.0 million shares of common stock were issued and outstanding, respectively.

Stock Options

Options granted under the 2011 Plan and 2019 Plan are exercisable for common stock and generally expire within 10 years from the date of grant and generally vest over four years, at the rate of 25% on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter based on continued service. Forfeitures are recognized as they occur.

The following table summarizes stock option activity during the three months ended March 31, 2024:

	Shares	Weighted- Average  Exercise Price	Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)		(in years)	(in thousands)
Outstanding at December 31, 2023	2,710	8.14	5.1	$	26,383
Granted	—	—
Exercised	(71)	1.58
Cancelled/forfeited	—	—
Outstanding at March 31, 2024	2,639	8.32	4.9	$	15,255
Vested and exercisable at March 31, 2024	2,110	6.28	3.7	$	15,255

During the three months ended March 31, 2024 and 2023, the Company recorded stock-based compensation expense from stock options of approximately $0.6 million and $0.7 million, respectively.

Restricted Stock Units (“RSUs”)

The Company began granting RSUs under the 2019 Plan during the fiscal year ended December 31, 2019. The fair value of RSUs is based on the grant date fair value and is expensed on a straight-line basis over the applicable vesting period. RSUs granted to new hires typically vest over three or four years, at the rate of 33% or 25%, respectively, on the first anniversary of the vesting start date and ratably on a quarterly basis over the remaining 24-month or 36-month period thereafter, respectively. RSUs granted to existing employees typically vest in equal quarterly installments over a three or four-year service period. All vesting is contingent on continued service. Forfeitures are recognized as they occur.

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The following table summarizes RSU activity during the three months ended March 31, 2024:

	Number of Shares	Weighted-Average  Grant Date Fair Value Per Share
	(in thousands)
Unvested RSUs as of December 31, 2023	11,244	$	17.46
Granted	3,320	13.96
Vested	(3,258)	16.34
Cancelled/forfeited	(230)	21.95
Unvested RSUs as of March 31, 2024	11,076	$	16.65

During the three months ended March 31, 2024 and 2023, the Company recognized stock-based compensation expense related to RSUs of $24.5 million and $23.6 million, respectively.

Performance-Based Restricted Stock Units ("PSUs")

Performance stock awards for executive officers (“Executive PSUs”)

In March and May 2023, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of PSUs, which are to vest based on the level of achievement of certain Company-wide targets related to the Company’s operating plan for the fiscal year 2023. The Company has accounted for these awards as equity-based awards and will recognize stock-based compensation expense over the employees' requisite service period based on the expected attainment of the Company-wide targets as of the end of each reporting period.

In February 2024, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of PSUs, which are to vest based on the level of achievement of certain Company-wide targets related to the Company’s operating plan for the fiscal year 2024. The Company has accounted for these awards as equity-based awards and will recognize stock-based compensation expense over the employees' requisite service period based on the expected attainment of the Company-wide targets as of the end of each reporting period.

	Number of Shares	Weighted-Average Grant Date Fair Value Per Share
	(in thousands)
Nonvested PSUs as of December 31, 2023	732	$	16.49
Granted	909	12.60
Vested	(162)	16.14
Cancelled/forfeited	(263)	16.05
Nonvested PSUs as of March 31, 2024	1,216	$	13.72

For the three months ended March 31, 2024 and 2023, the Company recognized $1.2 million and $0.3 million of stock-based compensation expense associated with these awards, respectively.

Company-wide Bonus Program (“Bonus Program”)

In March 2023, the Compensation Committee approved a company-wide bonus program, including performance targets, to most of the Company’s employees on active payroll in fiscal year 2023 (“2023 Bonus Program”). Shares awarded under the program were paid out in February 2024 in fully vested RSUs and based on the final attainment of Company-wide performance targets which were tied to its operating plan for fiscal year 2023. The Company recognized stock-based compensation expense over the employees requisite service period, based on the final attainment of the Company-wide targets. In February 2024, the Company paid out 1.9 million of restricted stock units associated with the 2023 Bonus Program, and correspondingly recorded a charge to additional paid-in-capital of $26.8 million.

In February 2024, the Compensation Committee approved a company-wide bonus program, including performance targets, for the current fiscal year to most of the Company’s employees on active payroll in fiscal year 2024 ("2024 Bonus Program"). Shares awarded under the program will be in fully vested RSUs and will be based on the final attainment of Company-wide performance targets which are tied to its operating plan for fiscal year 2024. The payout of the 2024 Company-wide bonus program will vary linearly between 50%, 100% and 150% based on the achievement of these targets. Employees are required to be employed through the payout date to earn the awards. The Company has accounted for these awards as

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liability-based awards, since the monetary value of the obligation associated with the award is based predominantly on a fixed monetary amount known at inception, and it has an unconditional obligation that it must or may settle by issuing a variable number of its equity shares. The Company is recognizing the stock-based compensation expense over the employees requisite service period, based on the expected attainment of the Company-wide targets as of the end of each reporting period.

During the three months ended March 31, 2024 and 2023, the Company recognized $6.5 million and $2.0 million, respectively, of stock-based compensation expense associated with the Bonus Programs, respectively.

