Annual Report
2022
Financial Highlights
REVENUE
CASH FROM OPERATIONS
$3,198
$3,461
$3,617
$1,215
$1,405
$1,275
s
n
o
i
l
l
i
M
$
2020
2021
2022
2020
2021
2022
INCOME FROM OPERATIONS
EARNINGS PER SHARE
$783
$659
$676
$3.93
$3.37
$3.26
s
n
o
i
l
l
i
M
$
s
n
o
i
l
l
i
M
$
2020
2021
2022
2020
2021
2022
Stock Performance
Comparison of 5-Year Cumulative Total Return
$300
$250
$200
$150
$100
$50
$0
12/17 3/18 6/18 9/18 12/18 3/19 6/19 9/19 12/19 3/20 6/20 9/20 12/20 3/21 6/21 9/21 12/21 3/22 6/22 9/22 12/22
Akamai Technologies, Inc
NASDAQ Composite
S&P Information Technology
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2022
or
☐ TRARR NSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission file number: 0-27275
Akamai Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
04-3432319
(I.R.S. Employer Identification No.)
145 Broadway
Cambridge, Massachusetts 02142
(Address of principle executive offices) (Zip Code)
Registrant’s telephone number, including area code: (617) 444-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock - par value $0.01 per share
Trading Symbol(s)
AKAM
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No ¨
ff
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
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 þ 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 þ 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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effff ectivenes
7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ
s of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
ff
r
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was
approximately $14,326.7 million based on the last reported sale price of the Common Stock on the Nasdaq Global Select Market
on June 30, 2022.
The number of shares outstanding of the registrant’s Common Stock, par value $0.01 per share, as of February 24, 2023:
156,275,794 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive pr
registrant’s 2023 Annual Meeting of Stockholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this
annual report on Form 10-K.
oxy statement to be filed with the Securities and Exchange Commission relative to the
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Auditor name: PricewaterhouseCoopers LLP
Auditor location: Boston, Massachusetts
PCAOB ID:
238
AKAMAI TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
porate Governance
Directors, Executive Offff icers and Cor
r
ff
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
SIGNATURES
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Forward-Lookin
g Statements
SS
TT
This annual r
eport on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities
TT
Litigation Reform Act of 1995 regarding future events and the future results of Akamai Technologies, Inc., which we refer to as
“we,” “us,” or the “Company.” All statements other than statements of historical facts are statements that could be deemed
forward-looking statements. These statements are subject to risks and uncertainties and are based on the beliefs and
assumptions of our management as of the date hereof based on information currently available to our management. Use of
words such as “believes,” “could,” “expects,” “anticipates,” “intends,” “plans,” “seeks,” “projects,” “estimates,”
“should,” “would,” “forecasts,” “if,” “continues,” “goal,” “likely,” “may,” “will,” variations of such words or similar
expressions are intended to identify a forward-looking statement. Forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and assumptions. Actual results may differ materially from the forward-looking
statements we make. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in
this annual report on Form 10-K under the section entitled “Risk Factors” and in other reports we file with the U.S. Securities
and Exchange Commission. We disclaim any obligation to update any forward-looking statements as a result of new
information, future events or otherwise, including the potential impact of any mergers, acquisitions, divestitures or other events
that may be announced after the date hereof.
WW
PART I
Item 1. Business
Overview
For 25 years, Akamai has developed and provided solutions to power and protect life online through our massively
distributed worldwide network of servers. This platform, which we recently began referring to as the Akamai Connected Cloud
is comprised of an edge and cloud architecture for cloud computing, security and content delivery. The Akamai Connected
Cloud provides us with visibility and insight into traffic volumes, congestion, attack patterns, vulnerabilities and other activities
across the internet's complex intersections of networks and systems. Leveraging these insights, the Akamai Connected Cloud
offers solutions designed to protect our customers from threats and attacks, while empowering them to securely deliver their
business as they engage, entertain and interact with their customers; and extend their internal systems beyond their corporate
perimeters to control access and better leverage the cloud by efficiently building, deploying and securing performant workloads
that require single-digit millisecond latency and global reach.
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After multiple years of the CO
VID-19 pandemic, which shifted how millions of people work and communicate globally,
we firmly believe that the internet’s role in transforming the way we exchange ideas and information and conduct business is
more vital than ever. Our strategy is to help continue to drive this transformation by offering compute, security and content
delivery services on Akamai Connected Cloud that empower our customers to compete and operate with the scale, resilience
and effff iciency that their businesses demand. Our platform spans more than 350,000 server
roughly 1,300 network partners. We are planning to significantly increase the number of core and distributed cloud computing
sites on our platform in order to continue the expansion of our cloud computing services.
s in over 4,100 locations, with
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Our Solutions
We provide solutions in three core categories: security, content delivery and compute. We also provide solutions for
carriers and certain services and support for our customers as they utilize our core solutions.
Security
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Our cloud security solutions are designed to keep infrastructure, websites, applications, application programming interfaces
mance. Our solutions blend
("APIs"), and users safe from a multitude of cyberattacks and online threats while improving perfor
robust automation with customizable protections and managed security services to enable businesses to effectively manage risk
and maximize the protections of their infrastructure, networks, applications and APIs. Akamai’s cloud security solutions
include web application and API protection, bot management and mitigation to protect against credential abuse and account
takeover, customer identity and access management, distributed denial of service ("DDoS") mitigation, protection from in-
browser threats to protect against supply chain compromise and audience hijacking. We also offer a growing set of solutions
designed to help businesses implement a “zero trust” approach to security. Based on the concept of least privilege, which
dictates that users, applications and services utilize the bare minimum amount of access needed to perform their function, these
tools are intended to shift protections from a legacy approach based on establishing a corporate perimeter, to a more modern,
4
risk-based approach. Solutions in this category include Zero Trust Network Access ("ZTNA"), and multi-factor authentication
("MFA"), which replace legacy virtual private networks ("VPNs"), micro-segmentation which replaces legacy network
firff ewalls and helps protect businesses frff om the threat of ransomware and Secure Web Gateway ("SWG"), that helps protect
against the threat of malware and phishing attacks.
Our acquisition of Guardicore Ltd. ("Guardicore") in late 2021 was a significant milestone in positioning Akamai as a
leader in technology that powers and protects life online. Guardicore’s microsegmentation solution helps our customers prevent
malicious lateral movement in their network through precise segmentation policies, visuals of activity within their IT
environment and network security alerts.
Content Delivery
Our web and mobile performance solutions are architected to enable dynamic websites and applications to have rapid
response times, no matter where the user is, what device or browser they are using or how they are connected to the internet.
These services leverage intelligent performance optimization and real-time monitoring, origin offload and network reliability,
and insights that enable enterprises to identify and address performance issues. Akamai web and mobile performance
capabilities also include global traffff ic management, site acceler
real-user monitoring.
ation, application load balancing, large-scale load testing and
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Our media delivery srr
olutions are designed to enable enterprises to execute their digital media distribution strategies by
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addressing volume and global reach requirements, improving the end-user experience, boosting reliability and reducing the cost
of internet-related infrastructure. Underlying these solutions is technology to address variable connection speeds and device
types, facilitate access to dis
content across various devices and platforms, and enable comprehensive insights and real-time online video monitoring.
Akamai media delivery solutions include video streaming and video player services, game and software delivery, broadcast
operations, authoritative domain name system ("DNS"), resolution and data and analytics.
parate locations around the world, accelerate large file downloads, reliably deliver high-quality live
Computem
Akamai cloud computing services (which we sometimes refer to as "Compute") include compute, storage, networking,
database and container management services that are required to build, deploy and secure applications and workloads. The
cloud computing services running on the Akamai Connected Cloud enable companies to distribute workloads and applications
across our core to edge infrastructure to help solve the cost, performance and scale that centralized cloud computing platforms
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present today.
In early 2022, Akamai acquired Linode Limited Liability Company ("Linode"), an established cloud computing platform.
ed on individual developers, we are looking to leverage the Linode cloud computing services for enterprise customers by
ise-grade core and distributed sites and connecting them to the Akamai backbone, which we believe will
This acquisition was a significant milestone in our expansion into cloud computing services. While Linode was traditionally
focus
ff
building new enterprr
give Akamai an advantage over its bigger cloud rivals. While many other cloud providers are building their cloud platforms
based on a regional, data center-centric model, Akamai is designing its cloud based on the fundamental belief that modern
applications will be comprised of workloads that will be distributed across a continuum of computing sites that meet the
specific needs of that workload.
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Carrier
Our carrier offff erings are designed to help customers operate a cost-efficient network that capitalizes on traffic growth and
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new subscriber services for s
ecurity, traffic management and content delivery. Our solutions help carriers sell easy-to-deploy
cybersecurity protection offerings to their subscriber base; offerings include protection from phishing, viruses, malware and
ransomware. Additionally, our carrier security solutions include parental controls to tailor internet access. We also offer DNS
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infrastructure and content delivery solutions for carriers thr
ough our intelligent recursive DNS offering and managed content
delivery netw
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delivery and r
ork, which has dedicated servers for the carriers’ own services with Akamai providing content provisioning,
eporting.
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Services and Support
We provide an array of service and support offerings designed to assist customers with integrating, configuring, optimizing
and managing our core offerings. Once customers are deployed on the Akamai Connected Cloud, they can rely on our
5
vices and security experts for customized solutions, problem resolution and 24/7 customer support. Additional
professional ser
ff
featur
es are available to enterprises that purchase our premium and managed security solutions including a dedicated technical
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account team, proactive service monitoring, custom technical support handling, security traffic monitoring, technical security
reviews, threat advisories and emergency support for security events.
Human Capital
Our employees – our human capital – are our most valuable resources as they are fundamental to our innovation, the
operation and ongoing enhancement of the Akamai Connected Cloud, the fostering and maintenance of relationships with our
customers and the management of our operations. The importance of our workforce to our success is underscored by the
inclusion of corporate mission critical goals centered on our employees – in 2022 we f
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inclusive, diverse, productive and flexible work environment by embracing the future of work, and on putting our culture and
our purpos
aspects of our human capital management are overseen by our board of directors as well as its Talent, Leadership &
Compensation and Environmental, Social & Governance Committees.
e into action by applying a growth mindset to creatively and collaboratively solve our toughest challenges. Different
ed on further developing an
ocus
r
r
As of December 31, 2022, we had over 9,800 employees located in more than 30 countries (with approximately 60% of
those employees located outside of the U.S.) and representing over 95 nationalities, which we believe helps bring a global
perspective to our operations. Our employees are grouped across the following roles, with the approximate percentage of the
overall population noted: engineering and research and development (33%), services and support (28%), sales and marketing
(19%) and administrative functions (20%).
Engagement
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We continue to believe that an engaged employee workforce is key to having the productive, ethical and high-performing
workplace needed to successfully compete in today’s marketplace. We conduct quarterly surveys of our employees to assess a
variety of key metrics related to key topics, such as engagement, inclusion and job satisfaction. Results from these surveys have
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consistently shown a strong sense of engagement and confidence in Akamai’
high perforff ming benchmark comparative index used by our third-party survey provider, an internationally-recognized
consulting firm specializing in corporate cultur
and Poland as a great place to work. Continuing in 2022, all employees were invited to participate in a company-wide program,
developed by a behavioral research organization, that was intended to help us increase inclusivity, become more open to change
and accelerate our innovation. In addition, we work closely with the Akamai Foundation to provide community service and
charitable matching fund oppor
engagement. In 2022, the Akamai Compassion Fund, created by employees for employees with support fr
Foundation, was established as a way for Akamai employees to unite and support global colleagues and their families during
times of unexpected hardships following a catastrophic event.
tunities for Akamai employees, endeavors that have been shown to increase employee
e. We have been acknowledged in respected publications across the U.S., India
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s future; as Akamai, in 2022, outperf
om the Akamai
ormed the
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Diversity
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Akamai is an equal opportunity employer that values the strength that diversity brings to the workplace. We do not tolerate
discrimination on the basis of gender, gender identity, sexual orientation, race or ethnicity, protected veteran status, disability or
other protected group status. Akamai supports varied programs and practices designed to promote a diverse and inclusive
working environment. We have nine employee resource groups ("ERGs") that offer opportunities for employees to come
together for mutual support, education and development. ERGs encompass different racial and ethnic groups, persons with
diffff erff ent physical or cognitive abilities, parents, military veterans, the LGBTQIA+ community and women. We track the
diversity of our workforce and report quarterly to the board of directors on our progress to improve our representation. At
December 31, 2022, global female representation was 27.2%, down slightly f
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minority representation in the U.S. was 40.3%, down from 41.4% at the end of 2021; however, since the end of 2021 our Black
representation and Hispanic representation have both increased. To help us improve the diversity of our workforce, we
participate in or sponsor professional development and recruiting forums. We also train hiring managers to draft inclusive job
descriptions intended to broaden the pool of eligible applicants.
rom 27.3% at the end of 2021. Racial and ethnic
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6
Retention
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pending accounts, paid time off, family leave, family care resources, flexible work schedules and locations, adoption
We have a demonstrated history of investing in our workforce by offering competitive salaries, wages and benefits. Our
compensation and benefits philosophy is to maximize the effectiveness of pay and benefits programs to attract and retain the
high caliber individuals needed to drive the success of our business, while balancing cost-effectiveness and competitive factors.
Our benefits programs (which vary by countr
rr
flexible s
ff
and fertility assistance, employee assistance programs, tuition assistance and holistic wellness programs. Our wellness
programs include educational offerings on healthy lifesff
and equipment. To fosff
ter a stronger sense of ownership and align the interests of employees with shareholders, restricted stock
units are held by the vast majority of our employees under our broad-based stock incentive programs, and most employees are
eligible to participate in our employee stock purchase plan. We monitor voluntary attrition in assessing our overall human
capital. Attrition was slightly down in 2022 when compared to 2021, and, we believe our attrition rate is significantly lower
ff
than the global average for technology companies.
tyles, access to mental health experts and access to ergonomic advice
egion) include healthcare and insurance benefits, health savings and
y and r
As a signatory to the White House Equal Pay Pledge, we are committed to monitoring our pay practices regularly and
making adjustments, as necessary, to deliver on this pledge. We currently conduct bi-annual internal pay equity analyses (with
the assistance of a nationally-recognized outside consultant), covering gender globally and race and gender in the U.S. We take
action to remedy identified discrepancies as appropriate. To date, no widespread patterns of disparity have been identified.
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In addition, succession planning is an ongoing priority for our leadership. We conduct annual succession planning for
senior leadership, which is overseen by our board of directors, including development plans for the next level of our senior
leaders. Annual talent reviews focus on both high performers as well as those with high potential to keep our pipeline of
tomorrow’s leaders full.
Development
We invest significant resources in professional development, career advancement and training for our global workforce. All
employees participate in our Akamai Elevation performance review program, which provides guidance around setting
objectives, developing competencies and receiving feedback. For select employees, we offer leadership training workshops,
360-degree feedback and succession planning exercises to encourage and enable internal promotion and advancement. As a
result of these investments and others, approximately 21% of open positions were filled with internal candidates in 2022. All
employees are required to complete annual ethics and compliance and data security training. In addition to these required
trainings, nearly all of our employees and contractors completed at least one training in our Akamai University program during
2022.
FlexBase
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In May 2022, we launched FlexBase, which is a flexible workspace arrangement that allows over 95% of employees to
choose to work from their home office, a Company office or a combination of both. This is a significant change to the w
ay
employees worked prior to the program, and prior to office shutdowns as part of the COVID-19 pandemic. We believe that
flexible workforce positions and a focus on employee choice, will make us a more attractive employer, increas
enable us to recruit from a more diverse pool of applicants and present additional growth and development opportunities for our
employees. Throughout 2022, we rolled out a number of tools and resources to support this program, such as supporting
employees with guidance on maximizing our internal tools to deliver great virtual meeting experiences.
e productivity,
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Customers
Our customers include many of the world's leading corporations, such as Adobe, Airbnb, A
r
libaba, Autodesk, Capital
Group, Carnival Corporation, The Coca-Cola Company, Comcast, Crate & Barrel, eBay, Electronic Arts, Epic Games, FedEx,
Fidelity Investments, Honda, IKEA, Japan Airlines, Lufthansa, Maersk Transportation & Logistics, Marriott, NBCUniversal,
Panasonic, Panera Bread, PayPal, Philips, Rabobank, Riot Games, Sony Interactive Entertainment, Spotify, Telefonica,
o actively sell to government agencies. As of
Toshiba, Ubisoft, Viacom, WarnerMedia and The Washington Post. We als
December 31, 2022, our public-sector customers included the U.S. Census Bureau, the U.S. Department of Defens
Department of Labor, the U.S. Department of State, the U.S. Department of Transportation and the U.S. Department of the
Treasury.rr
e, the U.S.
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7
No customer accounted for 10% or mor
e of total revenue for any of the years ended December 31, 2022, 2021 and 2020.
Less than 10% of our total revenue in each of the years ended December 31, 2022, 2021 and 2020 was derived from contracts
or subcontracts terminable at the election of the federal government, and we do not expect such contracts to account for more
than 10% of our total revenue in 2023.
ff
Sales, Services and Marketing
We market and sell our solutions globally through our direct sales and services organization and through many channel
partners, including AT&T, Deutsche Telecom, Kyndryl, IBM, Microsoft, Orange Business Services and Telefonica Group. In
addition to entering into agreements with resellers, we have several other types of sales and marketing focused alliances with
entities such as system integrators, application service providers, referral partners and sales agents. By aligning with these
partners, we believe we are better able to market our solutions and encourage increased adoption of our technology throughout
the industry. Our sales, services and marketing professionals are based in locations across the Americas
East and Asia-Pacific and focus on direct and channel sales, sales operations, professional s
technical consulting.
, Europe, the Middle
ervices, account management and
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To support our sales efforts and promote the Akamai brand, we conduct comprehensive marketing programs. Our
marketing strategies include an active public relations campaign, print advertisements, online advertisements, participation at
trade shows (virtually or in person), strategic alliances, ongoing customer communication programs, training and sales support.
Competition
The market for our solutions is intensely competitive and characterized by rapidly changing technology, evolving industry
standards and frequent new product and service innovations. We expect competition for our offerings to increase both from
existing competitors and new market entrants. We compete primarily on the basis of:
•
•
•
•
•
•
•
•
•
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the performance and reliability of our solutions;
return on investment in terms of cost savings and new revenue opportunities for our customers;
reduced infrff astructure complexity;
sophistication and functionality of our offerings;
scalability;
security;
ease of implementation, distribution of our network and use of service;
customer support; and
price.
ff
We compete with companies offering products and services that address internet performance problems, including
companies that provide internet content delivery and hosting services, security and cloud computing solutions, technologies
used by carriers to improve the efficiency of their systems, streaming content delivery services and equipment-based solutions
for internet performance problems, such as load balancers and server switches. Other companies of
ff
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digital media assets through advertising-based billing or revenue-sharing models that may represent an alternative method for
charging for the delivery of content and applications over the internet. In addition, existing and potential customers may decide
to purchase or develop their own hardware, software or other technology solutions rather than rely on a third-party provider like
us. Our security solutions compete with those offered by both hardware and software providers, many of which are more
established security vendors than we are. While our Linode based solutions have historically competed with alternative cloud
computing platforff ms focused on individual developers, we anticipate that going forward our cloud computing solutions will
increasingly compete with the large so-called “hyper-scaler” cloud computing providers.
fer online distribution of
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We believe that we compete favorably with other companies in our industry through the global scale of the Akamai
Connected Cloud, which we believe provides the most effective means of meeting the needs of enterprise customers and is
unique to us. In our view, we also benefit f
can provide to our customers about their online operations and value.
rff om the high quality of our offerings, our customer service and the information we
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Government Regulation
As a global technology company, Akamai is subject to complex foreign and U.S. laws and regulations in areas such as data
privacy and localization, liability for content delivered over our network, bribery, sanctions, export controls, competition, tax
and foreign exchange controls.
8
Privacy laws, such as the European Union General Data Protection Regulation and the California Consumer Privacy Act of
ff
2018, impact how we use data generated from our network as well as our ability to reach current and prospective customers,
understand how our solutions are being used, transfer data about our employees and respond to customer requests allowed
under the laws. Other laws and regulations that apply to the internet related to, among other things, content liability, security
requirements, critical infrastructure designations, internet resiliency, law enforcement access to information, net neutrality, so-
called "fair share" or internet content taxes
some of our customers and restrictions on social media or other content can have an impact on our business. For instance,
regulations have been enacted or proposed in a number of countries that limit the delivery of certain types of content into those
countries. As an example, restrictions were adopted in India in 2020 prohibiting access to identified Chinese applications.
Enactment and expansion of such laws and regulations in other jurisdictions would negatively impact our revenues or cause us
to incur costs to redesign our systems to ensure compliance.
, data localization requirements, industry regulations applicable to key suppliers to
We are subject to the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws, which generally prohibit companies
and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or
retaining business. To the extent we export technical services, data, products or other technology outside of the U.S., we are
subject to U.S. and international laws and regulations governing international trade and exports, including, but not limited to,
the International Traffic in Arms Regulations, the Export Administration Regulations and sanctions against embargoed
countries.
Many of these laws and regulations are evolving and could be interpreted and applied in a manner that is inconsistent fromff
rr
country to country and inconsistent with our cur
rent policies and practices and in ways that could harm our business. For
example, while we are generally not subject to regulations applicable to telecommunications companies, new or different
interprr etations of laws or regulations could subject us to regulatory supervision. In general, the nature and breadth of laws and
regulations governing the internet may increase in the future; accordingly, we are unable to assess the possible effect of
compliance with future requirements or whether our compliance with such regulations will materially impact our business,
results of operations or financial condition.
For furff
ther discussion of how government regulations may affect our business, see the related discussion below in Item 1A.
Risk Factors – Financial and Operational Risks – We face risks associated with global operations that could harm our business;
– Legal and Regulatory Risks – Evolving privacy regulations could negatively impact our profitability and business operations;
and – Legal and Regulatory Risks – Other regulatory developments could negatively impact our business.
Intellectual Property
Our success and ability to compete are dependent on developing and maintaining the proprietary aspects of our technology
and operating without infringing on the proprietary rights of others. We rely on a combination of patent, trademark, trade secret
and copyright laws and contractual restrictions to protect the proprietary aspects of our technology. As of December 31, 2022,
we owned, or had exclusive rights to, over 520 U.S. patents covering our technology as well as patents issued by other
countries. Our U.S.-issued patents have terms extendable to various dates between 2023 and 2041. We do not believe that the
expiration of any particular patent in the near future would be materially detrimental to our business. We seek to limit
disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to
execute confidentiality agreements with us and by restricting acces
s to our source code.
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Additional Information
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Our internet website address is www.akamai.com. We make available, free of charge, on or through our internet website,
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments thereto that
we have filed or furnished w
after wff
website, or inforff mation that may be accessed through links on our website, as part of, or incorporating such information by
referff ence into, this annual report on Form 10-K.
e electronically file them with the Commission. We are not, however, including the information contained on our
ith the Securities and Exchange Commission (the "Commission") as soon as reasonably practicable
9
Item 1A. Risk Factors
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The follow
ing are important factors that could cause our actual operating results to differ materially from those indicated or
suggested by forward-looking statements made in this annual report on Form 10-K or presented elsewhere by management
frff om time to time.
Financial and Operational Risks
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We may face s
lowing revenue growth which could negatively impact our profitability and stock price.
The revenue growth we have enjoyed in recent years may not continue in future periods and could decline, which could
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negatively impact our profitability and s
growth in demand for our delivery, compute and security solutions and our ability to maintain the prices we charge for them. In
particular, varying levels of the amount of traffic on our network can have a significant impact on our short-term revenue
growth rate.
tock price. Our revenue depends on the amount of services we deliver, continued
We experienced a significant increase in revenue from our delivery solutions in 2020 due in large part to greater
consumption of online media and games during the onset of the COVID-19 pandemic and associated stay-at-home orders
across the globe. In 2021 and 2022, our revenue growth from delivery solutions declined as stay-at-home orders were lifted.
Numerous factor
s impact our revenue, traffic and sales growth including:
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s that impact the pricing and unit pricing we can obtain for our offerings;
our ability to build on recurring revenue commitments for our security, compute and delivery offerings;
our ability to develop new products;
the pace of introduction of over-the-top video delivery initiatives by our customers;
the popularity of our customers’ streaming offerings as compared to those offered by other companies
factor
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variation in the popularity of online gaming;
customers utilizing their own data centers and implementing solutions that limit or eliminate reliance on third-party
providers like us;
the adoption of permanent hybrid or work from home policies by employees; and
general macroeconomic, regulatory and geopolitical conditions, including the war in Ukraine, and industry pressures.
;
We have experienced significant growth in revenue from our security and compute solutions in recent years. If we do not
increase our industry recognition as a security and compute solutions provider, develop or acquire new solutions in a rapidly-
changing environment where security threats are constantly evolving or ensure that our solutions operate effectively and are
competitive with products offered by others, our security or compute revenue, or both, may decline.
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We are dependent upon the overall economic health of our current and prospective customers and the continued growth and
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evolution of information technology. We have experienced revenue declines in recent quarters for portions of our business that
include our delivery-based solutions and expect this trend to continue because of continued pricing pressure due to competition
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and fluctuations in traf
fff ic growth rates. For example, approximately 1% of our 2021 revenue had been generated from traffic
into Russia, Belarus and Ukraine, and we experienced a decline in revenue in 2022 related to the war in Ukraine due to a
decrease in traffic in these countries. In addition, in 2021 and 2022, some of our customers continued to experience disruptions
to their businesses following the emergence of COVID-19 variants. These disruptions or changes in international, national,
regional and local economic conditions could adversely affect our business. Any of these circumstances would negatively
impact our revenues.
Our ability to increase our overall revenue also depends on many other factors including how well we can:
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•
retain existing customers, including by maintaining the levels of existing services they buy and by delivering consistent and
quality performance levels;
upsell new solutions to existing customers;
expand our customer base;
develop and sell innovative and appealing new solutions;
continue to expand our sales internationally;
successfully integr
address potential commoditization of certain of our solutions, which can lead to lower prices and loss of customers to
competitors;
ate our recent acquisitions into our business;
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• maintain pricing and make decisions on pricing strategy;
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successfully manage the sales cycle, including improving the ability of or pace at which our customers or prospects
purchase new services and solutions;
counteract multi-vendor policies that could cause customers to reduce their reliance on us;
handle other competitive threats to our business;
adapt to changes in our customer contracting models from a committed revenue structure to a "pay-as-you-go" approach,
which would make it easier for customers to stop doing business with us, or from traditional overage billing models to ones
that do not incorpor
ate surcharges for usage above committed levels; and
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• manage the impact of changes in general economic conditions, geopolitical conditions, industry pressures, public health
issues, natural disasters and public unrest on our ability to sell, market and provide our solutions.
If we are unable to increase revenues, our profitability and stock price could suffer.
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Global economic an
d geopolitical conditions may harm our industry, business and results of operation
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s.
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We operate globally and as a result, our business, revenues and profitability are impacted by global macroeconomic
conditions. The success of our activities is affected by general economic and market conditions, including, among others,
inflation, interest rates, tax rates, economic uncertainty, political instability, warfare, changes in laws, trade barriers, reduced
consumer confidence and s
pending and economic and trade sanctions. The U.S. capital markets experienced and continue to
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experience extreme volatility and disruption following the global outbreak of COVID-19 in 2020 and the Russian invasion of
Ukraine in 2022. Furthermore, inflation rates in the U.S. have recently increased to levels not seen in decades. Such economic
volatility could adversely affect our business, financial condition, results of operations and cash flows, and future market
disruptions could negatively impact us. These unfavorable economic conditions could increase our oper
ating costs, which could
negatively impact our profitability. Geopolitical destabilization and warfare have impacted and could continue to impact global
currency exchange rates, resources frff om our suppliers, and ability to operate or grow our business. For example, as a result of
the recent uncertain macroeconomic environment, we have experienced elongated sales cycles with our customers and
prospects and customers are delaying purchases of our solutions.
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Additionally, we have offices and employees located in regions that historically have and may experience periods of
iers, and economic and trade sanctions. Adverse conditions in these
political instability, warfare, changes in laws, trade barr
countries directly affect our operations. As a result, our operations and employees could be disrupted and may not be able to
sely affect our business, results of operations, financial condition, and cash flows.
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function at f
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ull capacity, which could adver
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Failure to control expenses could reduce our profitability, which would negatively impact our stock price.
Maintaining or improving our profitability depends both on our ability to increase our revenue, even with the potential
challenges discussed above, and limit our expenses. We base our decisions about expense levels and investments on estimates
of our future revenue and future anticipated rates of growth; however, many of our expenses are fixed costs for a certain amount
of time so it may not be possible to reduce costs in a timely manner or without incurring fees to exit certain obligations early. In
addition, we have seen our costs increase and our costs may continue to increase due to rising inflation, increasing cost of labor,
interest rates, supply chain disruptions or other market conditions. For example, we have experienced rising energy costs in
areas in which we operate, particularly in Europe. If we are unable to increase revenue through traffic growth, growth of sales
of our products and services or otherwise and limit expenses, our results of operations will suffer. We may take certain steps to
reduce expenses, but there are no assurances that we will be able to effectively reduce our expenses. If we are required to
furff
business for innovation, systems improvements and other initiatives.
ther reduce expenses to maintain or improve profitability, such actions may negatively affect our ability to invest in our
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If we do n
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be adversrr ely affected.
ot develop or acquire new solutions that are attractive to our customers, our revenue and operating results could
Innovation is important to our future success. In particular, as security and compute solutions have become, and are
expected to continue to be, an increasingly important part of our business, we must be particularly adept at developing new
security and compute services that meet the constantly-changing threat landscape. In addition, we must continue to develop
compute and compute-to-edge solutions that meet the needs of professional users and enterprises looking to increase the utility
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of the internet for their business.
The process of developing new solutions and product enhancements is complex, lengthy and uncertain and has become
increasingly complex due to the sophistication and the addressing of our customers’ needs. The development timetable to
commercial release is uncertain and we must commit significant resources to developing new services or features without
knowing whether our investments will result in solutions the market will accept, and we may choose to invest in business areas
11
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hich a viable market for our pr
oducts does not ultimately develop. For example, with the recent acquisition of Linode, we
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are focused on investing in our suite of cloud computing products. We have invested significant resources toward integr
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Linode into our edge platform, including connecting Linode’s existing locations into our private backbone, working on
expanding the capacity of these facilities and adding additional sites. Success in these efforts is not guaranteed and will largely
depend on our ability to create products that are competitive in the enterprise market, source additional co-location facilities and
manage an uncertain supply chain for s
experience, delays in developing and releasing new products and product enhancements. This could cause our expenses to grow
more rapidly than our revenue.
erver related hardware. In addition, we have also experienced, and may in the future
ating
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Trying to innovate through acquisition can be cos
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tly and with uncertain prospects for success; we may find that attractive
acquisition targets are too expensive for us to pursue which could cause us to pursue more time-consuming internal
development.
Failure to develop, on a cost-effff ective basis, innovative new or enhanced solutions that are attractive to customers and
profitable to us could have a material detrimental effect on our business, results of operations, financial condition and cash
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s.
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If we ar
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e unable to compete effff ectively and adapt to changing market conditions, our business will be adver
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sely affected.
We compete in markets that are intensely competitive and rapidly changing. Our current and potential competitors vary by
size, product offerings and geographic region, and range from start-ups that offer solutions competing with a discrete part of our
business to large technology or telecommunications companies that offer, or may be planning to introduce, products and
services that are broadly competitive with what we do. The primary competitive factors in our market are differentiation of
technology, global presence, quality of solutions, customer service, technical expertise, security, ease-of-use, breadth of
services offff erff ed, price and financial strength.
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Many of our current and potential competitors have substantially greater financial, technical and marketing resources,
larger customer bases, broader product portfolios, longer operating histories, greater brand recognition and more established
relationships in the industry than we do. As a result, some of these competitors may be able to:
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develop superior products or services;
leverage better name recognition, particularly in the security and compute markets;
enter new markets more easily or better manage the impact of changes in general economic conditions, geopolitical
conditions and industry pressures;
gain greater market acceptance for their products and services;
enter into long-term contracts with our potential customers;
increase their points of presence and proximity to enterprise data centers and end users fasff
expand their offerings more efficiently and more rapidly;
bundle their products that are competitive with ours with other solutions they offer in a way that makes our offerings les
appealing to, or more costly for, current and potential customers;
ter than us;
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s
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• more quickly adapt to new or emerging technologies and changes in customer requirements;
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take advantage of acquisition, investment and other opportunities more readily;
offff er lower prices than ours, including at levels that may not be profitable for us to match;
spend more money on the promotion, marketing and sales of their products and services;
spend more money on research and development, including offering higher salaries to talented professionals which may
impact our ability to hire or retain engineering and other personnel; and
implement shorter sales cycles with customers and prospects.
•
Smaller and more nimble competitors may be able to:
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attract customers by offering less sophisticated versions of products and services than we provide at lower prices than those
we charge;
develop new business models that are disruptive to us;
in some cases, use funds from public securities offerings or private financings to strengthen their business to enable them to
better compete with us; and
respond more quickly than we can to new or emerging technologies, changes in customer requirements and market and
industry developments, resulting in superior offerings.
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Ultimately, any type of increased competition could result in price and revenue reductions, loss of customers and loss of
market share or inability to penetrate new markets, each of which could materially impact our business, profitability, financial
condition, results of operations and cash flowff
s.
We and other companies that compete in this industry and these markets experience continually shifting business
relationships, reputations, commercial focuses and business priorities, all of which occur in reaction to industry and market
forff ces and the emergence of new opportunities. These shifts have led or could lead to our customers or partners becoming our
competitors; network suppliers no longer seeking to work with us; and technology companies that previously did not appear to
show interest in the markets we seek to address entering into those markets as our competitors. With this constantly changing
environment, we may face operational dif
of these or other developments could harm our business.
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fff iculties in adjusting to the changes or our core strategies could become obsolete. Any
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Defects or disruptions in our products and IT s
s
ystems could require us to increase spending on upgrading systems, diminish
demand for our solutions or subject us to substantial liability.
Our solutions are highly complex and are designed to be deployed in and across numerous large and complex networks that
we do not control. From time to time, we have needed to correct errors and defects in the proprietary and open-source software
that underlies our platform that have given rise to service incidents, outages and disruptions or otherwise impacted our
operations. We could face the loss of cus
tomers as a result of recent and any future incidents as they seek alternative or
supplemental providers. We have also periodically experienced customer dissatisfaction with the quality of some of our
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ecurity, compute and other services, which has led to a loss of business and could lead to a loss of customers in the
delivery, s
futur
e. Furthermore, most of our customer agreements contain service level commitments. If we fail to meet these contractual
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commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid
amounts, which could harm our business.
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While we have robust quality control processes in place, there may be additional errors and defects in our hardware,
are and open-source components that we leverage that may adversely affect our operations. We may not have in place
softwff
adequate quality assurance procedures to ensure that we detect errors in our hardware, software and open-source components
we use in a timely manner, and we may have insufficient resources to efficiently address multiple service incidents happening
simultaneously or in rapid succession. We continue to invest in improving our processes and systems. If we are unable to
effff iciently and cost-
or if there are unidentified errors that allow persons to improperly access our services or systems, we could experience
litigation, the need to issue credits to customers, loss of revenue and market share, damage to our reputation, diversion of
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management attention, increased expenses and reduced profitability.
effectively fix errors or other problems that we identify and improve the quality of our solutions or systems,
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An increasing portion of our revenue is derived from sales of security solutions. Defects in our security solutions could
lead to negative publicity, loss of business, damages payments to customers and other negative consequences. As our solutions
are adopted by an increasing number of enterprises and governments, it is possible that the adversaries behind advanced
malicious actions will specifically focus on finding ways to defeat our products and services. I
experience a serious impact on our reputation as a provider of security solutions.
f they are successful, we could
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An increasing portion of our revenue is also derived from the sales of compute solutions. We are devoting significant
resources to develop and deploy our own competing cloud-based and SaaS software and services strategies. While we believe
our expertise and infrff astructure provides us with a strong foundation to compete, it is uncertain whether our s
attract the customers or generate the revenue required to be successful. These costs may reduce the gross and operating margins
we have previously achieved. Failure to adequately and rapidly deploy additional points of presence, increased proximity to
enterprrr
ise data centers and end users and develop competitive offerings could result in negative publicity, loss of business,
diminishing customer appeal and other negative consequences which could harm our business.
trategies will
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Our business relies on our data systems, traffic measurement systems, billing systems, ordering processes and other
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eporting and control systems. We also rely on third-party software for certain essential operational
operational and financial r
e services could materially and adversely affect our ability to manage our business
services and a failure or dis
r
ruption in thes
effff ectively. All of these systems have become increasingly complex due to the complexity of our business, use of third-
party
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softwff
are and services, acquisitions of new businesses with different systems, and increased regulation over controls and
procedures. As a result, these systems could generate errors that impact traffic measurement or invoicing, revenue recognition
and financial forecasting or other parts of our business. We will need to continue to upgrade and improve our data systems,
traffff ic meas
controls. These upgrades and improvements may be difficult and costly. In addition, we could face strains on, or failures of, our
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internal IT systems if governmental restrictions or vaccine or other mandates due to the emergence of variants in connection
urement systems, billing systems, ordering processes and other operational and financial systems, procedures and
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with the ongoing COVID-19 pandemic or other emergencies limit the ability of our command center personnel to work in our
physical locations. If we are unable to adapt our systems and organization in a timely, efficient and cost-effective manner to
accommodate changing circumstances, our business may be adversely affected.
Cybersrr ecurity breaches and attacks on us, as well as steps we need to take in an effort to prevent them, can lead to
significant cos
ts and disruptions that would harm our business, financial results and reputation.
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We regularly face attempts to gain unauthor
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ized access or deliver malicious software to the Akamai Connected Cloud and
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r
r
ile uploads, application abuse, credential abuse, ransomware, bugs, vir
vices or those of our customers or others; or demanding ransom to return control of
our internal IT systems, with the goal of stealing proprietary information related to our business, products, employees and
customers; disrupting our systems and ser
such systems and services. These attempts take a variety of forms, including Distributed Denial of Service attacks,
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infrastructure attacks, botnets, malicious f
and malicious software programs. There could be attempts to infiltrate our systems thr
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Malicious actors are known to attempt to frff audulently induce employees and suppliers to disclose sensitive information through
illegal electronic spamming, phishing or other tactics. Other parties may attempt to gain unauthorized physical access to our
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facilities in or
may intensify during periods of heightened geopolitical tens
we have taken and continue to take actions to mitigate against attacks by state actors and others, we may not be able to
anticipate the techniques used in such attacks, as they change frequently and may not be recognized until launched. To date,
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cyber threats and other attacks have not resulted in any material adverse impact to our business or operations, but such threats
are constantly evolving, increasing the diffff iculty of detecting and successfully defending against them.
der to infiltrate our internal-use information systems. Furthermore, nation state attacks against us or our customers
uses, worms
ough our supply chain and contractors.
ions or armed conflict, such as the ongoing war in U
kraine. While
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The complexities in managing the security profile of a distributed network with vast scale and geographic reach that
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ations, may require significant operational efforts to mitigate and may persist for extended periods of time and the
ability could be exacerbated. Similar security risks exist with respect to acquired companies, our
evolves to incorporate new capabilities expose us to both known and unknown vulnerabilities. We have discovered
vulnerabilities in software used in our technology, such as the vulnerability in Apache Log4j 2 referred to as “Log4Shell”
identified in late 2021 that impacted a large portion of the internet ecosystem, and may have other undiscovered vulnerabilities
.
While the impact to date of Log4Shell on our systems was relatively modest, these vulnerabilities, resident in either software or
configur
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effff ects of any such vulner
business partners and the third-party vendors that we rely on for aspects of our information technology support services and
administrative functions
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may adversely affect our bus
-
d-par
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captioned "We utilize thir
technologies may adversrr ely affect our business" below.
. As a result, we are subject to risks that the activities of our business partners and third-party vendors
iness even if an attack or breach does not directly target our systems. See also the risk factor
ty technology in our business, and failures or vulnerabilities, and/or litigation, related to these
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To protect our corporate and deployed networks, we must continuously engineer more secure solutions, enhance security
and reliability features, improve the deployment of software updates to address security vulnerabilities, develop mitigation
technologies that help to secure customers from attacks and maintain the digital security infrastructure that protects the integrity
of our network and services. This is frequently costly, with a negative impact on near-term profitability. We may need to
increase our related spending in the future, which could reduce our operating margin.
Any actual, alleged or perceived breach of network security in our systems or networks, or any other actual, alleged or
perceived data security incident we, our customers or our third-party suppliers suffer, can result in damage to our reputation;
negative publicity; loss of channel partners, customers and sales; loss of competitive advantages; increased costs to remedy any
problems and otherwise respond to any incident; regulatory investigations and enforcement actions; costly litigation; and other
liabilities. With the recent acquisition of Linode, we are adapting procedures for mitigating harms that may arise from abuse of
our compute products. If we fail to mitigate these or if there is a significant cybersecurity event using our compute products or
our compute products are perceived to be less reliable than our competitors, it could result in loss of customers and reputational
damage. In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating and
putting in place additional tools and devices designed to prevent actual or perceived security breaches and other security
incidents, as well as the costs to comply with any notification obligations resulting from any security incidents. Any of these
negative outcomes could adversely impact the market perception of our solutions and customer and investor confidence in our
company and otherwise seriously harm our business and operating results.
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If we cannot maintain compatibility with our cu
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our business will be harmed.
stomers’ IT infrastructure, including their chosen third-party applications,
Our products interoperate with our customers' IT infrastructure that often has different specifications, utilizes diverse
technology, and requires compatibility with multiple communication protocols. Therefore, the functionality of our technology
often needs to have, and maintain, compatibility with our customers' technology environment, including their chosen third-
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technology. Customers, and in particular these chosen third-party applications, may change features, restrict our access to, or
alter their applications in a manner that causes incompatibilities or causes us significant costs to maintain compatibility, and as
a result our business could be adversely affected. Such changes could functionally limit or prevent the compatibility of our
products with our customers’ IT infrff astructure, which would negatively affect adoption of our products and harm our business.
If we fail to update our products to achieve compatibility with new third-party applications that our customers use, we may not
be able to offer the functionality that our customers need, which would harm our business.
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party
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We fWW ace r
isks associated with global operations that could harm our business.
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A significant por
tion of our employee increases, customer additions and revenue growth in recent quarters has been
attributable to our business outside the U.S. Our operations in foreign countries subject us to risks that may increase our costs,
impact our financial results, disrupt our operations or make our operations less efficient and require signif
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attention. These risks include:
icant management
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forff eign exchange rate risks, including the recent strengthening of the U.S. dollar which has led to a decrease in our revenue
frff om certain customers and corresponding pressure on our earnings;
uncertainty regarding liability for content or services, including uncertainty as a result of local laws and lack of legal
precedent;
loss of revenues if the U.S. or foreign governments impose limitations on doing business with significant current or
potential customers;
adjusting to diffff erent employee/employer relationships and different regulations governing such r
becoming subject to regulatory oversight;
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corpor
diffff iculty in s
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diffff erff ences or regulations;
theft of intellectual property in high-risk countries where we operate;
diffff iculties in enforcing contr
diffff iculties in tr
•
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•
rff om, or converting currencies in, certain countries;
• managing the costs and processes necessary to comply with export control, sanctions, such as the sanctions imposed in
taffing, training, developing and managing foreign operations as a result of distance, language, cultural
ate and personal liability for alleged or actual violations of laws and regulations;
acts, collecting accounts and longer payment cycles in certain countries;
ansferring funds f
elationships;
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connection with the Russian invasion of Ukraine, anti-corruption, data protection and competition laws and regulations or
other regulatory or contractual limitations on our ability to sell or develop our products and services in certain foreign
markets;
• macroeconomic developments and changes in the labor markets in which we operate;
•
geopolitical developments, including any that impact our or our customers’ ability to operate or deliver content to a
country;rr
other circumstances outside of our control such as trade disputes, political unrest, the imposition of sanctions, export
controls, warfare, military or armed conflict, s
uch as the Russian invasion of Ukraine, terrorist attacks, public health
emergencies such as the ongoing COVID-19 pandemic, energy crises and natural disasters that could disrupt our ability to
provide services or limit customer purchases of them;
reliance on one or more channel partners over which we have limited control or influence on a day-to-day basis; and
potentially adverse tax consequences.
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We are subject to laws and regulations worldwide that differ among jurisdictions, affecting our operations in areas such as
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intellectual property ownership and infringement; tax; anti-corruption; internet and technology regulations; so-called "fair
share" or internet content taxes; foreign exchange controls and cash repatriation; data privacy; cyber security; competition;
consumer protection; and employment. Compliance with such requirements can be onerous and expensive and may otherwise
impact our business operations negatively. Although we have policies, controls and procedures designed to help ensure
compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers or agents will not violate
such laws or our policies. Violations of these laws and regulations can result in fines; criminal sanctions against us, our officers
or our employees; prohibitions on the conduct of our business; and damage to our reputation. See also the risk factor captioned
Other regulatory developm
ents could negatively impact our business below.
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Our business strategy depends on the ability to source adequate transmission capacity, co-location facilities and the
equipment we need to operate our network; f
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ailure to h
service disruptions.
ave access to those resources could lead to loss of revenue and
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To operate and grow our network, we are dependent in part upon transmission capacity provided by third-party
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telecommunications network providers, the availability of co-location facilities to house our servers and equipment to support
our operations. We may be unable to purchase the bandwidth and space we need from these providers due to limitations on their
ition of Linode, our
resources, increasing energy costs or other reasons outside of our control. In particular, following our acquis
plans to increase the size and scale of our cloud computing offerings will require procuring significant additional space in co-
location facilities. Inability to access facilities where we would like to install servers, or perform maintenance on existing
servers for any reason, such as the imposition of stay-at-home orders imposed in connection with the ongoing COVID-19
pandemic or other emergencies, impedes our ability to expand or maintain capacity. As a result, there can be no assurance that
we are adequately prepared for unexpected increases in capacity demands by our customers, particularly those under cyber-
attack or impacted by geopolitical conditions. Failure to put in place the capacity we require to operate our business effectively
could result in a reduction in, or disruption of
ervice to our customers and ultimately a loss of those customers.
, sff
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The Akamai Connected Cloud relies on hardware equipment, including hundreds of thousands of servers deployed around
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the world. Global supply chain constraints in the wake of the COVID-19 pandemic continue to increase lead times for
equipment components, which adds risk to our ability to flex to meet future business needs and expand our global compute
om purchasing needed equipment at attractive prices or at all. For
presence. Disruptions in our supply chain could prevent us fr
example, frff om time to time, it has been, and may continue to be, more difficult to purchase equipment that is manufactured in
areas that face disruptions to operations due to unrest, trade sanctions or other political activity, public health issues (such as the
ongoing COVID-19 pandemic), safety issues, natural disasters or gener
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equipment, including server equipment, could harm the quality of our services, which could lead to the loss of customers and
revenue.
al economic conditions. Failure to have adequate
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Acquisitions and other strategic transactions we complete could result in operating difficulties, dilution
management attention and other harmful consequences that may adversely impact our business and results of operations.
, diversion of
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We expect to continue to pursue acquisitions and other types of strategic relationships that involve technology sharing or
close cooperation with other companies. Acquisitions and other complex transactions are accompanied by a number of risks,
including the following:
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diffff iculty integrating the technologies, operations and personnel of acquired businesses;
potential disruptions of our ongoing business;
potential distraction of management;
diversion of business resources from core operations;
financial consequences, such as increased operating expenses, incurr
ence of material post-closing liabilities, incurrence of
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additional debt and other dilutive effects on our earnings, particularly in the current environment where we have generally
seen escalating valuations of many technology companies and increasing allocation of risk to acquirors;
assumption of legal risks related to compliance with laws, including privacy and anti-corruption regulations;
failur
e to realize synergies or other expected benefits;
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lawsuits resulting from an acquisition or disposition;
retention of the acquired company's key talent;
there may be unexpected regulatory changes resulting in operating difficulties and expenditures;
acquisition of IT systems that expose us to cybersecurity risks and additional costs to remedy such risks;
increased accounting charges such as impairment of goodwill or intangible assets, amortization of intangible assets
acquired and a reduction in the useful lives of intangible assets acquired; and
potential unknown liabilities associated with acquired businesses.
Any inability to integrate completed acquisitions or combinations in an efficient and timely manner could have an adverse
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impact on our results of operations. If we use a significant portion of our available cash to pay for acquisitions that are not
successful, it could harm our balance sheet and limit our flexibility to pursue other opportunities without having enjoyed the
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intended benefits of the acquisition. As we complete any future acquisitions, we may encounter diff
acquired technologies into our offerings while maintaining the quality standards that are consistent with our brand and
reputation. If we are not successful in completing acquisitions or other strategic transactions that we may pursue in the future,
we may incur substantial expenses and devote significant management time and resources without a successful result. Future
acquisitions could require use of substantial portions of our available cash or result in dilutive issuances of securities.
iculty in incorporating
16
rrent and potential large customers srr hift to h
ff
If cuII
negatively impacted.
ardware-based or other DIY internal solutions, our business will be
We are reliant on large media and other customers to direct traffic to our network for a significant part of our revenues. In
the past, some of those customers have determined that it is better for them to employ a “do-it-yourself” or “DIY” strategy by
putting in place equipment, software and other technology solutions for content and application delivery and security protection
within their internal systems instead of using our solutions for some or all of their needs. Essentially, this is another form of
competition for us. As the amount of money a customer spends with us increases, the risk that they will seek alter
solutions such as DIY or a multi-vendor policy likewise increases. If additional large customers shift to this model, traffic on
our network and our contracted revenue commitments would decrease, which would negatively impact our business,
ff
profitability, financial condition, results of operations and cash f
native
.
lows
ff
ff
e unable to recruit and retain key employees and qualified sales, research and development, technical, marketing
If we ar
II
u
and suppor
t persrr onnel, our ability to compete could be harmed.
ff
Our futur
e success depends upon the services of our executive officers and other key technology, sales, research and
development, marketing and support personnel who have critical industry experience and relationships. Like other companies in
our industry, wrr
e have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications, and, if we fail to attract new personnel or fail to retain and motivate our current
personnel or effff ectively train our current employees to support our business needs, our business and f
ff
could suffff erff
and members of our senior management have left our company over the years for a variety of reasons. In addition, effective
succession planning is important to our long-term success and our failure to ensure effective transfer of knowledge and smooth
transitions involving our officers and other key personnel could hinder our strategic planning and execution.
. For example, none of our officers or key employees is bound by an employment agreement for any specific term,
uture growth prospects
ff
ff
In addition, our future s
ff
uccess will depend upon our ability to attract, train and retain employees, particularly in our
ff
ff
expected areas of growth such as security and cloud computing. Such efforts will require time, expense and attention by our
employees as there is significant competition for talented individuals in the regions in which our primary offices are located,
which affff ects both our ability to retain key employees and hire new ones and new hires require significant training. This
competition results in increased costs in the form of cash and stock-based compensation and can have a dilutive impact on our
stock. In addition, we are retasking certain of our employees to work on our compute solutions which will require the use of our
resources and if we are unable to successfully retrain our employees, our compute business may suffer. The loss of the services
of a significant number of our employees or any of our key employees or our inability to attract and retain new talent in a timely
fasff hion may be disruptive to our operations and overall business.
ff
r
ff
ff
ff
Our failure to ef
practices change could harm us.
fectively manage ou
r operations and maintain our company culture as our business evolves and our workrr
ff
Our futur
e operating results will depend on our ability to manage our operations and we believe our culture has been a key
contributor to our success to date. As a result of the diversification of our business, personnel growth, increased usage of
alternative working arrangements, including the designation of over 95% of roles as flexible and able to work remotely,
acquisitions and international expansion in recent years, many of our employees are now based outside of our Cambridge,
Massachusetts headquarters; however, most key management decisions are made by a relatively small group of individuals
based primarily at our headquarters.
If we are unable to appropriately increase management depth, enhance succession planning and decentralize our decision-
making at a pace commensurate with our actual or desired growth rates, we may not be able to achieve our financial or
operational goals. It is also important to our continued success that we hire qualified personnel, properly train them and manage
out poorly-performing personnel, all while maintaining our corporate culture and spirit of innovation. If we are not successful in
these effff orff
ts, our growth and operations could be adversely affected.