Market-Based Performance Stock Awards (“MPSUs”)

In September 2022 and January 2023, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of MPSUs, which are to vest upon the satisfaction of the Company’s achievement of specified Fastly common stock price targets during the applicable performance period. In addition, the awards are subject to each recipient’s continuous service through each applicable vest dates.

	Number of Shares	Weighted-Average Grant Date Fair Value Per Share
	(in thousands)
Nonvested MPSUs as of December 31, 2023	1,471	$	6.46
Granted	—	—
Vested	—	—
Cancelled/forfeited	(158)	6.69
Nonvested MPSUs as of March 31, 2024	1,313	$	6.45

Stock-based compensation expense relating to the MPSUs are recognized using the accelerated attribution method over the derived service period. During the three months ended March 31, 2024 and 2023, the Company recognized $0.7 million and $1.6 million stock-based compensation expense associated with these awards, respectively.

Employee Stock Purchase Program (“ESPP”)

The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their eligible compensation. The ESPP provides for six-month offering periods, commencing in May and November of each year. At the end of each offering period employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the date of purchase.

During the three months ended March 31, 2024 and 2023 the Company recognized $1.2 million and $1.3 million in stock-based compensation expense related to the ESPP, respectively. No common stock was issued under the ESPP in the three months ended March 31, 2024, nor in the three months ended March 31, 2023.

Stock-Based Compensation Expense

The following table summarizes the components of total stock-based compensation expense included in the accompanying condensed consolidated statements of operations:

	Three months ended March 31,
	2024		2023
	(in thousands)
Cost of revenue	$	2,779	$	2,681
Research and development	10,323		11,481
Sales and marketing	7,843		6,705
General and administrative	10,876		7,284
Total stock-based compensation expense	$	31,821	$	28,151

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For the three months ended March 31, 2024 and 2023, the Company capitalized $2.9 million and $1.3 million of stock-based compensation expense to internal-use software, respectively.

For the three months ended March 31, 2024 and 2023, the Company recognized $6.5 million and $2.0 million of stock-based compensation expense associated with liability classified awards related to the company-wide Bonus Program, respectively.

11.     Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share is computed by dividing net loss by basic weighted-average shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by diluted weighted-average shares outstanding, including potentially dilutive securities.

The following table presents the computation of basic and diluted net loss per share of common stock:

	Three months ended March 31,
	2024		2023
	(in thousands, except per share amounts)
Net loss attributable to common stockholders	$	(43,427)	$	(44,687)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	134,587		125,418
Net loss per share attributable to common stockholders, basic and diluted	$	(0.32)	$	(0.36)

The following securities were excluded from the computation of diluted net loss per share of common stock for the periods presented as their effect would have been antidilutive:

	Number of Shares
	As of March 31,
	2024	2023
	(in thousands)
Stock options	2,639	2,362
RSUs	11,076	11,799
PSUs	1,216	822
MPSUs	1,313	2,161
Shares issuable pursuant to the ESPP	550	581
Convertible senior notes (if-converted)	3,370	7,338
Total	20,164	25,063

The dilution table above excludes RSUs to be awarded under the Company’s 2024 Bonus Program, which is expected to have an impact on its outstanding awards in the first quarter of 2025. Refer to Note 10 — Stockholders' Equity for further details on the Company’s 2024 Bonus Program.

12.     Income Taxes

The Company’s provision for income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.

The Company continues to maintain a full valuation allowance on the Company’s U.S. Federal and state net deferred tax assets. The tax expense for the three months ended March 31, 2024 and 2023 was primarily due to foreign tax expense.

In the three months ended March 31, 2024 and 2023, the Company recorded income tax expense of $0.3 million and $0.1 million, respectively.

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13.     Information About Revenue and Geographic Areas

Revenue

Revenue by geography is based on the billing address of the customer. Refer to Note 3—Revenue for more information on net revenue by geographic area.

Long-Lived Assets

The Company’s property and equipment and operating lease right-of-use assets, each net, by geographic area were as follows:

	As of March 31, 2024		As of December 31, 2023
	(in thousands)
United States	$	166,770	$	166,413
All other countries	65,224		65,407
Total long-lived assets	$	231,994	$	231,820

14.     Subsequent Event

On April 30, 2024, the Company entered into the Third Amendment to Credit Agreement with the Lenders and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as a lender and as administrative agent and collateral agent for the Lenders, which, among other things, extended the maturity date of the loans under the Credit Agreement to April 30, 2027 and decreased the commitment amount from $100.0 million to $60.0 million, including a $10.0 million sublimit for the issuance of letters of credit, and a swingline subfacility of up to $20.0 million.

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ITEM 2. 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 condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs that involve risks and uncertainties. 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 Quarterly Report on Form 10-Q. Our fiscal year ends on December 31.

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

Overview

Organizations around the world are more dependent on the quality of digital experiences they provide than ever before. At Fastly, we deliver an edge cloud platform capable of delivering fast, safe, and engaging digital experiences. By focusing holistically on the edge cloud from developer inspiration to end-user experience, we have the opportunity to differentiate with our global footprint, dynamic infrastructure, and security solution. Performance, security, and building the most engaging applications are paramount to driving mission success for Fastly’s customers.