We rolled out our FlexBase program in May 2022, which allows the more than 95% of our workforce des
ff
ignated as
flexible to choose whether they want to work from an Akamai office, their home office or a combination of both. Although we
believe a flexible working policy will help us attract and retain talent, our FlexBase program could, among other things,
negatively impact employee morale and productivity, inhibit our ability to hire and train new employees and impede our ability
to support customers at the levels they expect. In addition, certain security systems in homes or other remote workplaces may
be less secure than those used in our offices, which may subject us to increased security risks, including cybersecurity-related
ff
17
ff
, which could cause the networks, inforff mation systems, applications and other tools available to those remote workers to
events, and expose us to risks of data or financial loss and associated disr
r
uptions to our business operations. Members of our
workforff ce who access company data and systems remotely may not have access to technology that is as robust as that in our
offff ices
ff
be more limited or less reliable than in our offff ices. We may also be exposed to risks as
workers, including compliance with local laws and regulations or exposure to compromised internet infrastructure. Allowing
members of our workforce to work remotely may create intellectual property risk if employees create intellectual property on
our behalf while residing in a jurisdiction with unenforced or uncertain intellectual property laws. Further, if employees fail to
inform us of changes in their work location, we may be exposed to additional risks without our knowledge. If we are unable to
ff
effff ectively transition to a hybrid workforce, manage the cybersecurity and other risks of remote work, and maintain our
rr
corpor
ate culture and workforce morale, our business could be harmed or otherwise negatively impacted.
sociated with the locations of remote
ff
Our restructuring and reorganization activities may be disruptive to our operations and harm our business.
ff
Over the past several years, we have implemented internal restructurings and reorganizations designed to reduce the size
and cost of our operations, improve operational efficiencies, enhance our ability to pursue market opportunities and accelerate
our technology development initiatives. In February 2021, we announced a significant reorganization to create two new
business groups linked to our security and edge delivery technologies as well as establishing a unified global sales force. We
may take similar steps in the future as we seek to realize operating synergies, optimize our operations to achieve our target
operating model and profitability objectives, respond to market forces or better reflect changes in the strategic direction of our
business. Disruptions in operations may occur as a result of taking these actions. Taking these actions may also result in
significant expens
e for us, including with respect to workforce reductions, as well as decreased productivity due to employee
distraction and unanticipated employee turnover. Substantial expense or business disruptions resulting from restructuring and
reorganization activities could adversely affect our operating results.
rr
ff
r
ff
WW
We may have expos
ure to greater-than-anticipated tax liabilities.
Our future income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions that have
lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, or changes in tax laws,
regulations or accounting principles, as well as certain discrete items such as equity-related compensation. In particular, in
October 2021, a global consortium of countries agreed to establish a new framework for international tax reform, including the
general rules for redefined jurisdictional taxation rights and a global minimum tax of 15% (Pillar 2). In December 2022, the
European Union member states voted unanimously to adopt a Directive implementing the Pillar 2 (global minimum tax) rules
giving member states until December 31, 2023 to implement the Directive into national legislation. Further details regarding
implementation of these rules are expected and if implemented, such reform may increase our tax liabilities and compliance
costs and reduce our profitability. We have r
tax and sales and use tax positions. These potential tax liabilities result from the varying application of statutes, rules,
regulations and interpretations by different jurisdictions. We are currently subject to tax audits in various jurisdictions. If the
ultimate outcome of any tax audits are adverse to us, our reserves may not be adequate to cover our total actual liability, and we
would need to take a financial charge. Although we believe our estimates, our reserves and the positions we have taken in all
jurisdictions are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may
ff
materially affect our financial results in the period or periods for which such determination is made.
ecorded certain tax reserves to address potential exposures involving our income
ff
On August 16, 2022, President Joseph R. Biden signed into law the Inflation Reduction Act of 2022 (“IRA”). The IRA
includes a 15% corporate alternative minimum tax for companies with modified GAAP net income in excess of $1 billion, a 1%
excise tax on certain stock repurchases, and numerous environmental and green energy tax credits. Currently, we are not subject
to the corpor
program; however, we do not currently expect the new law to have a material impact on our results of operations.
ate alternative minimum tax. We are currently evaluating the impacts of the excise tax on our stock repurchase
r
Fluctuations in foreign currency exchange rates affect our reported operating results in U.S. dollar terms.
ff
Revenue generated and expenses incurred by our international subsidiaries are often denominated in the currencies of the
local countries. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in
exchange rates as the financial results of our international subsidiaries are translated from local currencies into U.S. dollars. In
addition, our financial results are subject to changes in exchange r
functional currencies
ff
there is no guarantee that such program will be effective.
. While we have implemented a foreign currency hedging program to mitigate transactional exposures,
ates that impact the settlement of transactions in non-
ff
ff
18
e accounting estimates we make, and the assumptions on which we rely, in preparing our financial statements prove
If thII
inaccurate, our actual reported results may be adversely affected.
Our financial statements have been prepared in accordance w
ff
ith accounting principles generally accepted in the U.S. The
rr
ff
preparation of these financial statements requires us to make estimates and judgments about, among other things, taxes, revenue
recognition, stock-based compensation, capitalization of internal-use software development costs, investments, contingent
obligations, allowance for current expected credit losses, intangible assets and restructuring charges. Thes
e estimates and
judgments affect, among other things, the reported amounts of our assets, liabilities, revenue and expenses, the amounts of
charges accrued by us, and r
elated disclosure of contingent assets and liabilities. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances and at the time they are made. If our
estimates or the assumptions underlying them are not correct, actual results may differ materially from our estimates and we
may need to, among other things, accrue significant additional charges that could adversely affect our results of operations,
which in turn could adversely affect our stock price. Errors in our financial statements have occurred in the past and may occur
in the futur
ff
pronouncements and interpretations of accounting pronouncements have occurred and may occur in the future that could
adversely affect our reported financial results.
e. For example, see Note 23 for a description of an error identified in January 2023. In addition, new accounting
Our sales to government clients subject us to risks, including early termination, audits, investigations, sanctions and
penalties.
We have customer contracts with the U.S. government, as well as foreign, state and local governments and their respective
agencies and we may in the future increase sales to government entities. Sales to government entities are subject to a number of
risks. Selling to government entities can be highly competitive, expensive, and time consuming, often requiring significant
upfrff ont time and expense without any assurance that these efforts will generate a sale. Such government entities often have the
right to terminate these contracts at any time, without cause. There is increased pressure for governments and their agencies,
both domestically and internationally, to reduce spending and demand and payment for our services may be impacted by public
sector budgetary cycles and funding authorizations. These factors may combine to potentially limit the revenue we derive from
government contracts in the future. Additionally, government contracts generally have requirements that are more complex than
those found in commercial enterprise agreements and therefore are more costly to comply with. Such contracts are also subject
to audits and investigations that could result in civil and criminal penalties and administrative sanctions, including termination
of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or
debarment from future government business.
We utilize third-party technology in our business, and failures or vulnerabilities, and/or litigation, related to these
technologies may adversrr ely affect our business.
-
We utilize third-party technology software, services, and other technology in order to operate critical functions of our
business, including the integration of certain of these technologies into our network, products and services. If these software,
services, or other technology become unavailable or contain vulnerabilities, our expenses could increase and our ability to
operate our network, provide our products, and our results of operations could be impaired until equivalent software,
technology, or services are purchased or developed or any identified vulnerabilities are remedied. If we are unable to procure
the necessary third-par
rr
utilizing alternative technology of lower quality. This could limit and delay our ability to offer new or competitive products and
increase our costs of production. As a result, our business could be significantly harmed. In addition, the use of third-party
technology may expose us to third-party claims of intellectual property infringement which could cause us to incur significant
costs in defens
ty technology we may need to acquire or develop alternative technology, or we may have to resort to
e or alternative sourcing.
ff
ff
We rely on certain “open-source” software, which may contain security flaws or other deficiencies, and the use of which
could result in our having to distribute our proprietary sr
s
termsrr
oftware, including source code, to third parties on unfavorable
er of which could materially affect our business.
, eith
Certain of our offerings use software that is subject to open-source licenses. Open-source code is software that is freely
accessible, usable and modifiable; however, certain open-source code is governed by license agreements, the terms of which
could require users of such software to make any derivative works of the software available to others on unfavorable terms or at
no cost. Because we use open-source code, we may be required to take remedial action in order to protect our proprietary
softwff
taking other actions that could be expensive and divert resources away from our development efforts. In addition, the terms
relating to disclosure of derivative works in many open-source licenses are unclear and have not been interpreted by U.S.
are. Such action could include replacing certain source code used in our software, discontinuing certain of our products or
ff
19
courts. If a court interprets one or more such open-source licenses in a manner that is unfavorable to us, we could be required to
make certain of our key software generally available at no cost. We could also be subject to similar conditions or restrictions
should there be any changes in the licensing terms of the open-source software incorporated into our products. In either event,
we could be required to seek licenses frff om third parties in order to continue offering our products, to re-engineer our products
or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely or successful basis,
any of which could adversely affect our business, operating results and financial condition. Furthermore, open-source software
may have security flaws and other deficiencies that could make our solutions less reliable and damage our business.
ff
Legal and Regulatory Risks
Evolving privacy regulations could negatively impact our profitability and business operations.
Laws and regulations that apply to the internet related to privacy and international data transfer restrictions could pose risks
to our revenues, intellectual property and customer relationships, as well as increase expenses or create other disadvantages to
our business.
Privacy laws are rapidly proliferating, changing and evolving globally. Governments, private citizens and privacy
ff
advocates with class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and
transmit personal data. Numerous laws, such as the European Union's General Data Protection Regulation ("GDPR"), and the
California Consumer Privacy Act of 2018 ("CCPA"), and industry self-regulatory codes have been enacted, and more laws are
being considered that may affect how we use data generated from our network as well as our ability to reach current and
prospective customers, understand how our solutions are being used and respond to customer requests allowed under the laws.
Any perception that our business practices, our data collection activities or how our solutions operate represent an invasion of
privacy or improper practice, whether or not consistent with current regulations and industry practices, may subject us to public
criticism or boycotts, class action lawsuits, reputational harm, or actions by regulators, or claims by industry groups or other
third parties, all of which could disrupt our business and expose us to liability.
rr
Engineering efforts to build new capabilities to facilitate compliance with increasing international data transfer restrictions
and new and changing privacy laws and related customer demands could require us to take on substantial expense and divert
engineering resources from other projects. We might experience reduced demand for our offerings if we are unable to engineer
products that meet our legal duties or help our customers meet their obligations under the GDPR, the CCPA or other data
regulations, or if the changes we implement to comply with such laws and regulations make our offerings less attractive.
ff
ff
Our ability to leverage the data generated by our global networks is important to the value of many of the solutions we
ff
oduct development opportunities. Our ability to use data in this way may be
. Compliance with applicable laws and regulations regarding personal data may require
offff er, our operational efficiency and future pr
constrained by regulatory developments
rr
changes in services, business practices or internal systems that result in increased costs, lower revenue, reduced efficiency or
greater diffff iculty in competing with other firms. Compliance with data regulations might limit our ability to innovate or offer
certain features and functionality in some jurisdictions w
result in significant penalties or orders to stop the alleged non-compliant activity, as well as negative publicity and diversion of
ff
management time and effort.
here we operate. Failure to comply with existing or new rules may
ff
ff
Although we take steps intended to improve the security controls across our business groups and geographies, our security
controls over personal data, our training of employees and third parties on privacy, data security and other practices we follow
may not prevent the improper disclosure or misuse of customer or end-user data we process. Improper disclosure or misuse of
personal data could harm our reputation, lead to legal exposure to customers or end users, or subject us to liability under laws
that protect personal data, resulting in increased costs or loss of revenue.
Other regulatory developments could negatively impact our business.
ff
ff
Local and foreign laws and regulations that apply to the internet related to, among other things, content liability, s
requirements, law enforcement access to information, critical infrastructure, so-called "fair share" or internet content taxes,
international data transfer restrictions, sanctions, export contr
risks to our revenues, intellectual property and customer relationships as well as increase expenses or create other disadvantages
to our business. Section 230 of the U.S. Communications Decency Act, often referred to as S
host user-generated content broad protection from legal liability for content posted on their sites. Proposals to repeal or amend
Section 230 could expose us to greater legal liability in the conduct of our business. Our Acceptable Use Policy prohibits
customers frff om using our network to deliver illegal or inappropriate content; if customers violate that policy, we may
nonetheless face reputational damage, enforcement actions or lawsuits related to their content. Regulations have been enacted
ols and restrictions on social media or other content could pose
ection 230, gives websites that
ecurity
ff
ff
20
or proposed in a number of countries that limit the delivery of certain types of content into those countries. Enactment and
expansion of such laws and regulations would negatively impact our revenues. For example, restrictions were adopted in India
in 2020 prohibiting access to identified Chinese applications which caused a reduction in revenue to us. In addition, such laws
and regulations could cause internet service providers, or others, to block our products in order to enforce content-blocking
effff orff
ts. In addition, efforts to block a single product or domain name may end up blocking a number of other products or
domain names in an overbrr oad manner that could affect our business. Interpretations of laws or regulations that would subject
us to regulatory enforcement actions, supervision or, in the alternative, require us to exit a line of business or a country, could
ith privacy
lead to loss of significant revenues and have a negative impact on the quality of our solutions. As noted w
compliance above, engineering efforts to build new capabilities to facilitate compliance with law enforcement access
requirements, content access restrictions or other regulations could require us to take on substantial expense and divert
engineering resources from other projects. These circumstances could harm our profitability.
ff
ff
ff
We may need to defend against patent or copyright infringement claims
s
WW
limit our ability to use certain technologies in the fuff ture.
, wh
ich would cause us to incur substantial costs or
As we expand our business and develop new technologies, products and services, we have become increasingly subject to
intellectual property infringement and other claims and related litigation. We have also agreed to indemnify our customers and
channel and strategic partners if our solutions infringe or misappropriate specified intellectual property rights; as a result, we
have been and could again become involved in litigation or claims brought against customers or channel or strategic partners if
our solutions or technology are the subject of such allegations. Any litigation or claims, whether or not valid, brought against us
or pursuant to which we indemnify our customers or partners could result in substantial costs and diversion of resources and
require us to do one or more of the following:
•
•
•
•
cease selling, incorporating or using features, functionalities, products or services that incorporate the challenged
intellectual property;
pay substantial damages and incur significant litigation expenses;
obtain a license frff om the holder of the infrff inged intellectual property right, which license may not be available on
reasonable terms or at all; or
redesign products or services.
If we are forced to take any of these actions, our business may be seriously harmed.
Our business will be adversrr ely affected if we are unable to protect our intellectual property rights from unauthorized use or
infn rff ingement by third parties.
We rely on a combination of patent, copyright, trademark and trade secret laws and contractual restrictions on disclosure to
ff
protect our intellectual property rights. These legal protections afford only limited protection, particularly in some regions
outside the U.S. We have previously brought lawsuits against entities that we believed were infringing our intellectual property
rights but have not always prevailed. Such lawsuits can be expensive and require a significant amount of attention from our
management and technical personnel, and the outcomes are unpredictable. Monitoring unauthorized use of our solutions is
diffff icult, and we cannot be certain that the steps we have taken or will take will prevent unauthorized use of our technology.
Furthermore, we cannot be certain that any pending or future patent applications will be granted, that any future patent will not
be challenged, invalidated or circumvented, or that rights granted under any patent that may be issued will provide competitive
advantages to us. If we are unable to protect our proprietary rights from unauthorized use, the value of our intellectual property
assets may be reduced. Although we have licensed from other parties proprietary technology covered by patents, we cannot be
certain that any such patents will not be challenged, invalidated or circumvented. Such licenses may also be non-exclusive,
meaning our competition may also be able to access such technology.
Litigation may adversely impact our business.
From time to time, we are or may become involved in various legal proceedings relating to matters incidental to the
se of our business, including patent, commercial, product liability, breach of contract, employment, class action,
ordinary cour
rr
whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. In
addition, under our charter, we could be required to indemnify and advance expenses to our directors and officers in connection
with their involvement in certain actions, suits, investigations and other proceedings. Such matters can be time-consuming,
divert management’s attention and resources and cause us to incur significant expenses. Furthermore, because litigation is
inherently unpredictable and may not be covered by insurance, there can be no assurance that the results of any litigation
matters will not have an adverse impact on our business, results of operations, financial condition or cash flows.
21
In addition, frff om time to time, we use various contractual, technical and expert resources to reduce the likelihood of end
user activity that is illegal, fraudulent or harmful to third parties. There can be no assurance that any of these initiatives will be
successful or r
ff
negative interactions with end users, negative perceptions of our policies or increased onboarding time for new customers.
educe such illegal, frff audulent or harmful content on our platform. Furthermore, such initiatives may also r
esult in
ff
GG
Global climate change an
d related natural resource conservation regulations could adversely impact our business.
rr
The long-term effects of climate change on the global economy and our industry in particular remain unknown. For
example, changes in weather where we operate may increase the costs of powering and cooling computer hardware we use to
develop software and provide cloud-based services. In addition, catastrophic natural disasters, such as an earthquake, fire, flood
ff
or other act of God, catastrophic event or pandemic, and any similar disruption, as well as any derivative disruption, such as
those to services provided through localized physical infrastructure, including utility or telecommunication outages, or any to
the continuity of our, our partners’, suppliers’ and our customers’ workforce, could have a material adverse impact on our
business and operating results. Our global operations are dependent on our network infrastructure, technology systems and
website, including the supply of servers from our third-party partners, as well as our intellectual property and personnel and any
e dependencies may negatively impact our ability to respond to customers, provide services and maintain local
disruption to thes
and global business continuity. Furthermore, some of our products and business functions are hosted or carried out by third
parties that may be vulnerable to these same types of disruptions, the response to or resolution of which may be beyond our
control. Any disruption to our business could cause us to incur significant costs to repair damages to our facilities, equipment,
infrastructure and business relationships.
r
r
r
In addition, in response to concerns about global climate change, governments may adopt new regulations affecting the use
of fossil fuels or requiring the use of alternative fuel sources which could adversely impact our business. Our deployed network
of servers consumes significant energy resources, including those generated by the burning of fossil fuels. While we have
invested in projects to support renewable energy development, our customers, investors and other stakeholders may require us
to take more steps to demonstrate that we are taking ecologically responsible measures in operating our business. The costs and
any expenses we may incur to make our network more energy-efficient and comply with any new regulations could make us
ff
less profitable in future periods. Failure to comply w
ith applicable laws and regulations or other requirements imposed on us
ff
could lead to fines
, lost revenue and damage to our reputation.
ff
ff
Investment-Related Risks
Our stock price has been, and may continue to be, volatile, and your investment could lose value.
The market price of our common stock has historically been volatile. Trading prices may continue to fluctuate in response
to a number of events and factors, including the following:
ff
ff
quarterly variations in operating results;
announcements by our customers related to their businesses that could be viewed as impacting their usage of our solutions;
•
•
• market speculation about whether we are a takeover target or considering a strategic transaction;
•
•
•
•
•
•
announcements by competitors;
activism by any single large stockholder or combination of stockholders or rumors about such activity;
changes in financial estimates and recommendations by securities analysts;
failur
e to meet the expectations of securities analysts;
ff
purchases or sales of our stock by our officers and directors;
general economic conditions and other macroeconomic factors, such as inflationary pressures, foreign currency exchange
rate fluctuations, energy prices, reduced consumer spending, increasing interest rates, recessionary economic cycles,
protracted economic slowdowns and overall market volatility;
repurchases of shares of our common stock;
-attacks affff ecting our netw
ff
successful cyber
changes in the composition of company management, including company executives and the board of directors;
entry into, or ter
perforff mance by other companies in our industry; and
geopolitical conditions such as acts of terrorism, military or armed conflicts, such as the Russian invasion of Ukraine, or
global pandemics.
mination of, relationships with material customers and partners;
ork or systems;
•
•
•
•
•
•
ff
rr
ff
Furthermore, our revenue, particularly that portion attributable to usage of our solutions beyond customer commitments,
can be diffff icult to forecas
particularly acute with respect to our media and commerce customers. In the future, our customer contracting models may
t, and, as a result, our quarterly operating results can fluctuate substantially. This concern is
ff
22
change to move away from a committed revenue structure to a “pay-as-you-go” approach, which could make it easier for
customers to reduce the amount of business they do with us or leave altogether. Changes in billing models and committed
revenue requirements could, therefore, create challenges with our forecasting processes. Because a significant portion of our
r
cost structur
profitability. If we announce revenue or profitability results that do not meet or exceed our guidance or make changes in our
guidance with respect to future operating results, our stock price may decrease significantly as a result.
e is largely fixed in the short-term, revenue shortfalls tend to have a disproportionately negative impact on our
ff
Any of these events, as well as other circumstances discussed in these Risk Factors, may cause the price of our common
stock to fall. In addition, the stock market in general, and the market prices of stock of publicly-traded technology companies in
particular, have experienced significant volatility that often has been unrelated to the operating performance of affected
companies. These broad stock market fluctuations may adversely affect the market price of our common stock, regardless of
our operating performance.
ff
Any fn ailuff
re to meet our debt obligations or obtain financing would damage our business.
As of the date of this report, we had total principal amount of $1,150.0 million of convertible senior notes outstanding due
efinance the notes, make cash payments in connection with conversions of the notes or repurchase the notes in
cumstances, the credit facility can be increased to up to $1 billion in aggregate principal amount. As of December
in 2025, and we had total principal amount of $1,150.0 million of convertible senior notes outstanding due in 2027. We also
entered into a credit facility in November 2022 that provides for an initial $500.0 million revolving credit facility, and under
specified cir
ff
31, 2022, there were no outstanding borrowings under the credit facility. Our ability to repay any amounts we borrow under our
credit facility, r
ff
the event of a fundamental change (as defined in the applicable indenture governing the notes) will depend on market
conditions and our future performance, which is subject to economic, financial, competitive and other factors beyond our
control. We also may not use the cash we have raised through future borrowing under the credit facility or the issuance of the
ff
convertible senior notes in an optimally productive and profitable manner. I
more cash than we generate in the future, our level of indebtedness at such time could adversely affect our operations by
increasing our vulnerability to adverse changes in general economic and industry conditions and by limiting or prohibiting our
ability to obtain additional financing for additional capital expenditures, acquisitions and general corporate and other purposes.
If we do not have sufficient cash upon conversion of the notes or to repurchase the notes following a fundamental change, we
would be in default under the terms of the notes, which could seriously harm our business. Although the terms of our credit
e indebtedness, the terms of the notes do not. If we incur
facility include certain financial ratios that potentially limit our futur
ff
significantly mor
e debt, this could intensify the risks described above. In addition, if we are unable to obtain financing to fund
additional capital expenditures, acquisitions, and general corporate and other purposes on reasonable terms, or at all, then our
business, operations and financial condition may be harmed.
f we are unable to remain profitable or if we use
ff
ff
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ff
We may issue additional shares of our common stock or instruments convertible into shares of our common stock and
thereby materially and adversely affect the market price of our common stock.
Our board of directors has the authority to issue additional shares of our common stock or other instruments convertible
into, or exchangeable or exercisable for, shares of our common stock. If we issue additional shares of our common stock or
instruments convertible into, or exchangeable or exercisable for, s
affff ect the market price of our common stock.
hares of our common stock, it may materially and adversely
r
ff
Because we currently do not intend to pay dividends, stockholders will benefit from an investment in our common stock only
if it appreciates in value.
We currently intend to retain our future earnings, if any, for use in the operation of our business and do not expect to pay
any cash dividends in the foreseeable futur
e on our common stock. As a result, the success of an investment in our common
stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in
value or even maintain the price at which stockholders have purchased their shares.
ff
Provisions of our charter, by-laws and Delaware law may have anti-takeover effects that could prevent a change in control
even if the change in control would be beneficial to our stockholders.
Provisions of our charter, by-laws and Delaware law could make it more difficult for a third party to control or acquire us,
ff
even if doing so would be beneficial to our stockholders. These provisions include:
•
our board of directors having the right to elect directors to fill a vacancy created by the expansion of the board of directors
or the resignation, death or removal of a director;
23
•
•
stockholders needing to provide advance notice, additional disclosures and representations and warranties to nominate
individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders' meeting;
and
the ability of our board of directors to issue, without stockholder approval, shares of undesignated preferred stock.
Further, as a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law,
a corpor
ation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder
rr
has held the stock for three years or, among other things, the board of directors has approved the transaction. Our board of
directors could rely on Delaware law to prevent or delay an acquisition of us.
We have identified a material weakness in our internal control over financial reporting, and our management has concluded
that our disclosure controls and procedures are not effective. While we are working to remediate the identified material
weakness, we can
s
If we f
ols, we may not be able to accurately report our financial results or
ff
II
prevent fraud. As a result, our stockholders could lose confidence in our financial reporting, which could harm our business
and the trading price of our common stock.
not assure you that additional material weaknesses or significant deficiencies will not occur in the future.
s
ail to maintain an effective s
ystem of internal contr
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and
internal control over financial reporting. As disclosed in this Form 10-K, in the course of our audit for fiscal 2022, we identified
a material weakness in the Company’s internal control over financial reporting as of December 31, 2022 related to income
taxes. The material weakness was caused by an inadequate control over the adoption and application of new accounting
standards related to income taxes and resulted in immaterial errors to net deferred tax assets and provision for income taxes for
the interim periods ended March 31, 2022, June 30, 2022 and September 30, 2022. We are in the process of designing and
implementing changes in processes and controls to remediate the material weakness. We cannot assure you that the measures
we may take in the future will be sufficient to remediate the control deficiencies that led to a material weakness in our internal
controls over financial repor
ting or that they will prevent or avoid potential future material weaknesses. The material weakness
ff
in the Company’s internal control over financial reporting will not be considered remediated until the controls operate for a
suffff icient period of time and management has concluded, through testing that these controls operate ef
ff
ff
successfully r
be unable to accurately report our financial results, which could cause our financial results to be materially misstated and
require restatement.
emediate the material weakness, or if other material weaknesses or other deficiencies arise in the future, we may
fectively. If we do not
ff
We need to continue to enhance and maintain our processes and systems and adapt them to changes as our business evolves
ff
ed in their implementation or improvement, could harm our operating results, may result
and we rearrange management responsibilities and reorganize our business. This continuous process of maintaining and
adapting our internal controls and complying with Section 404 is expensive and time-consuming and requires significant
management attention. We cannot be certain that our internal control measures will provide in the future adequate control over
our financial processes and reporting and ensure compliance with Section 404. Any failur
controls, or any diffff iculties encounter
ff
in a restatement of our financial statements for prior periods, cause us to fail to meet our reporting obligations, and could
adversely affect the results of periodic management evaluations and annual independent registered public accounting firm
attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in
the periodic reports we will file with the Securities and Exchange Commission. Furthermore, as our business changes, including
by expanding our operations in different markets, increasing reliance on channel partners and completing acquisitions, our
internal controls may become more complex and we may be required to expend significantly more resources to ensure our
internal controls remain effective. Failure to implement required new or improved controls, or difficulties encountered in their
implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our independent
registered public accounting firm identify additional material weaknesses, the disclosure of that fact, even if quickly
remediated, could reduce the market's confidence in our financial statements and harm our stock price.
e to develop or maintain effective
ff
Item 1B. Unresolved Staff Cff
omments
None.
24
Item 2. Properties
Our headquarters is located in Cambridge, Massachusetts where we lease approximately 659,000 square feet, of which
approximately 258,000 square feet is cur
States and other countries, the largest of which are in Santa Clara, California; Bangalore, India; and Krakow, Poland. All of our
facilities ar
ff
ff
and ability to sublease or terminate excess space. We believe our facilities are sufficient to meet our needs.
rently subleased to third parties. We also have offices in other locations in the United
e leased. We are continuing to evaluate our facility footprint in light of our F
lexBase program, including our plans
ff
Item 3. Legal Proceedings
We are party to various litigation matters, governmental proceedings, investigations, claims and disputes that we consider
routine and incidental to our business. We do not currently expect the results of any of these matters to have a material effect on
our business, results of operations, financial condition or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock, par value $0.01 per share, trades under the symbol “AKAM” on the Nasdaq Global Select Market.
rr
As of Februar
rr
y 24, 2023, there were 166 holders of record of our common stock.
We have never paid or declared any cash dividends on shares of our common stock or other securities and do not anticipate
paying or declaring any cash dividends in the forff eseeable future. We currently intend to retain all future earnings, if any, for use
in the operation of our business.
IsII suer Purchases of Equity Securities
ff
The follow
ing is a summary of our repurchases of our common stock in the fourth quarter of 2022 (in thousands, except
share and per share data):
Period(1)
October 1, 2022 – October 31, 2022
November 1, 2022 – November 30, 2022
December 1, 2022 – December 31, 2022
Total
Total Number of
Shares
Purchased(2)
749,861
639,122
665,811
2,054,794
Average Price
Paid per Share(3)
83.10
$
89.21
87.72
86.50
$
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs(4)
749,861
639,122
665,811
2,054,794
Approximate
Dollar Value of
Shares that May
Yet be Purchased
Under Plans or
Programs(4)
$
1,307,415
1,250,398
1,191,990
(1)
(2)
(3)
(4)
Inforff mation is based on settlement dates of repurchase transactions.
Consists of shares of our common stock, par value $0.01 per share.
Includes commissions paid.
Effff eff ctive January 2022, our board of directors authorized a $1.8 billion share repurchase program through December 2024.
During the year ended December 31, 2022, we repurchased 6.4 million shares of our common stock for an aggregate of
ff
$608.0 million.
Item 6. [Reserved]
Not applicable.
25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MM
This MTT
anagement’s Discussion and Analys
is of Financial Condition and Results of Operations ("MD&A"), should be read
in conjunction with our consolidated financial statements and notes thereto that appear elsewhere in this annual report on
Form 10-K. See “Ris“
k Factorsrr ” elsewhere in this annual report on Form 10-K for a discussion of certain risks associated with
our business. The following discussion contains forward-looking statements. The forward-looking statements do not include the
potential impact of any mergers, acquis
itions, divestitures or other events that may be announced after the date hereof.
m
Overview
We provide solutions to power and protect life online. The key factors that influence our financial success are our ability to
build on recurring revenue commitments for our security and performance offerings, increase traffic on our network, continue
to develop, scale and successfully bring to market our cloud computing platform and compute-to-edge solutions that meet the
needs of professional users and enterprises, effectively manage the prices we charge for our solutions, develop new products
and appropriately manage our capital spending and other expenses. The purpose of this discussion and analysis section is to
provide material inforff mation relevant to an assessment of our financial condition and results of operations from management’s
perspective, including to describe and explain key trends, events and other factors that impacted our reported results and that are
likely to impact our futur
e perforff mance.
ff
r
ff
ff
Revenue
For most of our solutions, our customers commit to contracts having terms of a year or longer, which allows us to have a
consistent and predictable base level of revenue. In addition to a base level of revenue, we are also dependent on delivery
customers, and some cloud computing customers, where usage of our solutions is more variable. As a result, our revenue is
impacted by the amount of traffic we serve on our network or the usage of cloud computing services, the rate of adoption of
gaming, social media and video platform offerings, the timing and variability of customer-specific one-time events and
geopolitical, economic and other developments that impact our customers' businesses. Seasonal variations that impact traffic on
our network, such as holiday-related activities, can cause revenue fluctuations from quarter to quar
ter. Over the longer term, our
ability to expand our product portfolio and to effectively manage the prices we charge for our solutions are key factors
impacting our revenue growth.
ff
ff
We have observed the following trends related to our revenue in recent years:
•
•
•
•
Increased sales of our security solutions, led by application security solutions and segmentation solutions from our
Guardicore acquisition, and more recently, increased sales of our compute solutions primarily attributable to our
acquisition of Linode in the first quarter of 2022, have made a significant contribution to revenue growth. During
2022, security and compute revenue represented over half of our total revenue. We plan to continue to invest in these
areas with a focus on further enhancing our product portfolios and extending our go-to-market capabilities, particularly
in certain markets and through our channel partners.
During 2020 and early 2021, we saw a dramatic increase in traffic growth on our network due to the shutdowns and
restrictions related to the COVID-19 pandemic. While traffic on our network continues to grow as compared to prior
years, the rate of traffic growth has decelerated. Our delivery revenue was negatively impacted by the deceleration,
which we believe is partly due to the rollback of COVID-19 pandemic-related restrictions. We expect traffic growth
rates in 2023 to continue to be below historical levels as we and other companies manage through a time of economic
headwinds and uncertainty.
The prices paid by some of our customers have declined in recent years due to competition and contract renewals,
which negatively impacts our revenue growth rates. We have been able to mitigate some of the negative impacts to our
revenue growth rates by upselling incremental solutions to our existing customers. We are taking steps to try to
maintain alignment between customer traffic volumes and unit pricing.
Revenue from our international operations has generally been growing at a faster pace in recent years than from our
U.S. operations, particularly from cross-selling of incremental solutions. Because we publicly report in U.S. dollars,
and due to the strengthening U.S. dollar, our reported revenue results have been negatively impacted during 2022.
26
• We have experienced variations in certain types of revenue from quarter to quarter. In particular, we typically
experience higher revenue in the fourth quarter of each year for some of our solutions as a result of holiday season
activity. In addition, we experience quarterly variations in revenue attributable to, among other things, the nature and
timing of softwff
situations that impact the amount of media traffic on our network; the timing of large customer contract renewals; and
the frff equency and timing of purchases of custom solutions or licensed software.
are and gaming releases by our customers; whether there are large live sporting or other events or
Expenses
Our level of profitability is also impacted by our expenses, including dir
ff
ect costs to support our revenue such as bandwidth
and co-location costs, which includes energy to power our network. We have observed the following trends related to our
profitability in recent years:
ff
•
•
•
•
•
•
Network bandwidth costs represent a significant portion of our cost of revenue. Historically, we have been able to
mitigate increases in these costs by reducing our network bandwidth costs per unit and investing in internal-use
softwff
ff
effff ectively manage our bandwidth costs to maintain current levels of profitability.
are development to improve the performance and efficiency of our network. We will need to continue to
Co-location costs are also a significant portion of our cost of revenue. As we build out our new compute locations to
provide us with the ability to scale our platform, we expect to enter into longer term leases that include certain
financial commitments in order to achieve more favorable unit economics. The costs of the financial commitments are
ff
straight-lined over the life of the lease. We continue to improve our internal-use software and remain disciplined in
managing our hardware deployments, particularly for our delivery platform, which enables us to use servers more
effff iciently. With thes
ticularly in
Europe. We expect to continue to scale our network in the future, which will allow us to continue to effectively
manage our co-location costs to maintain current levels of profitability.
e effff iciencies we have been able to minimize the impact of rising energy costs, par
ff
ff
ff
Network build-out and supporting service costs represent another significant portion of our cost of revenue. These
costs include maintenance and supporting services incurred as we continue to build-out our compute infrastructure and
maintain our global network, and costs of third-party cloud providers used for some of our operations. We have seen
these costs increase in recent years, as a result of our network expansion and increased use of third-party cloud
services. We expect this trend to continue in the near-term as we invest in our network to support our compute
solutions, including migrating from third-party cloud providers to our own cloud solutions. We will need to effectively
manage our network build-out and supporting costs to maintain current levels of profitability.
ff
Our employees are core to the operations of our business, and payroll and related costs, including stock-based
compensation, is one of our largest expenses. It is important to the success of operations that we offer competitive
compensation packages. However, we remain disciplined in allocating our resources to support our faster growing
security and compute solutions, including maintaining operational efficiencies to mitigate the rising cost of talent. We
are prioritizing our hiring to our high growth areas. In addition, we are re-tasking certain employees to develop, deploy
and support go-to-market efforts for our compute solutions.
ff
ff
Depreciation expense related to our network equipment also contributes to our overall expense levels. In recent years
we have invested in our network as traffff ic levels have increased, which increased our capital expenditures and
resulting depreciation expense. We plan to continue to make investments in capital expenditures, however, the focus is
to furff
ther invest in support of our faster growing compute solutions. Due to the software and hardware initiatives we
have undertaken to manage our global network more efficiently, we expect the useful lives of our network servers to
be extended. As a result of our expected investments in our network, particularly with respect to cloud computing, we
expect depreciation to increase, which will be partially offset by the expected change in useful lives of our network
servers.
Growth in our international operations incrementally increases our exposure to foreign currency fluctuations. In 2022,
due to the strengthening U.S. dollar, our expenses that are denominated in foreign currencies have been positively
impacted and partially offset the negative impact on revenue, resulting in a negative overall impact on our operating
margins.
27
Recent Acquisitions
r
In March 2022, we acquired all of the outstanding equity interests of Linode for $898.5 million in cash. Linode is an
infrastructure-as-a-service platform provider that allows for developer-friendly cloud computing capabilities. The acquisition is
intended to enhance our computing services by enabling us to create a unique cloud platform to build, run and secure
applications frff om the cloud to the edge. Linode had approximately 250 employees when we completed the acquisition.
In October 2021, we acquired Guardicore for $610.7 million in cash. Guardicore's micro-
segmentation solution is designed
to limit user access to only those applications that are authorized to communicate with each other, thereby limiting the spread of
malware and protecting the flow of enterprise data across the network. Guardicore had approximately 270 employees when we
completed the acquisition, and the acquisition was dilutive to our earnings per share in 2022.
ff
Remote Work
In May 2022, we launched our FlexBase program, which allows the more than 95% of our workforce designated as flexible
ff
to choose whether they want to work from an Akamai office, their home office or a combination of both. Our operations have
not been significantly disrupted by the shift to remote working. While we have incurred and expect to continue to incur
expenses associated with enabling remote work, reconfiguring work spaces and re-thinking our facility footprint and the way
we utilize offff ice s
operations.
pace, we do not currently believe those costs will materially impact our financial condition or results of
ff
Global Developments
ff
ff
Since the start of 2022, several global macroeconomic and geopolitical developments have emerged. These developments
owth rates, and as a result, our revenue growth rates. We have experienced a decline in revenue in 2022
impacted our traffic gr
related to the war in Ukraine due to a decrease in traffic in Russia, Belarus and Ukraine. Approximately 1% of our 2021
revenue was generated frff om traffic we served into these countries, and we experienced a decline in revenue in 2022 due to a
decrease in traffff ic in these countries. Additionally, we were negatively impacted by the strengthening of the U.S. dollar. In
addition, we, along with our customers, continue to manage through an uncertain period of inflation, growing recessionary
concerns, supply chain challenges, uncertain energy supplies, heightened geopolitical tensions and rising interest rates. As a
result of the uncertain macroeconomic environment, we have experienced elongated sales cycles with our customers and
prospects, and expect to continue to experience elongated sales cycles in 2023. Our board of directors is continuing to oversee
risks related to macroeconomic and geopolitical developments, including the ongoing war in Ukraine, and management is
monitoring these developments, including the potential impact from the war or other geopolitical events on our business. As a
result of overall macroeconomic trends, growing concerns of a potential global recession and future projections of traff
consumption that suggest traffic growth will moderate as restrictions related to the COVID-19 pandemic are lifted, we
anticipate our traffic will grow, but at a more moderate pace than we have experienced previously. The extent of the ongoing
impact of these macroeconomic events on our business and on global economic activity may continue to adversely affect our
business, operations and financial results.
icff
ff
ff
28
Results of Operations
ff
The follow
ing sets forth, as a percentage of revenue, consolidated statements of income data for the years indicated:
Revenue
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown
below)
Research and development
Sales and marketing
General and administrative
Amortization of acquired intangible assets
Restructuring charge
Total costs and operating expenses
Income from operations
Interest and marketable securities income, net
Interest expense
Other (expense) income, net
Income before provision for income taxes
Provision for income taxes
Loss from equity method investment
Net income
Revenue
2022
100.0 %
2021
100.0 %
2020
100.0 %
38.3
10.8
13.9
16.2
1.8
0.4
81.4
18.6
0.1
(0.3)
(0.3)
18.1
(3.5)
(0.2)
14.4 %
36.7
9.7
13.3
16.0
1.4
0.3
77.4
22.6
0.5
(2.1)
0.1
21.1
(1.8)
(0.4)
18.9 %
35.4
8.4
16.0
17.1
1.3
1.2
79.4
20.6
0.9
(2.2)
(0.1)
19.2
(1.4)
(0.4)
17.4 %
The Company reports its revenue in three solution categories: security, delivery and compute. Prior to January 1, 2022,
revenue by solution was reported by product group: Security Technology Group and Edge Technology Group. Revenue from
security solutions was previously presented as Security Technology Group revenue. Revenue from delivery and compute
solutions was previously presented as Edge Technology Group revenue. The periods presented prior to January 1, 2022 have
been revised to reflect this new presentation. Revenue by solution category during the periods presented is as follows (
thousands):
in
ff
For the Years Ended December 31,
For the Years Ended December 31,
2022
$ 1,541,941
1,669,257
405,456
2021
$ 1,334,836
1,873,243
253,144
% Change
15.5 %
(10.9)
60.2
% Change
at Constant
Currency
2021
19.7 % $ 1,334,836
1,873,243
(7.8)
253,144
64.0
2020
$ 1,061,622
1,929,810
206,717
% Change
25.7 %
(2.9)
22.4
% Change
at Constant
Currency
24.6 %
(3.7)
21.4
$ 3,616,654
$ 3,461,223
4.5 %
8.0 % $ 3,461,223
$ 3,198,149
8.2 %
7.3 %
Secur
ity
Delivery
Compute
Total
revenue
The increases in our revenue in 2022 as compared to 2021, and 2021 as compared to 2020, was primarily the result of
continued strong growth in sales of our security solutions, in addition to growth in compute solutions. The increase in 2022 as
compared to 2021 was negatively impacted by the significant strengthening of the U.S. dollar and a decline in revenue from our
delivery srr
olutions.
ff
The increase in security solutions revenue for 2022 as compared to 2021, was due to growth in a number of key products in
our security solutions portfolio, including our application security portfolio, driven by application and application performance
interfaces protection, as well as our Zero Trust Enterprise portfolio, which is led by our G
uardicore segmentation solution. The
increase in security solutions revenue in 2021 as compared to 2020, was due to growth across our security products portfolio,
including Bot Manager, Kona Site Defender, Prolexic and our access control product suite.
ff
29
The decrease in delivery solutions revenue for 2022 as compared to 2021 was due to reduction in traffic growth,
particularly among our largest customers, which we believe was attributed to macroeconomic challenges our customers are
experiencing and the pricing impact of some large renewals that we completed in the first half of the year. The decrease in
ff
delivery srr
partially offset by growth in edge application solutions.
olutions revenue for 2021 as compared to 2020 was due to reduction in s
ales of application performance solutions,
ff
The increase in compute solutions revenue in 2022 as compared to 2021 was due to strong growth in compute products,
including through the acquisition of Linode in the first quarter of 2022, and continued growth in cloud optimization solutions.
Revenue attributable to Linode since the date of the acquisition, and included in our consolidated statements of income, for the
year ended 2022 was $103.5 million. The increase in compute solutions revenue in 2021 as compared to 2020, was due to
strong growth in cloud optimization solutions.
Revenue derived in the U.S. and internationally during the periods presented is as follows (in thousands):
For the Years Ended December 31,
For the Years Ended December 31,
U.S.
International
Total
revenue
2022
$ 1,902,051
1,714,603
2021
$ 1,837,508
1,623,715
$ 3,616,654
$ 3,461,223
3.5 %
5.6
4.5 %
% Change
at Constant
Currency
2021
% Change
3.5 % $ 1,837,508
1,623,715
13.2
2020
$ 1,777,435
1,420,714
% Change
3.4 %
14.3
% Change
at Constant
Currency
3.4 %
12.3
8.0 % $ 3,461,223
$ 3,198,149
8.2 %
7.3 %
For each of the years ended December 31, 2022 and 2021, approximately 47% of our revenue was derived from our
operations located outside of the U.S., compared to 44% for the year ended December 31, 2020. No single country outside of
the U.S. accounted for 10% or mor
our international regions. Changes in foreign currency exchange rates negatively impacted our revenue by $122.1 million in
2022 as compared to 2021, and positively impacted our revenue by $28.8 million in 2021 as compared to 2020.
e of revenue during any of these periods. We have generally seen revenue growth across all
ff
Cost of Revenue
Cost of revenue consisted of the follow
ff
:
ing for the periods presented (in thousands)
ff
ff
Bandwidth fees
Co-location fees
Network build-out and
supporting services
Payroll and related costs
Acquisition-related costs
Stock-based compensation,
including amortization of prior
capitalized amounts
Depreciation of network
equipment
Amortization of internal-use
softwff
are
Total cost of revenue
For the Years Ended December 31,
2022
2021
$ 209,288
$ 205,268
177,950
197,375
% Change
For the Years Ended December 31,
2020
2021
$ 200,167
156,275
% Change
4.6 %
13.9
(1.9)% $ 209,288
177,950
10.9
195,669
298,269
4,982
157,234
276,544
—
57,146
57,390
259,359
226,384
24.4
7.9
100.0
(0.4)
14.6
157,234
276,544
—
134,952
262,972
—
57,390
52,863
226,384
167,017
16.5
5.2
—
8.6
35.5
165,751
$ 1,383,819
164,166
$ 1,268,956
164,166
1.0
9.1 % $ 1,268,956
158,426
$ 1,132,672
3.6
12.0 %
As a percentage of revenue
38.3 %
36.7 %
36.7 %
35.4 %
30
The increases in cost of revenue for 2022 as compared to 2021, and 2021 as compared to 2020, was primarily due to
increased network build-out and supporting services, particularly related to increased supporting services for third-party cloud
applications, and increased investment in our network in prior years to support traffic growth, which resulted in higher
depreciation costs of our network equipment and growth in expenses related to our co-location facilities including energy to
power our network. The increase in cost of revenue for 2022 as compared to 2021 was also due to increased payroll and related
costs as a result of increased headcount due to the acquisition of Linode.
ff
During 2023, we expect our cost of revenue to increase as compared to 2022, in particular co-location costs, due to
investments in our network to support the continued growth of our compute solutions. We plan to continue to focus our efforts
on managing our operating margins, including our bandwidth and network build-out costs. In particular, we are taking steps to
shift wff
orkloads to our own cloud solutions, which we expect will reduce third-party cloud application expense. We also expect
to change the estimated useful lives of our network servers from five to six years due to softw
have undertaken to manage our global network more efficiently. This change will partially offset our expected increase in
ff
depreciation expense related to our investment in network equipment.
are and hardware initiatives we
ff
Research and Development Expenses
Research and development expenses consisted of the following for the periods presented (in thousands):
Payroll and related costs
Stock-based compensation
Capitalized salaries and related
costs
Acquisition-related costs
Other expenses
Total research and
development
As a percentage of revenue
$
$
For the Years Ended December 31,
2021
2022
456,138
468,928
65,951
78,116
$
% Change
2.8 % $
18.4
For the Years Ended December 31,
2020
2021
410,568
456,138
48,854
65,951
$
% Change
11.1 %
35.0
(183,540)
2,832
25,098
(200,530)
—
13,813
(8.5)
100.0
81.7
(200,530)
—
13,813
(200,143)
—
10,036
391,434
10.8 %
$
335,372
9.7 %
16.7 % $
335,372
9.7 %
$
269,315
8.4 %
0.2
—
37.6
24.5 %
The increase in research and development expenses for 2022 as compared to 2021 was due to higher payroll and r
ff
elated
costs and related stock-based compensation as a result of headcount growth from employees joining us through acquisitions, a
reduction in capitalized salaries and related costs as a result of a shift in resources to work on core maintenance activities related
to our platforff m and an increase in other expenses due to an increase in the use of third-party cloud applications to support our
research and development activities.
The increase in research and development expenses for 2021 as compared to 2020 was due to increased payroll and related
costs, including stock-based compensation, primarily due to headcount growth, the redeployment of some employees to
research and development functions from sales and marketing activities as part of our March 2021 reorganization and as a result
of employees joining us through acquisitions.
Research and development costs are expensed as incurred, other than certain internal-use software development costs
ff
eligible for capitalization. Capitalized development costs consist of payroll and related costs for personnel and external
consulting expenses involved in the development of internal-use software used to deliver our services and operate our network.
For the years ended December 31, 2022, 2021 and 2020, we capitalized $30.0 million, $32.2 million and $35.7 million,
respectively, of stock-based compensation. These capitalized internal-use software development costs are amortized to cost of
revenue over their estimated useful lives, ranging from two to seven years based on the software developed and its expected
ff
useful lif
e.ff
ff
We expect research and development costs to increase in 2023, in particular payroll and related costs and stock-based
compensation, to support the continued growth of our compute and security solutions.
31
rr
Sales and MarMM keting Expenses
Sales and marketing expenses consisted of the following for the periods presented (in thousands):
$
Payroll and related costs
Stock-based compensation
Marketing programs and related
costs
Acquisition-related costs
Other expenses
Total sales and marketing
$
As a percentage of revenue
For the Years Ended December 31,
2021
2022
366,501
374,110
46,342
47,789
$
% Change
2.1 % $
3.1
For the Years Ended December 31,
2020
2021
393,800
366,501
65,257
46,342
$
% Change
(6.9)%
(29.0)
55,033
2,166
23,311
502,409
13.9 %
$
40,553
—
8,571
461,967
13.3 %
35.7
100.0
172.0
8.8 % $
40,553
—
8,571
461,967
13.3 %
$
39,272
—
12,076
510,405
16.0 %
3.3
—
(29.0)
(9.5)%
The increase in sales and marketing expenses for 2022 as compared to 2021 was primarily due to increased marketing
programs and related costs due to advertising and customer events held in 2022. Other expenses also increased due to travel
associated with customer events and meetings, as well as a sales recognition event during 2022 that did not occur in 2021. Such
events and travel costs were higher in 2022 than in 2021 due to the rollback of COVID-19 pandemic-related restrictions that
had been in place in the prior year.
The decrease in sales and marketing expenses for 2021 as compared to 2020 was due to decreased payroll and related costs,
ff
including stock-based compensation, primarily as a result of headcount reductions due to the establishment of a unified global
sales organization and elimination of duplicative roles. In addition, some employees who previously supported the sales
organization were redeployed in 2021 to our research and development function to focus our investments to improve security,
performance, scalability and innovation across our solutions.
ff
ff
We expect sales and marketing costs to increase in 2023 as compared to 2022, due to our continued investment in go-to-
market efforts. However, we plan to continue to carefully manage costs in an effort to manage our operating margins.
General and Administrative Expenses
:
General and administrative expenses consisted of the following for the periods presented (in thousands)
ff
$
ul accounts
Payroll and related costs
Stock-based compensation
Depreciation and amortization
Facilities-related costs
Provision for doubtf
ff
ff
Acquisition-related costs
Softwff
costs
Legal settlements
Endowment of Akamai
Foundation
Other expenses
are and related service
% Change
$
For the Years Ended December 31,
2021
2022
223,238
213,772
63,324
62,926
81,934
74,225
100,769
103,473
763
7,042
13,317
19,071
(4.2)% $
(0.6)
(9.4)
2.7
822.9
43.2
$
% Change
For the Years Ended December 31,
2020
2021
199,992
223,238
58,470
63,324
82,862
81,934
98,805
100,769
2,881
763
5,579
13,317
11.6 %
8.3
(1.1)
2.0
(73.5)
138.7
50,320
—
—
53,377
40,861
—
—
28,818
23.1
—
—
85.2
40,861
—
—
28,818
41,392
275
20,000
37,632
(1.3)
(100.0)
(100.0)
(23.4)
0.9 %
Total general and
administrative
As a percentage of revenue
$
584,206
16.2 %
$
553,024
16.0 %
5.6 % $
553,024
16.0 %
$
547,888
17.1 %
The increase in general and administrative expenses for 2022 as compared to 2021 was primarily due to software and
related service costs as we transition and expand to cloud-based applications, other expenses related to an increase in
32
ff
vice fees to s
professional ser
These increases were partially offset by a decrease in payroll and related costs due to a decline in performance-based
compensation programs.
upport our operations and acquisition-related costs primarily related to our acquisition of Linode.
ff
The increase in general and administrative expenses for 2021 as compared to 2020 was primarily due to increased payroll
and related costs, including stock-based compensation, as a result of annual merit increases and headcount growth, partially
offff sff et by a decrease in an endowment contribution to the Akamai Foundation in 2020 that did not recur in 2021.
General and administrative expenses for 2022, 2021 and 2020 are broken out by category as follows (in thousands):
Global functions
As a percentage of revenue
Infrastructure
As a percentage of revenue
Other
Total general and
administrative expenses
As a percentage of revenue
$
$
For the Years Ended December 31,
For the Years Ended December 31,
2022
212,674
5.9 %
$
345,391
9.6 %
26,141
2021
212,456
6.1 %
326,480
9.4 %
14,088
% Change
0.1 % $
5.8
85.6
$
2021
212,456
6.1 %
326,480
9.4 %
14,088
2020
193,719
6.1 %
325,434
10.2 %
28,735
584,206
16.2 %
$
553,024
16.0 %
5.6 % $
553,024
16.0 %
$
547,888
17.1 %
% Change
9.7 %
0.3
(51.0)
0.9 %
ff
Global functions expense includes payr
oll, stock-based compensation and other employee-related costs for administrative
, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel,
ff
functions
as well as third-party professional service fees. Infrastructure expense includes payroll, stock-based compensation and other
employee-related costs for our network infrastructure functions, as well as facility rent expense, depreciation and amor
of facility and IT-
ff
function is r
acquisition-related costs, provision for doubtful accounts, legal settlements and the endowment contribution to the Akamai
Foundation.
related assets, software and related service costs, business insurance and taxes. Our network infrastructure
esponsible for network planning, sourcing, architecture evaluation and platform security. Other expense includes
tization
ff
ff
ff
During 2023, we expect our general and administrative expenses to increase as compared to 2022 as a result of payroll and
related costs, including stock-based compensation, due to the expected achievement of the performance-based compensation
programs. We plan to continue to control costs, including reducing our real estate expenses due to excess capacity created by
our FlexBase program, in an effort to manage our operating margins.