The edge cloud is a 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, Distributed Denial of Service (“DDoS”) and Observability 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. When milliseconds matter, processing at the edge is an ideal way to handle highly dynamic and time-sensitive data. This has led to its acceptance and adoption by organizations who monetize or grow their user base with every millisecond saved. Organizations that want to improve their user experience, whether it’s faster loading websites or reduced shopping cart abandonment, can benefit from processing at the edge. The edge cloud complements data center, central cloud, and hybrid solutions.

Organizations must keep up with complex and ever-evolving end-user requirements. We help them surpass their end users’ expectations by powering fast, safe, and engaging digital experiences. We built a powerful edge cloud platform, designed from the ground up to be programmable and support agile software development. We believe that 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.

Developers on the Fastly platform have a high degree of flexibility with granular control and real-time visibility, where they can write and deploy code in a serverless environment and push application logic to the edge. Our infrastructure is built for the software-defined future. Our network is powerful, efficient, and flexible, designed to enable us to rapidly scale to meet the needs of the most demanding customers. Our approach to scalable, secure reliability integrates security into multiple layers of development: architecture, engineering, and operations. That’s why we invest in building security into the fabric of our platform, alongside performance. We provide developers and security operations teams with a fast and safe environment to create, build, and run modern applications.

We serve established enterprises, mid-market companies, and technology-savvy organizations. Our customers represent a diverse set of organizations across many industries with one thing in common: they care about delivering best-in-class digital experiences. 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. Fastly’s ability to dynamically manage content in real time enables readers to have instant access to the most up to date information.

Our customers’ ecommerce solutions use Fastly’s edge compute functionality to deliver very low-latency customer experiences, including providing better recommendations to their shoppers, converting more shopping carts into sales and executing fast and secure financial transactions. Content streaming organizations leverage Fastly’s platform to deliver content to users around the world and those that livestream gain easy access to enormous edge compute resources for even greater reliability. The range of applications that developers build with our edge cloud platform continues to expand rapidly.

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Our mission is to make the Internet a better place where all experiences are fast, safe, and engaging. 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 platform, coming up with exciting new ways to solve today’s complex problems.

For the three months ended March 31, 2024 and 2023, our revenue was $133.5 million and $117.6 million, respectively, an increase of 14%. Our 10 largest customers generated an aggregate of 38% and 35% of our revenue in the trailing 12 months ended March 31, 2024 and 2023, respectively. No customer accounted for more than 10% of revenue for both the three months ended March 31, 2024 and 2023. Affiliated customers that are business units of a single company in the streaming entertainment space generated an aggregate of 12% and 10% of the Company’s revenue for the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024 and 2023, we incurred a net loss of $43.4 million and $44.7 million, respectively.

We focus our direct selling efforts on expanding our customer’s use of our platform, which includes companies that are exhibiting significant 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. These direct selling efforts are reflected by the revenue generated by our enterprise customers. Our Last-Twelve Months Net Retention Rate (“LTM NRR”) metric also measures the revenue growth from existing customers attributable to increased usage of our platform and features, and purchase of additional products and services. For additional details on our key metrics, refer to the “Key Business Metrics” section.

Factors Affecting Our Performance

Winning New Customers

We are focused on continuing to attract new customers, including those in diverse vertical markets, and expanding our relationship with existing customers, by enhancing our product experience, investing in technology, and leveraging our partner ecosystem. Our customer base includes large, established enterprises that are undergoing digital transformation and emerging companies spanning a wide array of industries and verticals. Developers within these companies often use and advocate for the adoption of our platform by their companies and promotion across the broader developer community. We will continue to invest in our products and features and developer outreach, leveraging it as a cost-efficient approach to attracting new customers, and our sales and marketing programs, including various online marketing activities as well as targeted account-based marketing.

We are continuing to bring a durable, consistent, and predictable pipeline of new innovations to our edge cloud platform and software-defined modern network architecture, and are seeing interest from customers in our existing product lines like Network Services and Security, and newer product lines like Compute and Observability. We will continue to build out a single, unified platform, simplify customer onboarding and service usage, and simplify our pricing and packaging. 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.

Many jurisdictions have enacted laws on data localization and cross-border data transfers, and the evolving enforcement and interpretation of such laws has created uncertainty regarding data stored abroad and transferred across borders, which could impact customer growth and acquisition for customers and potential customers conducting business in Europe and elsewhere outside of the United States. For additional details, refer to the section titled “Risk Factors.”

Expanding into New Markets and within Our Existing Customer Base

We aim to continue to add customers from a diverse set of industry verticals through our differentiated platform that offers a broad range of capabilities. By focusing on our key differentiators, including performance and security, we have an opportunity to continue to add customers from a diverse set of industries.

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 one of our products and then expand their usage over time. Our platform includes a variety of offerings across Network Services, Security, Compute and Observability product lines. As our customers mature, we assist them in expanding their use of our platform, including the use of additional offerings