Amortization of Acquired Intangible Assets
II
(i(( n thousands)s
Amortization of acquired
intangible assets
As a percentage of revenue
For the Years Ended December 31,
2021
2022
% Change
For the Years Ended December 31,
2020
2021
% Change
$
$
64,983
1.8 %
48,019
1.4 %
35.3 %35.3 % $
$
$
48,019
48,019
1.4 %
42,049
1.3 %
14.2 %
The increase in amortization of acquired intangible assets for 2022 as compared to 2021, as well as 2021 as compared to
2020, was the result of amortization of acquired intangible assets related to our recent acquisitions. Based on acquired
intangible assets as of December 31, 2022, future amortization is expected to be $63.5 million, $59.2 million, $61.2 million,
$56.3 million and $43.7 million for the years ending December 31, 2023, 2024, 2025, 2026 and 2027, respectively.
Restructuring Charge
(i(( n thousands)s
Restructuring charge
rr
As a percentage of revenue
For the Years Ended December 31,
2021
2022
% Change
For the Years Ended December 31,
2020
2021
% Change
$
$
13,529
0.4 %
10,737
0.3 %
26.0 %26.0 % $
$
$
10,737
10,737
0.3 %
37,286
1.2 %
(71.2)%
33
The restructur
r
ing charge for 2022 was primarily related to software impairment charges related to our investment with
Mitsubishi UFJ Financial Group ("MUFG") in the joint venture Global Open Network, Inc. ("GO-NET"), and MUFG's decision
to suspend GO-NET's operations, and impairments of right-of-use-assets for facilities that are no longer needed as a result of
our FlexBase program.
r
ff
The restructuring charge in 2021 was pr
imarily the result of management's actions initiated in the fourth quarter of 2020 to
better position us to become more agile in delivering our solutions. The restructuring charge for this action includes severance
and related expenses for cer
be implemented due to this action. In addition to the 2020 action, additional charges were incurred in 2021, related to
management’s plans to launch its new FlexBase program in May 2022. The restructuring charge incurred for this program in
2021 includes impairments of lease-related assets for certain facilities that are no longer needed. These restructuring charges
were partially offset by the release of a lease obligation for a facility previously exited as part of management actions initiated
in late 2019.
ges for software not yet placed into service that will not
tain headcount reductions and software char
r
ff
The restructur
r
ing charge in 2020 was primarily the result of the management actions initiated in the fourth quarter of 2020,
and the associated severance and related expenses and software charges that resulted from the action. In addition, an $8.7
million impairment of lease-related assets was incurred during 2020 to exit leased facilities related to a 2019 action, which
allowed us to focus on investment with the potential to accelerate new revenue growth.
We are continuing to evaluate our facility footpr
ff
int in light of our FlexBase program, including our plans and ability to
sublease space, but we do not currently believe such charges will materially impact our financial condition or results of
operation.
Non-Operating Incom
O
e (Expense)
(i(( n thousands)s
Interest and marketable
securities income, net
As a percentage of revenue
Interest expense
As a percentage of revenue
Other (expense) income, net
As a percentage of revenue
For the Years Ended December 31,
2021
2022
% Change
For the Years Ended December 31,
2020
2021
% Change
$
$
$
$
3,258
0.1 %
(11,096) $
(( %
(0.3)
(10,433) $
(( %
(0.3)
15,620
0.5 %
(72,332)
(2.1)%
1,785
0.1 %
(79.1)% $
(84.7)% $
(684.5)% $
$
15,620
0.5 %
(72,332) $
(2.1)%
1,785
0.1 %
$
29,122
0.9 %
(69,120)
(2.2)%((
(2,454)
(0.1)%
(46.4)%
4.6 %
(172.7)%
Interest and marketable securities income, net primarily consists of interest earned on invested cash and marketable
securities balances and income and losses on mutual funds that are associated with our employee non-qualified deferred
compensation plan. The decrease to interest and marketable securities income, net for 2022 as compared to 2021 was due to
increased losses associated with the non-qualified deferred compensation plan and lower interest earned on invested cash
balances and marketable securities as a result of lower marketable securities balances in 2022 due to the funding of our recent
acquisitions. The decrease to interest and marketable securities, net for 2021 as compared to 2020 was primarily the result of
investing in marketable securities having lower rates of return due to lower interest rates.
Interest expense is related to our debt transactions, which are described in Note 11 to the consolidated financial statements
included elsewhere in this annual report on Form 10-K. The decrease to interest expense for 2022 as compared to 2021 was the
result of the adoption of the new guidance for accounting for convertible senior notes on January 1, 2022, which resulted in the
elimination of the amortization of debt discounts.
company transactions and other non-operating expense and income items as well as gains and losses on
Other (expense) income, net primarily represents net foreign exchange gains and losses mainly due to foreign exchange
ff
rate fluctuations on inter
equity investments. Other (expense) income, net for the year ended December 31, 2022 includes an $8.9 million impairment
frff om an equity investment, partially offset by a favorable impact of changes in foreign currency exchange rates. Other
(expense) income, net for the years ended December 31, 2021 and 2020 also includes gains from the sale of equity investments
of $3.7 million and $7.2 million, respectively. Other income (expense), net may fluctuate in the futur
forff eign currency exchange rates or other events.
e based on changes in
ff
34
TT
Provision for Income T
II
axes
(i(( n thousands)s
Provision f
ff
or income taxes
As a percentage of revenue
Effective income tax rate
$
For the Years Ended December 31,
2022
2021
126,696
3.5 %
19.3 %
62,571
1.8 %
8.6 %
$
% Change
102.5 % $
For the Years Ended December 31,
2020
2021
% Change
$
62,571
1.8 %
8.6 %
45,922
1.4 %
7.5 %
36.3 %
The increase in the provision for income taxes for 2022 as compared to 2021 was mainly due to an intercompany sale of
intellectual property, an increase in the tax on global intangible low-taxed income, a decrease in foreign income taxed at lower
rates and a decrease in the excess tax benefit related to stock-based compensation. These amounts were partially offset by a
decrease in profitability.
ff
The increase in the provision for income taxes for 2021 as compared to 2020 was mainly due to an increase in profitability
and a decrease in the excess tax benefit related to stock-based compensation. These amounts were partially offset by an increase
in foreign income taxed at lower rates, a decrease in state taxes, a decrease in the revaluation of certain foreign income tax
liabilities due to foreign exchange rate fluctuations and the release of certain tax reserves related to the expiration of local
statutes of limitations.
For the year ended December 31, 2022, our effective income tax rate was lower than the federal s
tatutory tax rate due to
forff eign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits. These
amounts were partially offset by non-deductible stock-based compensation, tax on global intangible low-taxed income and an
intercompany sale of intellectual property.
ff
For the year ended December 31, 2021, our effective income tax rate was lower than the federal statutory tax rate due to
forff eign income taxed at lower rates, the excess tax benefit related to stock-based compensation and the benefit of U.S. federal,
state and foreign research and development credits. These amounts were partially offset by non-deductible stock-based
compensation and state taxes.
For the year ended December 31, 2020, our effective income tax rate was lower than the federal statutory tax rate due to
forff eign income taxed at lower rates, the impact of the excess tax benefit related to stock-based compensation and the benefit of
al, state and foreign research and development credits. These amounts were partially offset by non-deductible stock-
ff
U.S. feder
based compensation, state taxes and the valuation allowance recorded against tax credits and foreign net operating loss
carryfrr orff wards.
Our effective income tax rate may fluctuate between fiscal years and from quarter to quarter due to items arising from
rff om the settlement of employee equity awards, tax law changes and settlements of tax
discrete events, such as tax benefits f
audits and assessments. Our effective income tax rate is also impacted by, and may fluctuate in any given period because of, the
ff
composition of income in foreign jurisdictions where tax rates differ depending on the local statutory rates.
ff
Refer to Note 19 to the consolidated financial statements included elsewhere in this annual report on Form 10-K for
additional information regarding unrecognized tax benefits that, if recognized, would impact the effective income tax rate in the
next 12 months.
Loss from Equity Method Investment
(i(( n thousands)s
Loss frff om equity method
investment
As a percentage of revenue
For the Years Ended December 31,
2021
2022
% Change
For the Years Ended December 31,
2020
2021
% Change
$
$
7,635
0.2 %
14,008
0.4 %
(45.5)% $
$
14,008
0.4 %
13,106
0.4 %
6.9 %
Loss frff om equity method investment includes our share of losses from our investment with MUFG in the joint venture GO-
NET, in addition to impairment charges realized. Since MUFG made the decision to suspend operations and ultimately liquidate
GO-NET during 2022, our final impairment charge, which reduced our investment value to zero, was recognized during 2022.
ff
35
Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted accounting principles in the United States of
America ("GAAP") we provide additional financial metrics that are not prepared in accordance with GAAP ("non-GAAP
financial measures
"). Management uses non-GAAP financial measures to understand and compare operating results across
ff
accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive
compensation and to evaluate our financial performance. These non-GAAP financial measures are non-GAAP income from
operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per diluted share, Adjusted EBITDA,
Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, as discussed below.
ff
ff
Management believes that these non-GAAP financial measures reflect our ongoing business in a manner that allows for
meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting
periods and to those of peer companies. Management also believes that these non-GAAP financial measures enable investors to
evaluate our operating results and future prospects in the same manner as management. These non-GAAP financial measures
may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of our ongoing operating results.
ff
The non-GAAP financial measures do not r
ff
eplace the presentation of our GAAP financial measures and should only be
used as a supplement to, not as a substitute for, our financial results presented in accordance with GAAP.
The non-GAAP adjustments, and our basis for excluding them from non-GAAP financial measures, are outlined below:
ff
•
•
•
•
ff
Amortization of acquired intangible assets – We have incurred amortization of intangible assets, included in our
GAAP financial statements, related to various acquis
itions we have made. The amount of an acquisition's purchase
price allocated to intangible assets and term of its related amortization can vary significantly and is unique to each
acquisition; therefore, we exclude amortization of acquired intangible assets from our non-GAAP financial measures
to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.
Stock-based compensation and amortization of capitalized stock-based compensation – Although stock-based
compensation is an important aspect of the compensation paid to our employees, the grant date fair value varies based
on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of
award types. This makes the comparison of our current financial results to previous and future periods difficult to
interprr et; therefore, we believe it is useful to exclude stock-based compensation and amortization of capitalized stock-
based compensation from our non-GAAP financial measures in order to highlight the performance of our core business
and to be consistent with the way many investors evaluate our performance and compare our operating results to peer
companies.
ff
ff
ff
Acquisition-related costs – Acquisition-related costs include transaction fees, advisory fees, due diligence costs and
other direct costs associated with strategic activities, as well as certain additional compensation costs payable to
employees acquired from the Linode acquisition if employed for a certain period of time. The additional compensation
cost was initiated by and determined by the seller, and is in addition to normal levels of compensation, including
retention programs, offered by Akamai. Acquisition-related costs are impacted by the timing and size of the
acquisitions. We exclude acquisition-related costs from our non-GAAP financial measures to provide a useful
comparison of our operating results to prior periods and to our peer companies because such amounts vary
eflect our core operations.
significantly based on the magnitude of our acquisition transactions and do not r
ff
Restructuring charge – We have incurred restructuring charges from programs that have significantly changed either
the scope of the business undertaken by us or the manner in which that business is conducted. These charges include
severance and related expenses for workforce reductions, impairments of long-lived assets that will no longer be used
in operations (including right-of-use assets, other facility-related property and equipment and internal-use software)
ff
and termination fees f
GAAP financial measures when evaluating our continuing business perf
ff
ormance as such items var
on the magnitude of the restructuring action and do not reflect expected future operating expenses. I
ff
charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of our
business.
acts cancelled as part of these programs. We exclude these items from our non-
y significantly based
n addition, these
or any contr
ff
ff
36
•
AAP, thereby reducing the carrying values of the convertible debt instruments. The debt
Amortization of debt discount and issuance costs and amortization of capitalized interest expense – In August
2019, we issued $1,150 million of convertible senior notes due 2027 with a coupon interest rate of 0.375%. In May
2018, we issued $1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. The
imputed interest rates of these convertible senior notes were 3.10% and 4.26%, respectively. This is a result of the debt
discounts recorded for the conversion features that, prior to January 1, 2022, were required to be separately accounted
for as equity under G
ff
discounts were amortized as interest expense. On January 1, 2022, we adopted the new guidance for accounting for
convertible instruments
amortization of the debt discount that was recorded as interest expense. Prior to January 1, 2022, we excluded this non-
cash interest expense from our non-GAAP results because it was not representative of ongoing operating performance.
After J
ff
Additionally, the issuance costs of the convertible senior notes are amortized to interest expense and are also excluded
frff om our non-GAAP results because we believe the non-cash amortization expense is not representative of ongoing
operating performance.
anuary 1, 2022, this interest expense is no longer included in or excluded from GAAP or non-GAAP results.
. This new guidance eliminated separate accounting for the equity portion, and thus the
r
rr
• Gains and losses on investments – We have recorded gains and losses from the disposition, changes to fair value and
impairment of certain investments. We believe excluding these amounts from our non-GAAP financial measures is
useful to investors as the types o
business operations and ongoing operating performance.
f events giving rise to these gains and losses are not representative of our core
ff
•
•
•
•
Legal settlements – We have incurred losses related to the settlement of legal matters. We believe excluding these
amounts frff om our non-GAAP financial measures is useful to investors as the types of events giving rise to them are
not representative of our core business operations.
ff
ff
ate foundation dedicated to encouraging the next generation of technology innovators by s
Endowment of Akamai Foundation – We have incurred expenses to endow the Akamai Foundation, a private
corpor
rr
science education. Our firff st endowment was in 2018 to enable a permanent endowment for the Akamai Foundation to
allow it to expand its reach. In the four
initiatives to increase diversity in the technology industry. We believe excluding these amounts from non-GAAP
financial meas
ures is useful to investors as these infrequent expenses are not representative of our core business
ff
operations.
th quarter of 2020 we supplemented the endowment to enable specific
upporting math and
ff
ff
Income and losses from equity method investment – We record income or losses on our share of earnings and losses
frff om our equity method investment. We exclude such income and losses because we do not have direct control over
the operations of the investment and the related income and losses are not representative of our core business
operations.
Income tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP adjustments
described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference
between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-
tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such
as recording or releasing of valuation allowances), if any. We believe that applying the non-GAAP adjustments and
their related income tax effect allows us to highlight income attributable to our core operations.
37
ff
The follow
ing table reconciles GAAP income from operations to non-GAAP income from operations and non-GAAP
operating margin for the years ended December 31, 2022, 2021 and 2020 (in thousands):
Income from operations
Amortization of acquired intangible assets
Stock-based compensation
Amortization of capitalized stock-based compensation and capitalized interest
expense
rr
Restructuring charge
Acquisition-related costs
Legal settlements
Endowment of Akamai Foundation
Non-GAAP income from operations
GAAP operating margin
Non-GAAP operating margin
2022
2021
2020
$
676,274
$
783,148
$
658,534
64,983
217,185
48,019
202,759
42,049
197,411
31,768
13,529
29,049
—
—
35,894
10,737
13,317
—
—
33,202
37,286
5,579
275
20,000
$ 1,032,788
$ 1,093,874
$
994,336
19 %
29 %
23 %
32 %
21 %
31 %
ff
The follow
ing table reconciles GAAP net income to non-GAAP net income for the years ended December 31, 2022, 2021
and 2020 (in thousands):
Net income
Amortization of acquired intangible assets
Stock-based compensation
Amortization of capitalized stock-based compensation and capitalized interest
expense
rr
Restructuring charge
Acquisition-related costs
Legal settlements
Endowment of Akamai Foundation
Amortization of debt discount and issuance costs
Loss (gain) on investments
Loss frff om equity method investment
Income tax effect of above non-GAAP adjustments and certain discrete tax
items
Non-GAAP net income
$
2022
523,672
64,983
217,185
$
2021
651,642
48,019
202,759
$
2020
557,054
42,049
197,411
31,768
13,529
29,049
—
—
4,395
8,260
7,635
35,894
10,737
13,317
—
—
66,025
(3,680)
14,008
33,202
37,286
5,579
275
20,000
62,823
(7,228)
13,106
(42,768)
857,708
$
(96,164)
942,557
$
(103,280)
858,277
$
38
ff
The follow
ing table reconciles GAAP net income per diluted share to non-GAAP net income per diluted share for the years
ended December 31, 2022, 2021 and 2020 (in thousands, except per share data):
GAAP net income per diluted share
Adjustments to net income:
Amortization of acquired intangible assets
Stock-based compensation
Amortization of capitalized stock-based compensation and capitalized
interest expense
rr
Restructur
ing charge
Acquisition-related costs
Legal settlements
Endowment of Akamai Foundation
Amortization of debt discount and issuance costs
Loss (gain) on investments
Loss from equity method investment
2022
2021
2020
$
3.26
$
3.93
$
3.37
0.40
1.35
0.20
0.08
0.18
—
—
0.03
0.05
0.05
0.29
1.22
0.22
0.06
0.08
—
—
0.40
(0.02)
0.08
(0.58)
0.06
5.74
$
0.25
1.19
0.20
0.23
0.03
—
0.12
0.38
(0.04)
0.08
(0.63)
0.04
5.22
Income tax effect of above non-GAAP adjustments and certain discrete tax
items
Adjustment for shares (1)
Non-GAAP net income per diluted share (2)
(0.27)
0.02
5.37
$
$
Shares used in GAAP per diluted share calculations
Impact of benefit from note hedge transactions (1)
Shares used in non-GAAP per diluted share calculations (1)
160,467
(720)
159,747
165,804
(1,600)
164,204
165,213
(873)
164,340
(1) Shares used in non-GAAP per diluted share calculations have been adjusted for the periods presented for the benefit of our note hedge transactions. During
the periods presented, our average stock price was in excess of $95.10, which is the initial conversion price of our convertible senior notes due in 2025. See
furff
ther discussion below.
(2) May not foot due to rounding.
ff
Non-GAAP net income per diluted share is calculated as non-GAAP net income divided by diluted weighted average
common shares outstanding. GAAP diluted weighted average common shares outstanding are adjusted in non-GAAP per share
calculations for the s
hares that would be delivered to us pursuant to the note hedge transactions entered into in connection with
the issuance of our convertible senior notes. Under GAAP, shares delivered under hedge transactions are not considered
offff sff etting shares in the fully-diluted share calculation until they are delivered. However, we would receive a benefit from the
note hedge transactions and would not allow the dilution to occur, so management believes that adjusting for this benefit
provides a meaningful view of n
conversion price of the convertible senior notes due 2025, or $116.18, the initial conversion price of the convertible senior notes
due 2027, there will be no difference between our GAAP and non-GAAP diluted weighted average common shares
outstanding.
et income per share. Unless our weighted average stock price is greater than $95.10, the initial
ff
We consider Adjusted EBITDA to be another important indicator of the operational strength and performance of our
business and a good measure of our historical operating trends. Adjusted EBITDA eliminates items that we do not consider to
ff
be part of our core operations. We define Adjusted EBITDA as GAAP net income excluding the f
ollowing items: interest and
marketable securities income and losses; income taxes; depreciation and amortization of tangible and intangible assets; stock-
based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges;
gains and losses on legal settlements; costs incurred related to endowment contributions to the Akamai Foundation; foreign
exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on
investments; income and losses from equity method investments; and other non-recurring or unusual items that may arise from
time to time. Adjusted EBITDA margin represents Adjusted EBITDA stated as a percentage of revenue.
ff
ff
39
ff
The follow
ing table reconciles GAAP net income to Adjusted EBITDA and Adjusted EBITDA margin for the years ended
December 31, 2022, 2021 and 2020 (in thousands):
Net income
Amortization of acquired intangible assets
Stock-based compensation
Amortization of capitalized stock-based compensation and capitalized interest
expense
rr
Restructuring charge
Acquisition-related costs
Legal settlements
Interest and marketable securities income, net
Endowment of Akamai Foundation
Interest expense
Provision for income taxes
ff
Depreciation and amortization
Loss (gain) on investments
Loss frff om equity method investment
Other expense, net
Adjusted EBITDA
Net income margin
Adjusted EBITDA margin
m
ImII pact of Foreign Currency Exchange Rates
$
523,672
$
651,642
$
557,054
64,983
217,185
31,768
13,529
29,049
—
48,019
202,759
35,894
10,737
13,317
—
42,049
197,411
33,202
37,286
5,579
275
(3,258)
(15,620)
(29,122)
—
11,096
126,696
496,909
8,260
7,635
2,173
—
72,332
62,571
467,048
(3,680)
14,008
1,895
20,000
69,120
45,922
403,160
(7,228)
13,106
9,682
$
1,529,697
$ 1,560,922
$ 1,397,496
14 %
42 %
19 %
45 %
17 %
44 %
Revenue and earnings from our international operations have historically been an important contributor to our financial
results. Consequently, our financial results have been impacted, and management expects they will continue to be impacted, by
fluctuations in foreign currency exchange rates. For example, when the local currencies of our for
ff
generally our consolidated results stated in U.S. dollars are negatively impacted.
eign subsidiaries weaken,
ff
Because exchange rates are a meaningful f
ff
actor in understanding period-to-period comparisons, management believes the
presentation of the impact of foreign currency exchange rates on revenue and earnings enhances the understanding of our
financial results and evaluation of performance in comparison to prior periods. The dollar impact of changes in for
ff
exchange rates presented is calculated by translating current period results using monthly average foreign currency exchange
rates frff om the comparative period and comparing them to the reported amount. The percentage change at constant currency
presented is calculated by comparing the prior period amounts as reported and the current period amounts translated using the
same monthly average foreign currency exchange rates from the comparative period.
eign currency
Liquidity and Capital Resources
h
To date, we have financed our operations primarily through public and private sales of debt and equity securities and cas
ff
generated by operations. As of December 31, 2022, our cash, cash equivalents and marketable securities, which primarily
consisted of time deposits, corporate bonds and U.S. government agency obligations, totaled $1.4 billion. We place our cash
investments in instruments that meet high-quality credit standards, as specified in our investment policy. Our investment policy
also limits the amount of our credit exposure to any one issue or issuer and seeks to manage these assets to achieve our goals of
preserving principal and maintaining adequate liquidity at all times.
Changes in cash, cash equivalents and marketable securities are dependent upon changes in, among other things, working
capital items such as accounts receivable, deferred revenue, accounts payable and various accrued expenses, as well as changes
in our capital and financial structure due to common stock repurchases, debt repayments and issuances, acquisitions, purchases
and sales of marketable securities, cash paid for acquisitions and similar events. We believe that our strong balance sheet and
ff
40
cash position are important competitive diffff erentiators that provide the financial stability and flexibility to enable us to continue
to make investments at opportune times. We expect to continue to evaluate strategic investments to strengthen our business.
ff
As of December 31, 2022, we had cash and cash equivalents of $249.5 million held in accounts outside the U.S. The U.S.
Tax Cuts and Jobs Act establishes a territorial tax system in the U.S., which provides companies with the potential ability to
repatriate earnings with minimal U.S. federal income tax impact. As a result, our liquidity is not expected to be materially
impacted by the amount of cash and cash equivalents held in accounts outside the U.S.
ff
The follow
ff
ff
expect to fund pr
imarily with operating cash flows (in thousands):
ing table summarizes current and long-term material cash requirements as of December 31, 2022, which we
Operating lease obligations: (1)
Real estate arrangements
Co-location arrangements
Bandwidth agreements
Open vendor purchase orders
Convertible senior notes
Total contractual obligations
Payments Due by Period
12 to 36
Months
Less than
12 Months
36 to 60
Months
More than
60 Months
Total
$
$
715,112
310,605
118,066
434,996
2,300,000
3,878,779
$
$
78,714
119,527
82,949
378,816
—
660,006
$
$
151,323
113,277
34,006
53,207
1,150,000
1,501,813
$
$
126,737
59,217
1,111
2,973
1,150,000
1,340,038
$
$
358,338
18,584
—
—
—
376,922
(1) Excludes $141.7 million of obligations for operating leases that have not yet commenced. See Note 12 to our consolidated financial statements included
elsewhere in this annual report on Form 10-K for additional information.
In accordance with the authoritative guidance for accounting for uncertainty in income taxes, as of December 31, 2022, we
had unrecognized tax benefits of $38.3 million, including $8.6 million of accrued interest and penalties. We believe that it is
reasonably possible that $3.6 million of our unrecognized tax benefits will be recognized by the end of 2023. The settlement
period for the remaining amount of the unr
ecognized tax benefits is unknown.
ff
ff
Cash Provided by Operating Activities
(i(( n thousands)s
Net income
Non-cash reconciling items included in net income
Changes in operating assets and liabilities
Net cash flows provided by operating activities
$
$
For the Years Ended December 31,
2021
651,642
793,445
(40,524)
1,404,563
2022
523,672
756,321
(5,317)
1,274,676
2020
557,054
727,829
(69,883)
1,215,000
$
$
$
$
The decrease in cash provided by operating activities for 2022 as compared to 2021 was primarily due to income taxes paid
on an intercompany sale of intellectual property, lower profitability and timing of vendor payments.
The increase in cash provided by operating activities for 2021 as compared to 2020 was primarily due to increased
profitability in 2021 and timing of payments from customers.
ff
41
Cash UsUU ed in Investing Activities
ition
ed businesses, net of cash acquired
(i(( n thousands)s
Cash paid for acquir
ff
Cash paid for asset acquis
ff
Purchases of property and equipment and capitalization of internal-use
softwff
are development costs
Net marketable securities activity
Other, net
Net cash used in investing activities
$
$
For the Years Ended December 31,
2021
(598,825) $
2022
(872,091) $
—
—
2020
(127,999)
(36,376)
(458,302)
714,205
(6,122)
(622,310) $
(545,230)
501,478
(4,322)
(731,872)
(154,848)
8,121
(646,899) $ (1,042,974)
The decrease in cash used in investing activities in 2022 as compared to 2021 was due to a decrease in purchases of
marketable securities, as we did not reinvest our matured securities in order to fund our acquisition of Linode, and a decrease in
purchases of property and equipment as we reduced spending related to our delivery solutions as we focused on higher growth
initiatives, partially offff sff et by cash paid for the acquisition of Linode in March 2022.
The decrease in cash used in investing activities in 2021 as compared to 2020 was primarily driven by a decrease in
purchases of marketable securities, as we did not reinvest our matured securities in order to fund our acquisition of Guardicore
in October 2021. The decrease was also attributable to a reduction of purchases of property and equipment as we slowed
expansion of our network, as compared to 2020. These decreases were partially offset by an increase in cash paid for acquired
businesses in 2021, due to the size of the acquisition completed in 2021 as compared to 2020.
ff
Cash UsUU ed in Financing Activities
(i(( n thousands)s
Activity related to stock-based compensation
Repurchases of common stock
Other, net
Net cash used in financing activities
For the Years Ended December 31,
2021
2022
2020
$
$
(25,774) $
(608,010)
(393)
(634,177) $
(39,480) $
(522,255)
(268)
(562,003) $
(30,053)
(193,588)
—
(223,641)
The increase in cash used in financing activities in 2022 as compared to 2021, and 2021 as compared to 2020, was
primarily the result of increased share repurchases. Effective No
share repurchase program through December 31, 2021. In October 2021, our board of directors authorized a new $1.8 billion
share repurchase program, effective January 1, 2022 through December 31, 2024. Our goals for the share repurchase programs
are to offff sff et the dilution created by our employee equity compensation programs over time and provide the flexibility to return
capital to shareholders as business and market conditions warrant, while still preserving our ability to pursue other strategic
opportunities.
vember 1, 2018, our board of directors authorized a $1.1 billion
ff
During 2022, 2021 and 2020, we repurchased 6.4 million, 4.7 million and 2.0 million shares of our common stock,
respectively, at an average price per share of $94.96, $109.97 and $98.53, respectively.
Convertible Senior Notes
In August 2019, we issued $1,150.0 million in par value of convertible senior notes due 2027 and entered into related
convertible note hedge and warrant transactions. We have used and expect to continue to use the net proceeds of the offering for
share repurchases, working capital and general corporate purposes, including potential acquisitions and other strategic
transactions.
In May 2018, we issued $1,150.0 million in par value of convertible senior notes due 2025 and entered into related
convertible note hedge and warrant transactions. We used a portion of the net proceeds to repay at maturity all of our $690.0
million outstanding aggregate principle amount of convertible senior notes due in 2019. In addition, we have used and expect to
continue to use the remaining net proceeds of the offering for share repurchases, working capital and general corporate
rr
purpos
es, including potential acquisitions and other strategic transactions.
42
The terms of the notes and the hedge and warrant transactions are discussed more fully in Note 11 to the consolidated
ff
financial statements included elsew
here in this annual report on Form 10-K.
Revolving Credit Facility
In May 2018, we entered into a $500.0 million, five-year revolving credit agreement ("2018 Credit Agreement").
Borrowings under the 2018 Credit Agreement bore interest, at our option, at a base rate plus a spread of 0.00% to 0.25% or an
adjusted LIBOR rate plus a spread of 0.875% to 1.25%, in each case with such spread being determined based on our
consolidated leverage ratio specified in the 2018 Credit Agreement. Regar
dless of what amounts, if any, were outstanding under
the 2018 Credit Agreement, we were also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.075%
to 0.15%, with such rate being based on our consolidated leverage ratio specified in the 2018 Credit Agr
eement.
ff
ff
In November 2022, we entered into a $500.0 million, five-year revolving credit agreement ("2022 Credit Agreement"). The
2022 Credit Agreement replaces the 2018 Credit Agreement. Borrowings under the 2022 Credit Agreement may be used to
orking capital needs and for general corporate purposes. The 2022 Credit Agreement provides for an initial $500.0
ff
finance w
million revolving loans. Under specified circumstances, the facility can be increased to up to $1.0 billion in aggregate principal
amount.
Borrowings under the 2022 Credit Agreement bear interest, at our option, and subject to a credit spread adjustment, at a
term benchmark rate plus a spread of 0.75% to 1.125%, a reference rate plus a spread of 0.75% to 1.125%, or a base rate plus a
spread of 0.00% to 0.125%, in each case with such spread being determined based on our consolidated leverage ratio specified
in the 2022 Credit Agreement. Regardless of what amounts, if any, are outstanding under the 2022 Credit Agreement, we are
also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.07% to 0.125%, with such rate being based
on our consolidated leverage ratio specified in the 2022 Credit Agreement.
The 2022 Credit Agreement contains customary representations and warranties, affirmative and negative covenants and
events of default. The negative covenants include restrictions on subsidiary indebtedness, liens and fundamental changes. These
covenants are subject to a number of important exceptions and qualifications. The principal financial covenant requires a
maximum consolidated leverage ratio. The 2022 Credit Facility expires, and any amounts outstanding thereunder will become
due and payable, in November 2027, subject to up to two one-year extensions at our request and with the consent of the lenders
party thereto. There were no outstanding borrowings under the 2022 Credit Agreement as of December 31, 2022.
Liquidity Outlook
Based on our present business plan, we expect our current cash, cash equivalents and marketable securities balances and
our forff ecasted cash flows from operations to be sufficient to meet our foreseeable cash needs for at least the next 12 months.
Our forff eseeable cash needs, in addition to our recurring operating costs, include our expected capital expenditures, investments
in inforff mation technology, potential strategic acquisitions, anticipated share repurchases, lease and purchase commitments and
settlements of other liabilities.
Offff -ff Balance Sheet Arrangements
We have entered into indemnification agreements with third parties, including vendors, customers, landlords, our officers
and directors, shareholders of acquired companies, joint venture partners and third parties to which we license technology.
Generally, these indemnification agreements require us to reimburse losses suffered by a third party due to various events, such
as lawsuits arising frff om patent or copyright infringement or our negligence. These indemnification obligations are considered
offff -ff balance sheet arrangements in accordance with the authoritative guidance for guarantor’s accounting and disclosure
requirements for guarantees, including indirect guarantees of indebtedness of others. See Note 13 to our consolidated financial
statements included elsewhere in this annual report on Form 10-K for further discussion of these indemnification agreements.
The fair value of guarantees issued or modified during 2022 and 2021 was determined to be immaterial.
ff
Significant Accounting Policies and Estimates
See Note 2 to the consolidated financial statements included elsewhere in this annual report on Form 10-K for information
ff
regarding recent and newly adopted accounting pronouncements.
43
Application of Critical Accounting Policies and Estimates
Overview
ff
Our MD&A is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, cash flow and related disclos
ure of contingent assets and liabilities. Our estimates include those related to revenue
recognition, accounts receivable and related reserves, valuation and impairment of marketable securities, capitalized internal-
use softwff
are development costs, goodwill and acquired intangible assets, income tax reserves, impairment and useful lives of
long-lived assets and stock-based compensation. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances at the time such estimates are made. Actual results may
ff
diffff er f
ff
financial statements included elsew
rff om these estimates. For a complete description of our significant accounting policies, see Note 2 to our consolidated
here in this annual report on Form 10-K.
Definff
itions
We define our critical accounting policies as thos
ff
e policies that require us to make subjective estimates and judgments
about matters that are uncertain and are likely to have a material impact on our consolidated financial statements. Our estimates
are based upon assumptions and judgments about matters that are highly uncertain at the time an accounting estimate is made
and applied and require us to assess a range of potential outcomes.
Review of Critical Accounting Policies and Estimates
Revenue Recognition
Our contracts with customers sometimes include promises to transfer multiple services to a customer. Determining whether
services are distinct perforff mance obligations often requires the exercise of judgment by management. Advanced features that
enhance a main product or service and are highly interrelated are generally not considered distinct; rather, they are combined
with the service they relate to into one performance obligation. Different determinations related to combining services into
perforff mance obligations could result in diffff erences in the timing and amount of revenue recognized in a period.
ff
Determination of the standalone selling price ("SSP") also requires the exercise of judgment by management. SSP is based
on observable inputs such as the price we charge for the service when sold separately, or the discounted list price per
management’s approved price list. In cases where services are not sold separately or price list rates are not available, a cost-
plus-margin approach or adjusted market approach is used to determine SSP. Changes to SSP could result in differences in the
allocation of transaction price among performance obligations, which could result in differences in the timing and amount of
revenue recognized in a period.
From time to time, we enter into contracts to sell services or license technology to unrelated enterprises at or about the
same time that we enter into contracts to purchase products or services from the same enterprises. Consideration payable to a
customer is reviewed as part of the transaction price. If the payment to the customer does not represent payment for a distinct
service, revenue is recognized only up to the net amount of consideration after customer payment obligations are considered.
Diffff erff ent determinations on whether a payment represents a distinct service could result in differences in the amount of revenue
recognized.
We may also resell the licenses or services of third parties. If we are acting as an agent in an arrangement with a customer
to provide third party services, the transaction price reflects only the net amount to which we will be entitled, after accounting
for payments made to the third party responsible f
ff
ff
we are acting as an agent or a principal could change the amount of revenue recognized.
or satisfying the performance obligation. Different determinations on whether
Accounts Receivable and Related Reserves
Trade accounts receivable are recorded at the invoiced amounts and do not bear interest. In addition to trade accounts
receivable, our accounts receivable balance includes unbilled accounts that represent revenue recorded for customers that is
typically billed within one month. We record allowances against our accounts receivable balance, primarily for current expected
credit losses. Increases and decreases in the allowance for current expected credit losses are included as a component of general
and administrative expense in the consolidated statements of income.
44
Estimates are used in determining our allowance for current expected credit losses using historical loss rates for the
previous twelve months as well as expectations about the future where we have been able to develop forecasts to supports our
estimates. In addition, the allowance for current expected credit losses considers outstanding balances on a customer-s
pecific,
account-by-account basis. We assess collectability based upon a review of customer receivables from prior sales with collection
issues where we no longer believe that the customer has the ability to pay for services previously provided. We also perform
ongoing credit evaluations of our customers. If such an evaluation indicates that payment is no longer reasonably assured forff
services provided, any future services provided to that customer will result in the creation of a cash basis reserve until we
receive consistent payments.
ff
ff
Valuation and Impairment of Marketable Secur
II
ities
We measure the fair value of our financial assets and liabilities at the end of each reporting period. F
ff
air 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.
We have certain financial assets and liabilities recorded at fair value (principally cash equivalents and short- and long-term
marketable securities) that have been classified as Level 1, 2 or 3 within the fair value hierarchy. Fair values determined by
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we can access at the
reporting date. Fair values determined by Level 2 inputs utilize data points other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly. Fair values determined by Level 3 inputs are based on
unobservable data points for the asset or liability.
ff
Marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-
rr
ector perforff mance and operational and financing cash flow factors; overall market conditions and trends; and our
than-temporary. We periodically evaluate whether a decline in fair value below cost basis is other-than-
considering available evidence regarding these investments including, among other factors, the duration of the period that, and
extent to which, the fair value is less than cost basis; the financial health of, and business outlook for, the issuer, including
industry and s
rr
intent and ability to retain our investment in the security for a period of time sufficient to allow for an anticipated recovery in
market value. Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded and a new cost
basis in the security is established. Assessing the above factors involves inherent uncertainty. Write-downs, if recorded, could
be materially different from the actual market performance of marketable securities in our portfolio if, among other things,
relevant inforff mation related to our investments and marketable securities was not publicly available or other factors not
considered by us would have been relevant to the determination of impairment.
temporary by
ImII pairm
ment and UsUU eful Lives of Long-Lived Assets
ff
We review our long-lived assets, such as property and equipment, operating lease right-of-use assets and acquired
intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. Events that would trigger an impairment review include a change in the use of the asset or forecasted
negative cash flows related to the asset. When such events occur, we compare the carrying amount of the asset to the
undiscounted expected future cash flows related to the asset. If this comparison indicates that impairment is present, the amount
of the impairment is calculated as the diffff erence between the car
determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the asset.
The estimates required to apply this accounting policy include forecasted usage of the long-lived assets, the useful lives of these
assets and expected future cash flows. Changes in these estimates could materially impact results from operations.
rying amount and the fair value of the asset. If a readily
ff
Goodwill and Acquired Intangible Assets
We test goodwill for impairment on an annual basis, as of December 31, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. We have concluded that we have one reporting unit and that our chief
operating decision maker is our chief executive officer and the executive management team. We have assigned the entire
balance of goodwill to our one reporting unit. The fair value of the reporting unit was based on our market capitalization as of
each of December 31, 2022 and 2021, and it was substantially in excess of the carrying value of the reporting unit at each date.
Acquired intangible assets consist of completed technologies, customer relationships, trademarks and trade names, non-
compete agreements and acquired license rights. We engage third party valuation specialists to assist us with the initial
measurement of the fair value of acquired intangible assets. Fair value and useful life determinations may be based on, among
other factor
ff
present values. Acquired intangible assets, other than goodwill, are amortized over their estimated useful lives based upon the
estimated economic value derived from the related intangible assets.
s, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in calculating
45
IncomII
e Taxes
TT
Our provision for income taxes is comprised of a current and a deferred portion. The current income tax provision is
calculated as the estimated taxes payable or refundable on tax returns for the current year. The deferred income tax provision is
calculated for the estimated future tax effff ects attributable to temporary diff
ff
rates in effect in the years during which the diffff erences are expected to reverse or the carryforwards are expected to be realized.
orwards by using expected tax
ff
erences and carryf
ff
ff
We currently have net deferred tax assets, comprised of net operating loss, or NOL, carryforwards, tax cr
ff
edit carryforwards
rr
and deductible temporary differences. Our management periodically weighs the positive and negative evidence to determine if
it is more-likely-than-not that some or all of the deferred tax assets will be realized. In determining our net deferred tax assets
and valuation allowances, annualized effff ective tax rates and cash paid for income taxes, management is required to make
judgments and estimates about domestic and forff eign profitability, the timing and extent of the utilization of NOL
carryfrr orff wards, applicable tax rates, transfer pricing methodologies and tax planning s
to our projections and assumptions are inherently uncertain; therefore, actual results could differ materially from our
projections.
trategies. Judgments and estimates related
ff
ff
We have recorded certain tax reserves to address potential exposures involving our income tax positions. These potential
tax liabilities result from the varying application of statutes, rules, regulations and interpretations by different taxing
jurisdictions. Our estimate of the value of our tax reserves contains assumptions based on past experiences and judgments about
the interprr etation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the ultimate tax liability
or benefit f
rff om these matters may be more or less than the amount that we estimated.
ff
Uncertainty in income taxes is recognized in our consolidated financial statements using a two-step process to determine
the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be
sustained upon external examination. If the tax position is deemed more-likely-than-not to be sustained based on technical
merit, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount
of the benefit that may be recognized is the largest amount that we believe has a greater than 50% likelihood of being r
ealized
ff
upon ultimate settlement.
Accounting for Stock-Based Compensation
We issue stock-based compensation awards including stock options, restricted stock, restricted stock units and deferred
ff
ant date and recognize such fair value as expense over the
stock units. We measure the fair value of these awards at the gr
vesting period. We have selected the Black-Scholes option pricing model to determine the fair value of stock option awards and
the Monte Carlo simulation model to determine the fair value of market-based restricted stock unit awards. Determining the fair
value of stock-based awards at the grant date requires judgment, including estimating the expected life of the stock awards and
the volatility of the underlying common stock. Our assumptions may differ from those used in prior periods. Changes to the
assumptions may have a significant impact on the fair value of stock-based awards, which could have a material impact on our
financial statements. Judgment is also required in estimating the number of stock-based awards that are expected to be forfeited.
Should our actual forfeiture rates differ significantly from our estimates
operations could be materially impacted. In addition, for awards that vest and become exercisable only upon achievement of
specified per
forff mance conditions, we make judgments and estimates each quarter about the probability that such performance
ff
conditions will be met or achieved. Changes to the estimates we make from time to time may have a significant impact on our
stock-based compensation expense and could materially impact our results of operations.
, our stock-based compensation expense and results of
ff
ff
Capitalized Internal-Use Software Costs
We capitalize salaries and related costs, including stock-based compensation, of employees and consultants who devote
are development projects, as well as interest expense related to our senior
time to the development of internal-use softwff
convertible notes. Capitalization begins during the application development stage, once the preliminary project stage has been
completed. If a project constitutes an enhancement to previously-developed software, we assess whether the enhancement
creates additional functionality to the softwff
available for general release, capitalization ceases and we estimate the useful life of the asset and begin amortization. We
periodically assess whether triggering events are present to review internal-use software for impairment. Changes in our
estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the
period.
are, thus qualifying the work incurred for capitalization. Once the project is
46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our portfolio of cash equivalents and short- and long-term investments is maintained in a variety of securities, including
ff
ff
forff
U.S. government agency obligations, commercial paper and high-quality corporate bonds. The majority of our investments are
classified as available-
-sale securities and carried at fair market value with cumulative unrealized gains or losses recorded as
a component of accumulated other comprehensive loss within stockholders' equity. A sharp rise in interest rates could have an
adverse impact on the fair market value of certain securities in our portfolio. We do not currently hedge our interest rate
exposure and do not enter into financial instruments for trading or speculative purposes. If market interest rates were to increase
by 100 basis points from December 31, 2022 levels, the fair value of our available-for-sale portfolio would decline by
approximately $7.0 million.
ff
In August 2019, we issued $1,150.0 million aggregate principal amount of 0.375% convertible senior notes due 2027. In
May 2018, we issued $1,150.0 million aggregate principal amount of 0.125% convertible senior notes due 2025. These notes
ociated with changes in
have a fixed annual interest rate, so they do not give rise to financial or economic interest exposure ass
interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair
value can be affected when the market price of our common stock fluctuates. We carry the notes at face value less an
unamortized discount on our consolidated balance sheet, and we present the fair value for required disclosure purposes only.
ff
Our exposure to risk for changes in interest rates relates primarily to any borrowings under our 2022 Credit Agreement,
which has a variable rate of interest. There were no outstanding borrowings under the 2022 Credit Agreement as of
December 31, 2022.
Foreign Currency Risk
Growth in our international operations will incrementally increase our exposure to foreign currency fluctuations as well as
other risks typical of international operations that could impact our business, including, but not limited to, differing economic
ff
estrictions. Due to the strengthening
conditions, changes in political climate, diffff ering tax structures and other regulations and r
U.S. dollar, our revenue results have been negatively impacted. The strengthening U.S. dollar has the opposite effect on
expenses that are denominated in foreign currencies, but only partially offsets the impact to our revenue. A hypothetical 10%
strengthening or weakening in the value of the U.S. dollar relative to the foreign currencies in which our revenues and expenses
are denominated would not result in a material impact to our consolidated financial statements.
ff
ff
Transaction Exposure
ff
Foreign exchange rate fluctuations may adversely impact our consolidated results of operations as exchange rate
fluctuations on transactions denominated in currencies other than functional currencies result in gains and losses that are
ff
reflected in our consolidated statements of income. We enter into short-term foreign currency f
et
ff
forff eign exchange gains and losses generated by the re-measurement of certain assets and liabilities recorded in non-functional
currencies. Changes in the fair value of these derivatives, as well as re-measurement gains and losses, are recognized in our
consolidated statements of income within other income (expense), net. Foreign currency transaction gains and losses from these
forff ward contracts were determined to be immaterial during the years ended December 31, 2022, 2021 and 2020. We do not
enter into derivative financial instruments for trading or speculative purposes.
orward contracts to offs
ff
ff
Translation Exposure
To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency-denominated
transactions will result in increased revenue and operating expenses. Conversely, our revenue and operating expenses will
decrease when the U.S. dollar strengthens against foreign currencies.
Foreign exchange rate fluctuations may also adversely impact our consolidated financial condition as the assets and
liabilities of our forff eign operations are translated into U.S. dollars in preparing our consolidated balance sheet. These gains or
losses are recorded as a component of accumulated other comprehensive loss within stockholders' equity.
47
Credit Risk
Concentrations of credit risk with respect to accounts receivable are limited to certain customers to which we make
substantial sales. Our customer base consists of a large number of geographically dispersed customers diversified across
numerous industries. We believe that our accounts receivable credit risk exposure is limited. As of December 31, 2022 and
2021, there was one customer with an accounts receivable balance greater than 10% of our accounts receivable. We believe that
at December 31, 2022, the concentration of credit risk related to accounts receivable was insignificant.
48
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Akamai Technologies, Inc.
OpinOO ions on the Financial Statements and Internal Control over Financial Reporting
SS
We have audited the accompanying consolidated balance sheets of Akamai Technologies, Inc. and its subsidiaries (the
“Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income,
of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the
related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal
control over financial reporting as of December 31, 2022, based on criteria established in
Frameworkrr (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Internal Control - Integrated
ff
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over
ecember 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013)
ff
financial reporting as of D
issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the
Company not designing and maintaining effff ective controls over the adoption of new accounting standar
taxes.
ds related to income
ff
ff
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis. The material weakness referred to above is described in Management's Annual Report on Internal
Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature,
timing, and extent of audit tests applied in our audit of the December 31, 2022 consolidated financial statements, and our
opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on
those consolidated financial statements.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for
convertible instruments in 2022.
Basis for Off
pinOO ions
ff
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its asses
in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial
statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
sment of the effectiveness of internal control over financial reporting, included
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
ff
whether due to error or fraud, and whether effff ective internal control over f
inancial reporting was maintained in all material
respects.
ff
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
ing the
control over financial reporting included obtaining an understanding of internal control over financial reporting, assess
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
ff
49
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definff
ition and Limitations of Internal Control over Financial Reporting
ff
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
ff
r
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
MM
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
ff
Valuation of Customer-Related Intangible Assets and Completed Technologies Intangible Assets - Acquisition of Linode
Limited Liability Company
m
As described in Notes 2 and 8 to the consolidated financial statements, in March 2022, the Company acquired Linode Limited
Liability Company (“Linode”) for $898.5 million in cash, which resulted in customer-related intangible assets of $84.2 million
and completed technologies intangible assets of $70.9 million being recorded. Management applied the multi-period excess
earnings method under the income approach to estimate the fair value of the customer-related intangible assets acquired and the
relief-from-royalty method to estimate the fair value of the completed technologies intangible assets acquired. Significant
judgment is used by management in estimating the fair values of acquired intangible assets, which involved significant
estimates and assumptions with respect to forecasted revenue growth rates, forecasted cost of sales, operating expenses,
contributory asset charges and the discount r
ate.
rr
The principal considerations for our determination that performing procedures relating to the valuation of customer-related
intangible assets and completed technologies intangible assets acquired in connection with the Linode acquisition is a critical
audit matter are (i) the significant judgment by management when determining the fair value of the customer-related intangible
assets and completed technologies intangible assets acquired; (ii) a high degree of auditor judgment, subjectivity, and effort in
perforff ming procedures and evaluating management’s significant assumptions related to forecasted revenue growth rates and the
discount rate for the completed technologies intangible assets and forecasted cost of sales, operating expenses, contributory
asset charges and the discount rate for the customer-related intangible assets; and (iii) the audit effort involved the use of
professionals with specialized skill and knowledge.
ff
ff
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
acquisition accounting, including controls over management’s valuation of the customer-related intangible assets and completed
technologies intangible assets and controls over the development of significant assumptions related to forecasted cost of sales,
operating expenses, contributory asset charges and the discount rate for the customer-related intangible assets and forecasted
revenue growth rates and the discount rate for the completed technologies intangible assets. These procedures also included,
among others, (i) reading the purchase agreement; (ii) testing management’s process for determining the fair value of the
customer-related intangible assets and completed technologies intangible assets; (iii) evaluating the appropriateness of the
multi-period excess earnings method under the income approach for the customer-related intangibles assets and the relief-from-
royalty method for the completed technologies intangible assets; (iv) testing the completeness and accuracy of the underlying
ff
50
ff
ff
data used in the methods; and (v) evaluating the reasonableness of the significant assumptions used by management related to
forff ecasted cost of sales, operating expenses, contributory asset charges and the discount rate for the customer-related intangible
assets and forecasted revenue growth rates and the discount rate for the completed technologies intangible assets. Evaluating
management’s significant assumptions related to forecasted cost of sales, operating expenses and contributor
the customer-related intangible assets and forecasted revenue growth rates for the completed technologies intangible assets
involved evaluating whether the significant assumptions used by management were reasonable considering (i) the current and
past performance of Linode; (ii) consistency with external market and industry data; and (iii) whether these significant
assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and
knowledge were used to assist in evaluating the appropriateness of the Company’s multi-period excess earnings method under
the income approach, relief-ff frff om-royalty method and the reasonableness of the discount rate assumptions.
y asset charges for
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
rr
Februar
r
y 28, 2023
We have served as the Company’s auditor since 1998.
51
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
e
(i(( n thousands, exee cept share data)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net of reserves of $5,917 and $1,397 at December 31, 2022 and
2021, respectively
Prepaid expenses and other current assets
Total current assets
Marketable securities
Property and equipment, net
Operating lease right-of-use assets
Acquired intangible assets, net
Goodwill
Deferred income tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Operating lease liabilities
Other current liabilities
Total current liabilities
Deferred revenue
Deferred income tax liabilities
Convertible senior notes
Operating lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ equity:
red stock, $0.01 par value; 5,000,000 shares authorized; 700,000 shares
Preferff
designated as Series A Junior Participating Preferred Stock; no shares issued or
outstanding
Common stock, $0.01 par value; 700,000,000 shares authorized; 156,494,816 and
160,512,111 shares issued and outstanding at December 31, 2022 and 2021,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
m
The accom
TT
panying notes ar
e an integral part of the consolidated financial statements.
52
December 31,
2022
December 31,
2021
$
542,337
562,979
$
536,725
541,470
679,206
185,040
1,969,562
320,531
1,540,182
813,372
441,716
2,763,838
337,677
116,522
8,303,400
145,420
367,017
105,109
196,094
5,228
818,868
22,117
18,400
2,285,258
693,265
105,305
3,943,213
$
$
675,926
166,313
1,920,434
1,088,048
1,534,329
815,754
313,225
2,156,254
168,342
142,287
8,138,673
109,928
411,590
86,517
175,683
6,623
790,341
25,342
40,974
1,976,167
707,087
68,748
3,608,659
—
—
1,565
2,578,603
(140,332)
1,920,351
4,360,187
8,303,400
$
1,605
3,340,822
(69,105)
1,256,692
4,530,014
8,138,673
$
$
$
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
e
r share data)
(i(( n thousands, exee cept pe
Revenue
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible
assets shown below)
Research and development
Sales and marketing
General and administrative
Amortization of acquired intangible assets
Restructuring charge
Total costs and operating expenses
Income frff om operations
Interest and marketable securities income, net
Interest expense
Other (expense) income, net
Income beforff e provision for income taxes
ff
Provision for income taxes
Loss frff om equity method investment
Net income
Net income per share:
Basic
Diluted
Shares used in per share calculations:
Basic
Diluted
$
$
$
$
For the Years Ended December 31,
2021
3,461,223
2022
3,616,654
$
$
2020
3,198,149
1,383,819
391,434
502,409
584,206
64,983
13,529
2,940,380
676,274
3,258
(11,096)
(10,433)
658,003
(126,696)
(7,635)
523,672
3.29
3.26
159,089
160,467
$
$
$
1,268,956
335,372
461,967
553,024
48,019
10,737
2,678,075
783,148
15,620
(72,332)
1,785
728,221
(62,571)
(14,008)
651,642
4.01
3.93
162,665
165,804
$
$
$
1,132,672
269,315
510,405
547,888
42,049
37,286
2,539,615
658,534
29,122
(69,120)
(2,454)
616,082
(45,922)
(13,106)
557,054
3.43
3.37
162,490
165,213
m
The accom
TT
panying notes ar
e an integral part of the consolidated financial statements.
53
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(i(( n thousands)s
Net income
Other comprehensive (loss) income:
Foreign currency translation adjustments
Change in unrealized (loss) gain on investments, net of income tax
benefit (
ff
ended December 31, 2022, 2021 and 2020, respectively
provision) of $6,589, $3,412 and $(2,720) for the years
Other comprehensive (loss) income
Comprehensive income
For the Years Ended December 31,
2021
2022
2020
$
523,672
$
651,642
$
557,054
(44,665)
(38,514)
19,629
(26,562)
(71,227)
452,445
$
(10,390)
(48,904)
602,738
$
5,314
24,943
581,997
$
m
The accom
TT
panying notes ar
e an integral part of the consolidated financial statements.
54
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(i(( n thousands)s
Cash flowff
s frff om operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Stock-based compensation
Benefit for deferred income taxes
Amortization of debt discount and issuance costs
Loss on investments
Other non-cash reconciling items, net
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Deferred revenue
Other current liabilities
Other non-current assets and liabilities
Net cash provided by operating activities
Cash flowff
s frff om investing activities:
itions, net of cash acquired
ff
Cash paid for acquis
Cash paid for asset acquisition
Purchases of property and equipment
Capitalization of internal-use software development costs
Purchases of short-and long-term marketable securities
Proceeds from sales of short-and long-term marketable securities
Proceeds from maturities and redemptions of short-and long-term
marketable securities
Other, net
Net cash used in investing activities
Cash flowff
ff
s frff om financing activ
ities:
Proceeds frff om the issuance of common stock under stock plans
Employee taxes paid related to net share settlement of stock-based awards
Repurchases of common stock
Other, net
Net cash used in financing activities
ff
ate changes on cash, cash equivalents and restricted cash
Effff ects of exchange r
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
55
For the Years Ended December 31,
2021
2022
2020
$
523,672
$
651,642
$
557,054
592,754
217,185
(104,971)
4,395
15,895
31,063
(21,214)
(20,125)
(26,499)
16,713
(5,318)
51,126
1,274,676
(872,091)
—
(241,266)
(217,036)
(17,975)
575,522
156,658
(6,122)
(622,310)
56,462
(82,236)
(608,010)
(393)
(634,177)
(12,918)
5,271
537,751
543,022
$
550,632
202,759
(47,794)
66,025
10,328
11,495
(24,096)
4,034
31,523
(2,865)
(20,404)
(28,716)
1,404,563
(598,825)
—
(328,969)
(216,261)
(932,604)
442,133
991,949
(4,322)
(646,899)
59,632
(99,112)
(522,255)
(268)
(562,003)
(11,376)
184,285
353,466
537,751
$
478,389
197,411
(33,821)
62,823
5,878
17,149
(90,381)
(25,395)
39,211
(1,318)
18,101
(10,101)
1,215,000
(127,999)
(36,376)
(514,313)
(217,559)
(1,782,849)
30,350
1,597,651
8,121
(1,042,974)
59,775
(89,828)
(193,588)
—
(223,641)
10,935
(40,680)
394,146
353,466
$
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(i(( n thousands)s
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received in the years ended
December 31, 2022, 2021 and 2020 of $15,458, $14,808 and $17,491,
respectively
Cash paid for interest expense
ff
Cash paid for oper
ff
ating lease liabilities
For the Years Ended December 31,
2022
2021
2020
$
183,900
$
100,533
$
6,158
224,898
5,750
224,085
79,163
5,954
201,856
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease
liabilities
202,409
218,753
200,735
Purchases of property and equipment and capitalization of internal-use
softwff
are development costs included in accounts payable and accrued
expenses
Capitalization of stock-based compensation
80,170
33,060
63,309
36,545
75,666
38,333
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash
$
$
542,337
685
543,022
$
$
536,725
1,026
537,751
$
$
352,917
549
353,466
m
The accom
TT
panying notes ar
e an integral part of the consolidated financial statements.
56
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A
AKAMAI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Basis of Presentation
Akamai Technologies, Inc. (the “Company”) provides solutions to power and protect life online. Its massively distributed
edge and cloud platform comprises more than 4,100 locations across more than 130 countries. The Company was incorporated
in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company is currently organized and operates as
one reportable and operating segment.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying consolidated financial
statements.
2. Summary of Significan
ff
t Accounting Policies
Use of Estimates
The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America. These principles require management to make estimates, judgments and assumptions that affect
the reported amounts of assets, liabilities, revenue and expenses, and the amounts disclosed in the related notes to the
consolidated financial statements. Actual results and outcomes may differ materially from management’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, valuation and impairment of investments and
marketable securities, valuation and useful lives of acquired intangible ass
capitalized internal-use softwar
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 prospectively from the date of the change in estimate.
e development costs, income tax reserves and accounting for stock-based compensation.
ets, useful lives and realizability of long-lived assets,
ff
ff
ff
ff
ff
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents consist of cash held in bank deposit accounts and short-term, highly-liquid investments with
remaining maturities of three months or less at the date of purchase. Marketable securities consist of corporate, government and
other securities. Securities having remaining maturities of less than one year from the date of the balance sheet are classified as
short-term, and those with maturities of more than one year from the date of the balance sheet are classified as long-term in the
consolidated balance sheets.
ff
The Company classifies its fixed income securities with readily determinable market values as available-f
ff
or-sale. These
ff
investments are classified as marketable securities on the consolidated balance sheets and are carried at fair market value, with
unrealized gains and losses considered to be temporary in nature and reported as accumulated other comprehensive loss, a
separate component of stockholders’ equity. The Company reviews all investments for reductions in fair value that are other-
than-temporary. When s
uch reductions occur, the cost of the investment is adjusted to fair value through recording a loss on
investments in the consolidated statements of income. Gains and losses on investments are calculated on the basis of specific
ff
identification.
rr
Marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-
rr
ector perforff mance and operational and financing cash flow factors; overall market conditions and trends; and the
than-temporary. The Company periodically evaluates whether a decline in fair value below cost basis is other
-than-temporary
by considering available evidence regarding these investments including, among other factors: the duration of the period that,
and extent to which, the fair value is less than cost basis; the financial health and business outlook of the issuer, including
rr
industry and s
Company’s intent and ability to retain its investment in the security for a period of time sufficient to allow for an anticipated
recovery in market value. Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded and a
new cost basis in the security is established. Assessing the above factors involves inherent uncertainty. Write-downs, if
recorded, could be materially different from the actual market performance of marketable securities in the Company’s portfolio
if, among other things, relevant information r
ff
considered by the Company would have been relevant to the determination of impairment.
elated to the marketable securities was not publicly available or other factors not
59
Accounts Receivable and Related Reserves
The Company’s accounts receivable balance includes unbilled amounts that represent revenue recorded for customers that
are typically billed monthly in arrears. The Company records reserves against its accounts receivable balance which primarily
consists of allowances for current expected credit losses. Increases and decreases in the allowance for current expected credit
losses are included as a component of general and administrative expense in the consolidated statements of income. The
allowance for current expected credit losses has been developed using historical loss rates for the previous twelve months as
well as expectations about the future where the Company has been able to develop forecasts to support its estimates. In
addition, the allowance considers outstanding balances on a customer-specific, account-by-account basis. The Company
assesses collectibility based upon a review of customer receivables from prior sales with collection issues where the Company
no longer believes that the customer has the ability to pay for services previously provided. The Company also performs
ongoing credit evaluations of its customers. If such an evaluation indicates that payment is no longer reasonably assured for
services provided, any future services provided to that customer will result in the creation of a cash-basis reserve until the
Company receives consistent payments. The Company does not have any off-balance sheet credit exposure related to its
customers.
ff
II
Incr
emental Costs to Obtain a Contract with a Customer
ff
The Company capitalizes incremental costs associated with obtaining customer contracts, specifically certain commission
and incentive payments. The Company pays commissions and incentives up-front based on contract value upon signing a new
arrangement with a customer and upon renewal and upgrades of existing contracts with customers if the renewal and upgrades
result in an incremental increase in contract value. To the extent commissions and incentives are earned, the expenses, including
estimated payroll taxes, are deferred on the Company's consolidated balance sheet and amortized over the expected lif
ff
e of the
customer arrangement on a straight-line basis. Based on the nature of the Company's unique technology and services, and the
rate at which the Company continually enhances and updates its technology, the expected life of the customer arrangement is
determined to be approximately three years. Additionally, the Company may pay commissions and incentives based upon
contract value, rather than incremental increase in contract value, to certain sales groups within the Company. For these
commission arrangements, the Company amortizes capitalized costs for contract renewals over an average renewal contract
period of 16 months. The Company also incurs commission expense on an ongoing basis based upon revenue recognized. In
these cases, no incremental costs are deferred, as the commissions are earned and expensed in the same period for which the
associated revenue is recognized.
ff
Amortization of the costs is primarily included in sales and marketing expense in the consolidated statements of
income. The current portion of deferred commission and incentive payments is included in prepaid expenses and other current
assets, and the long-term portion is included in other assets on the Company's consolidated balance sheets.
ff
Concentrations of Credit Risk
The amounts reflected in the consolidated balance sheets for accounts receivable, other current assets, accounts payable,
r
accrued liabilities and other current liabilities approximate fair values due to their short-
maintains the majority of its cash, cash equivalents and marketable securities with major financial institutions that the Company
believes to be of high credit standing. The Company believes that, as of December 31, 2022, its concentration of credit risk
related to cash equivalents and marketable securities was not significant.
term maturities. The Company
Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which the
ff
oss several industries. To reduce risk, the Company routinely assesses the financial strength of its
Company makes substantial sales. The Company’s customer base consists of a large number of geographically-dispersed
customers diversified acr
customers. Based on such assessments, the Company believes that its accounts receivable credit risk exposure is limited. For
the years ended December 31, 2022, 2021 and 2020, no customer accounted for more than 10% of total revenue. As of
December 31, 2022 and 2021, there was one customer with an accounts receivable balance greater than 10% of total accounts
receivable. The Company believes that, as of December 31, 2022 and 2021, its concentration of credit risk related to accounts
receivable was not significant.
Fair Value of Financial Measurements
MM
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. The Company has certain financial assets and liabilities recorded at fair value, principally cash equivalents
and short- and long-term marketable securities that have been classified as Level 1, 2 or 3 within the fair value hierarchy. Fair
ff
60
values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the
Company can access at the reporting date. Fair values determined by Level 2 inputs utilize data points other than quoted prices
included within Level 1 that are observable for the asset or liability, either directly or indirectly. Fair values determined by
Level 3 inputs are based on unobservable data points for the asset or liability.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property and equipment
generally include purchases of items with a per-unit value greater than $1,000 and an estimated useful life greater than one year.
Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the related lease terms or their estimated useful lives.
The Company periodically reviews the estimated useful lives of property and equipment. Changes to the estimated useful
lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of the assets disposed of and the
related accumulated depreciation are removed frff om the accounts, and any resulting gain or loss is included in income from
operations. Repairs and maintenance costs are expensed as incurred.
OperO ating Leases
The Company enters into operating leases for real estate assets related to office space and co-location assets related to
space or racks at co-location facilities and related equipment for its servers and other networking equipment. The Company
determines if an arrangement contains a lease at the inception of a contract by assessing whether there is an identified asset and
whether the contract conveys the right to control the use of the identified asset in exchange for consideration and the right to
obtain the economic benefits from the use of the identified asset.
Upon commencement of a lease, the Company records a right-of-use asset that represents the Company’s right to use the
underlying asset for the lease term and a lease liability that represents an obligation to make lease payments arising from the
lease. Right-of-ff use assets and lease liabilities are recognized at the commencement date based on the present value of lease
payments over the lease term. Lease payments are discounted at the lease commencement date. As the Company’s leases do not
provide an implicit rate, an incremental borrowing rate has been applied based on the Company's credit-adjusted risk-free rate.
The Company often enters into contracts that contain both lease and non-lease components. Real estate non-lease
components include real estate taxes, insurance, maintenance, parking and other operating costs. Co-location non-lease
components include utilities and other operating costs. The Company includes both lease and non-lease components of fixed
costs in its lease arrangements as a single lease component. Variable costs, such as utilities based on actual usage, are not
included in the measurement of right-of-use assets and lease liabilities but are expensed when the event determining the amount
of variable consideration to be paid occurs.
The Company’s lease terms often include renewal options and, particularly in the case of co-location arrangements, may
include evergreen provisions. The Company’s right-of-use assets and lease liabilities generally do not include the options to
extend, or terminate, unless it is reasonably certain that the Company will exercise these options. The Company has elected to
exclude leases for certain networking equipment and leases assumed through acquisitions with terms of 12 months or less from
its right-of-ff use assets and lease liabilities on its consolidated balance sheets.
Lease expense is recognized on a straight-line basis over the expected lease term.
Equity Method Investments
ff
The Company accounts for equity investments in which it has significant influence, but not a controlling f
inancial interes
using the equity method of accounting. Under the equity method of accounting, investments are initially recorded at cost, less
impairment, and subsequently adjusted to recognize the Company’s share of earnings or losses.
ff
t,
In February 2019, the Company and Mitsubishi UFJ Financial Group ("MUFG") announced the establishment of a joint
venture, the Global Open Network, Inc. ("GO-NET"), and their plans to offer a new blockchain-based online payment network.
The Company's 20% stake in GO-NET was accounted for using the equity method.
During the first quarter of 2022, MUFG, the majority owner of GO-NET, announced its intention to suspend the operations
of GO-NET and to eventually liquidate it. As a result of MUFG's intention to suspend operations, the Company impaired its
remaining investment of $7.5 million. The Company recorded a loss of $14.0 million during the year ended December 31,
61
2021, which reflects its share of the losses incurred by GO-NET during that year. During the year ended December 31, 2020,
the Company recorded a loss of $13.1 million, which included an $11.0 million impairment to reduce the Company's
investment to its fair value due to a modified business plan and continued negative projected cash flows. The valuation
technique used to measure fair value of the Company's equity method investment in GO-NET was primarily an adjusted net
asset value model based on labor costs and the amount of time required to develop a similar technology for use in the planned
payment processing service.
Subsequent to the establishment of the joint venture, the Company recorded revenue of $4.0 million, $10.1 million, and
$11.1 million for the years ended December 31, 2022, 2021 and 2020, respectively, for services provided to GO-NET. The
Company no longer provided services after June 30, 2022 due to the intention to suspend operations and to eventually liquidate
it.
Goodwill, Acquired Intangible Assets and Long-Lived Assets
Goodwill is the amount by which the cost of acquired net assets in a business combination exceeds the fair value of the net
sets on the date of purchase and is carried at its historical cost. The Company tests goodwill for impairment on an
ff
identifiable as
annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company
performs its impairment test of goodwill as of December 31 each year. As of December 31, 2022, 2021 and 2020, the Company
concluded that it has one reporting unit and that its chief operating decision maker is its chief executive officer and the
executive management team. The Company has assigned the entire balance of goodwill to one reporting unit. The fair value of
the reporting unit was based on the Company's market capitalization as of each of December 31, 2022 and 2021, and it was
substantially in excess of the carrying value of the reporting unit at each date. The fair value of the Company's reporting unit
was determined by the Company's enterprise value as of the years ended December 31, 2022, 2021 and 2020.
ff
ff
Acquired intangible assets consist of completed technologies, customer relationships, trademarks and trade names, non-
compete agreements and acquired license rights. Acquired intangible assets, other than goodwill, are amortized over their
estimated useful lives bas
ff
is used in determining fair values of acquired intangibles assets and their estimated useful lives. Fair value and useful life
determinations may be based on, among other factors, estimates of future expected cash flows, royalty cost savings and
appropriate discount rates used in calculating present values.
ff
ed upon the estimated economic value derived from the related intangible asset. Signif
ff
icant judgment
Long-lived assets, including property and equipment, operating lease right-of-use assets and acquired intangible assets, are
reviewed for impairment whenever events or changes in circumstances, such as service discontinuance, technological
obsolescence, significant decreases in the Company’s market capitalization, facility closures or work-force reductions indicate
that the carrying amount of the long-
lived asset may not be recoverable. When such events occur, the Company compares the
carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If this comparison indicates that
an impairment is present, the amount of the impairment is calculated as the difference between the carrying amount and the fair
value of the asset.
rr
rr
Contract Liabilities
Contract liabilities primarily represent payments received from customers for which the related performance obligations
have not yet been satisfied. These balances consist of the unearned portion of monthly service fees and integration fees and
prepayments made by customers for future periods. The current and long-term portions of the Company's contract liabilities are
included in deferred revenue in the respective sections of the Company's consolidated balance sheets.
Revenue Recognition
The Company primarily derives revenue from the sale of services to customers executing contracts having terms of one
year or longer. Services included in the Company's contracts consist of its core services – the delivery of content, applications
and softwff
recognized upon transfer of contr
receive in exchange for those s
are over the internet – as well as security and cloud computing solutions and professional services. Revenue is
ol of promised services in an amount that reflects the consideration the Company expects to
ervices.
ff
ff
The Company enters into contracts that may include various combinations of these services, which are generally capable of
being distinct and accounted for as separate performance obligations. These contracts generally commit the customer to a
minimum of monthly, quarterly or annual levels of usage and specify the rate at which the customer must pay for actual usage
above the stated minimum. Based on the typical structure of the Company's contracts, which are generally for monthly
62
recurring services that are essentially the same over time and have the same pattern of transfer to the customer, most
perforff mance obligations represent a promise to deliver a series of distinct services over time.
The Company's contracts with customers sometimes include promises to deliver multiple services to a customer.
Determining whether services are distinct performance obligations often requires the exercise of judgment by management. For
example, advanced features that enhance a service and are highly interrelated are generally not considered distinct; rather, they
are combined with the service they relate to into one performance obligation. Different determinations related to combining
services into performance obligations could result in differences in the timing and amount of revenue recognized in a period.
ff
Generally, the transaction price in a contract is equal to the committed price stated in the contract, less any discounts or
rebates. The Company's typical contracts qualify for series accounting, and the pricing terms generally do not require estimation
of the transaction price beyond the reporting period. As a result, any incremental fees generated as a result of usage or
“bursting” over committed contract levels are recorded in the period to which the services relate. The amount of consideration
recognized for us
exchange for pr
all perforff mance obligations in the contract on a relative standalone selling price (“SSP”) basis.
oviding the services. Once the transaction price has been determined, the Company allocates such price among
age above contract minimums is limited to the amount the Company expects to be entitled to receive in
ff
ff
Determination of SSP requires the exercise of judgment by management. SSP is based on observable inputs such as the
price the Company charges for the service when sold separately or the discounted list price per management’s approved price
list. In cases where services are not sold separately or price list rates are not available, a cost-plus-margin approach or adjusted
market approach is used to determine SSP.
Most content delivery and security services represent stand-ready obligations that are satisfied over time as the customer
simultaneously receives and consumes the benefits provided by the Company. Accordingly, revenue for those services is
recognized over time, generally ratably over the term of the arrangement due to consistent monthly usage commitments that
expire each period. Any bursting over given commitments is recognized in the period in which the traffic was served. For
services that involve traffic consumption, revenue is recognized in an amount that reflects the level of traffic served to a
customer in a given period. For custom arrangements, other methods may be used as a measure of progress towards satisfying
the performance obligations.
Some of the Company's contracts are satisfied at a point in time, such as one-time professional services, integration
services and most license sales where the primary obligation is delivery of the license at the start of the term. In these cases,
revenue is recognized at the point in time of delivery or satisfaction of the performance obligation.
From time to time, the Company enters into contracts to sell its services or license its technology to unrelated enterprises at
or about the same time that it enters into contracts to purchase products or services from the same enterprises. Consideration
payable to a customer is reviewed as part of the transaction price. If the payment to the customer does not represent payment for
a distinct service, revenue is recognized only up to the net amount of consideration after customer payment obligations are
considered. The Company may also resell the licenses or services of third parties. If the Company is acting as an agent in an
arrangement with a customer to provide third party services, the transaction price reflects only the net amount to which the
Company will be entitled, after accounting for payments made to the third party responsible for satisfying the performance
obligation.
Cost of Revenue
Cost of revenue consists primarily of fees paid to network providers for bandwidth and to third-party network data centers
ff
for housing servers, also known as co-location costs. Cost of revenue also includes employee costs for services delivery and
network operation, build-out and support of the Company's network; network storage costs; cost of software licenses;
depreciation of network equipment used to deliver the Company’s services; amortization of network-related internal-use
s into
are; and costs for the production of live events streamed by the Company for customers. The Company enter
softwff
contracts for bandwidth w
These contracts generally commit the Company to pay minimum monthly fees plus additional fees for bandwidth usage above
the committed level. In some circumstances, internet service providers (“ISPs”) make rack space available for the Company to
locate its servers and provide access to their bandwidth at a discount or no cost. Although the Company does not provide any
goods or services to the ISPs or the ISPs’ customers under these arrangements, the ISPs and their customers indirectly benefit
by accessing content through a local Company server, resulting in better content delivery. The Company records the cost of
these vendor relationships at their negotiated transaction price, which is either at a discount or no cost.
ith third-party network providers with terms typically ranging from several months to five years.
ff
ff
63
Research and Development Costs and Capitalized Internal-
II
UU
Use Software
Research and development costs consist primarily of payroll and related personnel costs for the design, development,
deployment, testing and enhancement of the Company’s services and network. Costs incurred in the development of the
Company’s services are expensed as incurred, except certain internal-use software development costs eligible for capitalization.
Capitalized costs include external consulting fees, payroll and payroll-related costs and stock-based compensation for
employees in the Company’s development and information technology groups who are directly associated with, and who
devote time to, the Company’s internal-use software projects. Capitalization begins when the planning stage is complete and the
Company commits resources to the software project; capitalization continues during the application development stage.
Capitalization ceases when the software has been tested and is ready for its intended use. Costs incurred during the planning,
training and post-implementation stages of the software development life-cycle are expensed as incurred. The Company
amortizes completed internal-use softwff
are that is used on its network to cost of revenue over its estimated useful life.
Accounting for Stock-Based Compensation
m
The Company recognizes compensation costs for all stock-based payment awards made to employees based upon the
awards’ grant-date fair value. The stock-based payment awards include stock options, restricted stock, restricted stock units,
deferred stock units and employee stock purchases related to the Company’s employee stock purchase plan.
For stock options, the Company has selected the Black-Scholes option-pricing model to determine the fair value of stock
option awards. For stock awards with market-based vesting conditions, the Company uses a Monte Carlo simulation to
determine the fair value of the award. For stock options, restricted stock units and deferred stock units that contain only a
service-based vesting feature, the Company recognizes compensation cost on a straight-line basis over the award's vesting
period. For awards with a performance condition-based vesting feature, the Company recognizes compensation cost on a
graded-vesting basis over the award's expected vesting period, commencing when achievement of the performance condition is
deemed probable. In addition, for awar
conditions, the Company makes judgments and estimates each quarter about the probability that such performance conditions
will be met or achieved. Any changes to those estimates that the Company makes from time to time may have a significant
impact on the stock-based compensation expense recorded and could materially impact the Company’s results of operations.
ds that vest and become exercisable only upon achievement of specified performance
ff
ff
Foreign Currency Translation and Forward Currency Contracts
The assets and liabilities of the Company's subsidiaries are translated at the applicable exchange rate as of the balance sheet
date, and revenue and expenses are translated at an average rate over the period. Resulting currency translation adjustments are
recorded as a component of accumulated other comprehensive loss, a separate component of stockholders’ equity. Gains and
losses on inter-company and other non-functional currency transactions are recorded in other income (expense), net.
The Company enters into short-term forff eign currency forward contracts to offset foreign exchange gains and losses
generated by the re-measurement of certain assets and liabilities recorded in non-functional currencies. Changes in the fair
value of these derivatives, as well as re-measurement gains and losses, are recognized in current earnings in other income
(expense), net. As of December 31, 2022 and 2021, the fair value of the forward currency contracts and the underlying gains
and losses for the years ended December 31, 2022, 2021 and 2020 were immaterial.
The Company's foreign currency forward contracts may be exposed to credit risk to the extent that its counterparties are
unable to meet the terms of the agreements. The Company seeks to minimize counterparty credit (or repayment) risk by
entering into transactions only with major financial institutions of investment grade credit r
ating.
ff
Income Taxes
The Company's provision for income taxes is comprised of a current and a deferred portion. The current income tax
provision is calculated as the estimated taxes payable or refundable on tax returns for the current year. The deferred income tax
e tax effects attributable to temporary differences and carryforwards using expected
provision is calculated as the estimated futur
tax rates in effect in the years during which the differences are expected to reverse or the carryforwards are expected to be
realized.
ff
rr
64
The Company currently has net deferred tax assets consisting of net operating loss (“NOL”) carryforwards, tax credit
carryfrr orff wards and deductible temporary differences. Management periodically weighs the positive and negative evidence to
determine if it is more-likely-than-not that some or all of the deferred tax assets will be realized.
ff
The Company has recorded certain tax reserves to address potential exposures involving its income tax positions. These
potential tax liabilities result from the varying application of statutes, rules, regulations and interpretations by different taxing
jurisdictions. The Company's estimate of the value of its tax reserves contains assumptions based on past experiences and
judgments about the interpretation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the
ultimate tax liability or benefit from thes
e matters may be more or less than the amount the Company estimated.
ff
ff
Uncertainty in income taxes is recognized in the Company's consolidated financial statements using a two-step process.
First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the
tax position is deemed more-likely-than-not to be sustained based on technical merit, the tax position is then assessed to
determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is
the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.
Newly-Adopted Accounting Pronouncements
Newly-Adopted Accounting Pronouncem
In August 2020, the Financial Accounting Standards Board ("FASB") issued guidance that was expected to reduce
uments and
r
complexity and improve comparability of financial reporting associated with accounting for convertible instr
contracts in an entity’s own equity. The Company adopted this guidance on January 1, 2022 on a modified retrospective basis.
ff
The convertible senior notes included on the Company's consolidated balance sheet more closely reflect the principal
amounts. Prior to the adoption of this guidance, the Company separated its convertible senior notes into a liability and an equity
component. The equity portion is now eliminated. The cumulative effect of the changes was an increase to convertible senior
notes of $304.7 million, an increase to deferred income tax liabilities of $0.7 million, an increase to deferred income tax assets
of $77.7 million, a decrease to property and equipment of $7.7 million and a decrease to additional paid-in capital of $375.4
million on the consolidated balance sheet. The net effect of these adjustments was recorded as an increase to retained earnings
rr
as of January 1, 2022.
Additionally, the new guidance eliminates the use of the treasury stock method for convertible instruments that can be
settled in whole or in part with equity, when calculating diluted earnings per share. Instead, it requires application of the if-
converted method. Under that method, diluted earnings per share would generally be calculated assuming that all the
convertible senior notes were converted solely into shares of common stock at the beginning of the reporting period, unless the
result would be antidilutive. The application of the if-converted method reduces the Company’s reported diluted earnings per
share after the adoption date. However
, in December 2021, the Company made an irrevocable election to settle the principal
portion of the convertible senior notes with cash. Accordingly, the if-converted method is only impacted by any potential shares
to be delivered for the amount in exces
s of the principal portion. The changes to the diluted earnings per share guidance did not
materially impact the Company's results of operations.
ff
ff
With the elimination of the debt discount created by the equity component, amortization of the debt discount is eliminated,
which decreases interest expense, and therefore increases net income and earnings per share, from the period of adoption. This
had the effect of increasing basic and diluted earnings per share for the year ended 2022 by $0.32.
65
3. Fair Value Measurements
Available-for-sale marketable securities held as of December 31, 2022 and 2021 wer
ff
e as follows (in thousands):
As of December 31, 2022
,
Time deposits
Corporate bonds
U.S. government agency obligations
Amortized
Cost
19,530
$
624,082
252,573
Gross Unrealized
Gains
Losses
$
— $
— $
Classification on Balance
Sheet
Short-Term
Marketable
Securities
19,530
$
Long-Term
Marketable
Securities
—
$
Aggregate
Fair Value
19,530
—
—
(21,029)
(10,391)
603,053
242,182
362,458
180,320
240,595
61,862
$
896,185
$
— $
(31,420) $
864,765
$
562,308
$
302,457
As of December 31, 2021
,
Commercial paper
Corporate bonds
U.S. government agency obligations
$
25,056
$
— $
(24) $
25,032
$
25,032
$
—
1,268,991
316,728
$ 1,610,775
$
1,191
3
1,194
(4,275)
1,265,907
315,450
(1,281)
(5,580) $ 1,606,389
$
$
459,012
56,530
540,574
806,895
258,920
$ 1,065,815
The Company offers certain eligible employees the ability to participate in a non-qualified deferred compensation plan.
The mutual funds held by the Company that are associated with this plan are classified as restricted trading securities. These
securities are not included in the available-for-sale securities table above but are included in marketable securities in the
consolidated balance sheets.
Unrealized gains and unrealized temporary losses on investments classified as available-for-sale are included within
accumulated other comprehensive loss in the consolidated balance sheets. Upon realization, those amounts are reclassified from
accumulated other comprehensive loss to interest and marketable securities income, net in the consolidated statements of
income. As of December 31, 2022, the Company held for investment corpor
ate bonds with a fair value of $835.4 million, which
are classified as available-for-sale marketable securities and have been in a continuous unrealized loss position for more than 12
months. The unrealized losses related to these corporate bonds were $31.3 million and are included in accumulated other
comprehensive loss as of December 31, 2022. The unrealized losses are attributable to changes in interest rates. Based on the
evaluation of available evidence, the Company does not believe any unrealized losses represent other than temporary
impairments.
ff
66
ff
The fair value measurements within the f
ff
air value hierarchy of the Company’s financial assets as of December 31, 2022
and 2021 were as follows (in thousands):
ff
As of December 31, 2022
,
Cash Equivalents and MarMM ketable Securities:
rr
Money market funds
Time deposits
Corporate bonds
U.S. government agency obligations
Mutual funds
As of December 31, 2021
,
Cash Equivalents and MarMM ketable Securities:
rr
Money market funds
Commercial paper
Corporate bonds
U.S. government agency obligations
Mutual funds
Fair Value Measurements at
Reporting Date Using
Total Fair Value
Level 1
Level 2
$
999
$
999
$
285,830
603,053
242,182
18,745
—
—
—
18,745
—
285,830
603,053
242,182
—
$
1,150,809
$
19,744
$
1,131,065
$
109,313
$
109,313
$
39,031
1,265,907
315,450
23,129
—
—
—
23,129
—
39,031
1,265,907
315,450
—
$
1,752,830
$
132,442
$
1,620,388
As of December 31, 2022 and 2021, the Company grouped money market and mutual funds using a Level 1 valuation
because market prices for such investments are readily available in active markets. As of December 31, 2022 and 2021, the
Company grouped time deposits, commercial paper, U.S. government agency obligations and corporate bonds using a Level 2
valuation because quoted prices for similar assets in active markets (or identical assets in an inactive market) are available. The
Company did not have any transfers of assets or liabilities between Level 1 or Level 2 of the fair value measurement hierarchy
during the years ended December 31, 2022 and 2021.
When developing fair value estimates, the Company maximizes the u
ff
se of observable inputs and minimizes the use of
unobservable inputs. When available, the Company uses quoted market prices to measure fair value. The valuation technique
used to measure fair value for the Company's Level 1 and Level 2 assets is a market approach, using prices and other relevant
information generated by market transactions involving identical or comparable assets. If market prices are not available, the
fair value measurement is based on models that use primarily market-based parameter
ff
credit ratings and currency rates. In certain cases where market rate assumptions are not available, the Company is required to
make judgments about the assumptions market participants would use to estimate the fair value of a financial instrument.
s including yield curves, volatilities,
Contractual maturities of the Company’s available-for-sale marketable securities held as of December 31, 2022 and 2021
were as follows (in thousands):
Due in 1 year or less
Due after 1 year through 5 years
December 31,
2022
December 31,
2021
$
$
562,308
302,457
864,765
$
$
540,574
1,065,815
1,606,389
67
4. Accounts Receivable
Net accounts receivable consisted of the following as of December 31, 2022 and 2021 (in thousands):
ff
Trade accounts receivable
Unbilled accounts receivable
Gross accounts receivable
Allowance for current expected credit losses and other reserves
Accounts receivable, net
December 31,
2022
December 31,
2021
$
$
490,162
194,961
685,123
(5,917)
679,206
$
$
501,959
175,364
677,323
(1,397)
675,926
A summary of activity in the accounts receivable allowance for current expected credit loss
rr
es and other reserves for the
years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):
Beginning balance
Charges to income from operations
Collections frff om customers previously reserved and other
Ending balance
2022
2021
2020
$
$
1,397
9,292
(4,772)
5,917
$
$
1,822
4,576
(5,001)
1,397
$
$
1,880
12,347
(12,405)
1,822
Charges to income frff om operations primarily represents charges to provision for doubtful accounts for increases in the
allowance for current expected credit losses.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of December 31, 2022 and 2021 (in thousands):
Prepaid income taxes
Prepaid sales and other taxes
Prepaid equipment and software maintenance
Deferred commissions
Other prepaid expenses
Other current assets
Total
II
Incr
emental Costs to Obtain a Contract with a Customer
December 31,
2022
December 31,
2021
$
$
33,898
31,285
16,348
37,316
51,194
14,999
185,040
$
$
32,021
28,300
10,661
43,562
35,109
16,660
166,313
Deferff
red costs associated with obtaining customer contracts, specifically commission and incentive payments, as of
December 31, 2022 and 2021 were as follows (in thousands):
Deferred costs included in prepaid expenses and other current assets
Deferred costs included in other assets
Total deferred costs
December 31,
2022
December 31,
2021
$
$
37,316
29,069
66,385
$
$
43,562
30,436
73,998
68
Inforff mation related to incremental costs to obtain a contract with a customer for the years ended December 31, 2022, 2021
ff
and 2020 were as follows (in thousands):
ff
Amortization expense related to deferred costs
Incremental costs capitalized
2022
2021
2020
$
$
52,691
47,416
$
58,433
56,509
61,682
67,058
Amortization expense related to deferred costs is primarily included in sales and marketing expense in the consolidated
ff
statements of income.
6. Property and Equipment
Property and equipment consisted of the following as of December 31, 2022 and 2021 (in thousands, except years):
ff
es
Computer and networking equipment
Purchased software
Furniture and fixtur
Office equipment
Leasehold improvements
Internal-use software
Property and equipment, gross
Accumulated depreciation and amortization
Property and equipment, net
ecember 31,
2022
2,139,518
89,695
71,427
41,866
229,037
1,529,264
4,100,807
(2,560,625)
1,540,182
$
$
December 31,
2021
1,981,775
89,347
71,381
42,616
227,358
1,382,099
3,794,576
(2,260,247)
1,534,329
$
$
Estimated
Useful Life
(in years)
3-7
3-10
1-7
3-5
1-15
2-7
Depreciation and amortization expense on property and equipment and capitalized internal-use software for the years ended
December 31, 2022, 2021 and 2020 was $527.8 million, $502.6 million and $436.3 million, respectively. During the years
ended December 31, 2022, 2021 and 2020, the Company capitalized $32.3 million, $35.0 million and $38.0 million,
respectively, of stock-based compensation related to employees who developed and enhanced internal-use software
applications.
During the years ended December 31, 2022 and 2021, the Company wrote off $210.2 million and $283.4 million,
respectively, of property and equipment, gross, along with the associated accumulated depreciation and amortization. The write-
offff s wff
ere primarily related to computer and networking equipment and internal-use software no longer in use. These assets had
been substantially depreciated and amortized. In addition, the Company wrote off $9.1 million and $3.4 million during the years
ended December 31, 2022 and 2021, respectively, related to internal-use software and facility-related property and equipment
as a result of certain restructuring actions.
ff
69
7. Acquired Intangible Assets and Goodwill
Acquired intangible assets that are subject to amortization consisted of the following as of December 31, 2022 and 2021 (in
ff
thousands):
December 31, 2022
December 31, 2021
Gross
Carrying
Amount
$
327,848
Accumulated
Amortization
(162,323)
$
Net
Carrying
Amount
Gross
Carrying
Amount
$
$
165,525
165,525
$
$
257,857
257,857
Accumulated
Amortization
$
(128,715) $
480,817
244
14,642
34,810
858,361
$
(244,158)
(183)
(7,585)
(2,396)
(416,645) $
236,659
61
7,057
32,414
441,716
$
398,182
258
8,039
490
664,826
$
(216,192)
(107)
(107)
(6,097)
(490)
(351,601) $
$
Net
Carrying
Amount
129,142
181,990
151
1,942
—
313,225
Completed technologies
Customer-related intangible
assets
Non-compete agreements
Trademarks and trade names
Acquired license rights
Total
Aggregate expense related to amortization of acquired intangible assets for the years ended December 31, 2022, 2021 and
2020 was $65.0 million, $48.0 million and $42.0 million, respectively. Based on the Company's acquired intangible assets as of
December 31, 2022, aggregate expense related to amortization of acquired intangible assets is expected to be $63.5 million,
$59.2 million, $61.2 million, $56.3 million and $43.7 million for the years ending December 31, 2023, 2024, 2025, 2026 and
2027, respectively.
The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 were as follows (in
ff
thousands):
Beginning balance
Acquisition of Linode Limited Liability Company
Acquisition of Guardicore Ltd.
Acquisition of Inverse, Inc.
Measurement period adjustments related to acquisitions completed in prior years
Foreign currency translation
Ending balance
8. Acquisitions
2022
2,156,254
617,292
—
—
724
(10,432)
2,763,838
$
$
2021
1,674,371
—
479,110
10,741
(267)
(7,701)
2,156,254
$
$
Acquisition-related costs were $10.7 million, $13.3 million and $5.6 million during the years ended December 31, 2022,
2021 and 2020, respectively, and are included in general and administrative expense in the consolidated statements of income.
Pro forff ma results of operations for the acquisitions completed in the years ended December 31, 2022, 2021 and 2020 have not
been presented because the effects of the acquisitions, individually and in the aggregate, were not material to the Company's
consolidated financial results.
2022 Acquisition
Linode
In March 2022, the Company acquired all the outstanding equity interests of Linode Limited Liability Company ("Linode")
for $898.5 million in cash. Linode is an infrastructure-as-a-
ff
computing capabilities. The acquisition is intended to enhance the Company’s computing services by enabling it to create a
unique cloud platforff m to build, run and secure applications from the cloud to the edge. Revenue attributable to Linode since the
date of the acquisition, included in the Company's consolidated statements of income, for 2022 was $103.5 million. Earnings
included in the Company's consolidated statements of income since the date of the acquisition are not material.
service platform provider that allows for developer-friendly cloud
70
ff
The preliminary allocation of the purchase price for Linode was as f
ff
ollows (in thousands):
Total purchase consideration
Allocation of the purchase consideration:
Cash
Accounts receivable
Prepaid expenses and other current assets
Property and equipment
Operating lease right-of-use assets
Identifiable intangible assets
Goodwill
Deferred income tax assets
Other assets
Total assets acquired
Accounts payable
Accrued expenses
Operating lease liabilities
Other liabilities
Total liabilities assumed
Net assets acquired
$
$
$
898,516
26,678
7,171
4,478
56,268
17,000
196,020
617,292
2,528
292
927,727
(5,767)
(1,958)
(17,235)
(4,251)
(29,211)
898,516
As of December 31, 2022, the purchase price allocation was substantially complete except for the finalization of certain
income tax matters. Measurement period adjustments to goodwill recognized during 2022 related to the acquisition of Linode
were $28.9 million and primarily related to property and equipment and intangible asset adjustments. These measurement
period adjustments did not have a material effect on the Company's results of operations.
The value of the goodwill can be attributed to a number of business factors, including a trained technical workforce and
cost synergies expected to be realized. The Company expects that all of the goodwill related to the acquisition of Linode will be
deductible for tax purposes.
ff
Identified intangible as
ff
sets acquired and their respective weighted average useful lives were as follows (in thous
ff
ands,
except years):
Customer-related intangible assets
Completed technologies
Acquired license rights
Trademarks and trade name
Total
Gross Carrying
Amount
$
$
84,200
70,900
34,320
6,600
196,020
Weighted
Average Useful
Life (in years)
16.8
5.8
15.0
8.8
The Company applied the relief-from-royalty method to estimate the fair values of the completed technologies and
trademarks and the multi-period excess earnings method under the income approach to estimate the fair values of the customer-
related acquired intangible assets. The Company applied significant judgment in estimating the fair values of the acquired
intangible assets, which involved significant estimates and assumptions with respect to forecasted revenue growth rates
, cost of
revenue, operating expenses, contributory asset charges and discount rates. The Company used readily available market data to
estimate the fair values of the acquired license rights. The total weighted average amortization period for the intangible assets
acquired from Linode is 12.2 years. The intangible assets are being amortized based upon the pattern in which the economic
benefits of the intangible as
sets are being utilized.
ff
ff
71
2021 Acquisitions
Guardicore
In October 2021, the Company acquired all the outstanding equity interests of Guardicore Ltd. ("Guardicore"), for
$610.7 million in cash. Guardicore's micro-segmentation solution is designed to limit user access to only those applications that
are authorized to communicate with each other, thereby limiting the spread of malware and protecting the flow of enterprise
data across the network. The acquisition is intended to enhance the Company's security portfolio with the addition of
Guardicore's micro-segmentation technology. Revenue and earnings attributable to acquired operations since the date of
acquisition are included in the Company's consolidated statements of income and not presented separately because they are not
material. The Company finalized its allocation of the purchase price in the fourth quarter of 2022.
r
The allocation of the purchase price for Guardicore was as follows (in thousands):
Total purchase consideration
Allocation of the purchase consideration:
Cash
Accounts receivable
Prepaid expenses and other current assets
Property and equipment
Operating lease right-of-use assets
Identifiable intangible assets
Goodwill
Deferred income tax assets
Other assets
Total assets acquired
Accounts payable
Accrued liabilities
Deferred revenue
Operating lease liabilities
Total liabilities assumed
Net assets acquired
$
$
$
610,693
27,252
10,179
1,307
1,211
2,657
123,600
479,834
9,686
890
656,616
(1,523)
(7,742)
(35,658)
(1,000)
(45,923)
610,693
The value of the goodwill can be attributed to a number of business factors, including a trained technical and sales
workforff ce and cost synergies expected to be realized. The Company expects that most of the goodwill related to the acquisition
of Guardicore will be deductible for tax purposes.
Identified intangible assets acquired and their respective weighted average useful lives were as follows (in thousands,
except years):
Completed technologies
Customer-related intangible assets
Trademarks
Total
Gross Carrying
Amount
$
$
79,000
44,200
400
123,600
Weighted
Average Useful
Life (in years)
15.0
14.0
1.9
The Company applied the relief-from-royalty method to estimate the fair values of the completed technologies and
trademarks, and the excess earnings method to estimate the fair values of the customer-related acquired intangible assets. The
Company applied significant judgment in es
estimates and assumptions with respect to forecasted revenue growth rates and discount rates. The total weighted average
timating the fair values of the acquired intangible assets, which involved significant
ff
72
amortization period for the intangible as
ff
based upon the pattern in which the economic benefits of the intangible assets are being utilized.
sets acquired from Guardicore is 14.6 years. The intangible assets are being amortized
II
Inver
srr e
r
rr
In Februar
y 2021, the Company acquired all the outstanding equity interests of Inverse, Inc. ("Inverse")
Inverse provides a data repository and algorithms capable of identifying device types accessing the internet. The acquisition
enhances the Company's enterprise security capabilities. The Company allocated $10.7 million of the cost of the acquisition to
goodwill and $7.6 million to a technology-related identifiable intangible asset with an average useful life of 14.0 years. The
acquired goodwill and intangible assets are partially offset by acquired negative working capital balances. The value of the
goodwill is primarily attributable to synergies related to the integration of Inverse technology onto the Company's platform as
well as a trained technical workforce. The total amount of goodwill related to the acquisition of Inverse expected to be
deductible for tax purpos
es is $10.7 million. Revenue and earnings attributable to acquired operations since the date of
acquisition are included in the Company's consolidated statements of income and not presented separately because they are not
material. The Company finalized its allocation of purchase price in the fourth quarter of 2021.
, for $17.1 million.
r
ff
2020 Acquisitions
Asavie
In October 2020, the Company acquired all the outstanding equity interests of Asavie Technologies Limited ("Asavie"), a
privately-funded company headquartered in Dublin, Ireland, for $155.0 million in cash. Asavie operates a global platform for
managing the security, perforff mance and access policies for mobile and internet-connected devices and has become part of
Akamai’s security solutions. Revenue and earnings attributable to acquired operations since the date of acquisition are included
in the Company's consolidated statements of income and not presented separately because they are not material. The Company
ff
finalized its allocation of the purchas
e price in the fourth quarter of 2021.
The allocation of the purchase price for Asavie was as follows (in thousands):
Total purchase consideration
Allocation of the purchase consideration:
Cash
Accounts receivable
Prepaid expenses and other current assets
Property and equipment
Operating lease right-of-use assets
Identifiable intangible assets
Goodwill
Other assets
Total assets acquired
Accounts payable
Accrued liabilities
Deferred revenue
Operating lease liabilities
Deferred income tax liabilities
Other liabilities
Total liabilities assumed
Net assets acquired
$
$
$
154,952
26,847
14,002
995
2,274
6,104
58,070
70,228
395
178,915
(951)
(5,926)
(3,136)
(6,104)
(6,965)
(881)
(23,963)
154,952
The value of the goodwill can be attributed to a number of business factors, including a trained technical and sales
workforff ce and cost synergies expected to be realized. None of the goodwill related to the acquisition of Asavie is expected to be
deductible for tax purposes.
73
ff
Identified intangible assets acquired and their respective weighted average usef
ff
ul lives were as follows (in thousands,
except years):
Completed technologies
Customer-related intangible assets
Trademarks
Non-compete agreements
Total
Gross Carrying
Amount
$
$
17,300
40,400
100
270
58,070
Weighted
Average Useful
Life (in years)
10.1
11.1
0.9
2.9
The total weighted average amortization period for the intangible assets acquired from Asavie is 10.8 years. The intangible
assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.
InsII
tart Logic
rr
In Februar
r
y 2020, the Company acquired certain assets from Instart Logic, Inc., a provider of cloud solutions for improving
web and mobile application performance, for $36.4 million in cash. The purchase price was primarily allocated to a customer-
related intangible asset is being amortized over 17.0 years. The intangible assets are being amortized based upon the pattern in
which the economic benefits of the intangible assets are being utilized.
ff
ff
9. Accrued Expenses
Accrued expenses consisted of the following as of December 31, 2022 and 2021 (in thousands):
r
Payroll and other related benefits
Income taxes payable
Bandwidth and co-location expenses
Property, use and other taxes
Professional ser
ff
vice fees
Other accrued expenses
Total
ff
10. Restructuring
December 31,
2022
December 31,
2021
$
$
172,670
76,459
79,937
30,711
3,054
4,186
367,017
$
$
222,535
72,946
72,904
33,883
2,929
6,393
411,590
illi
As a res lult
ations, the Company recorded as a restructuring charge an impairment of
f
rr
of MUFG's intention to suspend operations, the Company recorded as a restr
ucturing charge an impairment of
ing the year ended December 31, 2022, primarily related to certain capitalized internal-use software assets that
, primarily related to certain capitalized internal-use software assets that
ficient future cash flows to support their values. The Company does
ill no longer be used in operations or will not generate sufficient future cash flows to support their values. The Company does
$
$7.5 million dduring the year ended December 31,
will no longer be used in operations or will not generate suf
fff
ges related to this action.
not expect to incur material additional charges related to this action.
i l ddi i
l h
d
i
i
i
Additionally, the Company launched its FlexBase program in May 2022, which is a flexible workspace arrangement that
dditionally, the Company launched its FlexBase program in May 2022, which is a flexible workspace arrangement that
llallows employees to choose to work from their home office, a Company office or a combination of both. This is a significant
s employees to choose to work from their home office, a Company office or a combination of both. This is a significant
ked prior to the program, and prior to office shutdowns as part of the COVID-19 pandemic.
ay employees worked prior to the program, and prior to office shutdowns as part of the COVID-19 pandemic.
change to the way employees wo
change to the w
Planning f
and in the fourth quarter of 2021, the Company
fff
or the program commenced in 2021,
lanning for the program commenced in 2021,
facilities that were no longer needed.
ff
acilities that were no longer needed.
recognized. The Comp
ecognized. The Company has incurred expenses of
dand 2021, respectively, related to this action.
elated to such type of action may occur in 2023.
hchargges related to such type of action may occur in 2023.
d i
As a res lult, impairment
impairments of right-of-
illi
any has incurred expenses of $
pectively, related to this action. Management is s
h ld i
$3.8 million during the years ended December 31, 2022
during the years ended December 31, 2022
and additional
l
d ddi i
right-of-use as
illi
dand $
till evaluating the
anagement is still evaluating the
bbegan to identify certain
ter of 2021, the Company began to identify certain
sets and leasehold improvements were
office utilization,
ili
Company's ffi
$3.6 million
h f
d l
y
h
i
During the fourth quarter of 2020, management committed to an action to restructure certain par
ing the fourth quarter of 2020, management committed to an action to restructure certain parts of the Company to better
ts of the Company to better
ition its lf
elf to become more agile in delivering its solutions. As a result, certain headcount r
i
e charges were realized for software not yet placed into service that will not be
tain capitalized internal-use software charges were realized for software not yet placed into service that will not be
i
pposi i
f
i
cer
completed and implemented due to this action. The Company has iincurredred expenses of $
completed and implemented due to this action. The Company has
eductions were necessary and
e agile in delivering its solutions. As a result, certain headcount reductions were necessary and
dand $
during
$23.6 million during
illi
b
li d i
$7.9 million
illi
l
74
s ended D
d d
the year
the year
additional charges r l
additional charges r
ecember 31, 2021 and 2020, respectively, r
and 2020, respectively, r l
i
elated to this action.
hi
b
d
The Company does not expect to incur
elated to this action. The Company does not expect to incur
hi
d
i
yany
The Company also recognizes restructuring charges for redundant employees, facilities and contracts associated with
completed acquisitions. Restructuring charges related to acquisitions were not material in any of the years ended December 31,
2022, 2021 and 2020.
r
The activity of the Company's accrual for employee severance and related benefits for all restructuring actions during the
years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):
Balance January 1, 2020
Costs incurred
Cash disbursements
Translation adjustments and other
Balance December 31, 2020
Costs incurred
Cash disbursements
Translation adjustments and other
Balance December 31, 2021
Costs incurred
Cash disbursements
Translation adjustments and other
Balance December 31, 2022
11. Debt
Convertible Senior Notes – Due 2027
Employee
Severance and
Related
Benefits
$
$
5,707
26,332
(10,118)
130
22,051
6,600
(27,095)
(368)
1,188
747
(1,209)
(185)
541
In August 2019, the Company issued $1,150.0 million in par value of convertible senior notes due 2027 (the "2027
Notes"). The 2027 Notes are senior unsecured obligations of the Company, bear regular interest of 0.375%, payable semi-
annually in arrears on March 1 and September 1 of each year, and mature on September 1, 2027, unless repurchased or
converted in accordance with their terms prior to maturity.
Each $1,000 principal amount of the notes will be convertible into 8.6073 shares of the Company's common stock, which is
equivalent to a conversion price of approximately $116.18 per share, subject to adjustments in certain events. At their option,
holders may convert their 2027 Notes prior to the close of business on the business day immediately preceding May 1, 2027,
only under the following circumstances:
•
•
•
during any calendar quarter commencing after the calendar quarter ended December 31, 2019 (and only during such
calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether
or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of
the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable
trading day;
during the five business day period after any five consecutive trading day period in which the trading price per $1,000
principal amount of 2027 Notes for each trading day of the measurement period was less than 98% of the product of
the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or
upon the occurrence of specified corporate events.
75
On or after May 1, 2027, holder
ff
s may convert all or any portion of their 2027 Notes at any time prior to the close of
business on the second scheduled trading day immediately preceding the maturity date.
In December 2021, the Company made an irrevocable election to settle the principal amount of the 2027 Notes only in
cash. Accordingly, upon conversion, the Company will pay the principal amount in cash and will pay, or deliver, as the case
may be, any amount in excess of the principal amount in cash, shares of common stock or a combination of cash and shares of
the Company stock, at the Company's election. Prior to this election, upon conversion, the Company, could have elected to
deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common
stock for the principal amount.
Prior to January 1, 2022, in accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into
ff
liability and equity components. The carrying cost of the liability component was calculated by measuring the fair value of a
similar debt obligation that does not have an associated convertible feature. The carrying amount of the equity component
representing the conversion option was determined by deducting the fair value of the liability component from the par value of
the 2027 Notes. The difference between the principal amount of the 2027 Notes and the proceeds allocated to the liability
component (“debt discount”) is amortized to interest expense using the effective interest method over the term of the 2027
Notes. The equity component is recorded in additional paid-in capital in the consolidated balance sheet to meet the conditions
for equity classification. On January 1, 2022, the Company adopted the new guidance f
ff
ff
instruments
elsewhere in this report for details on the new guidance for accounting for convertible instruments.
, which eliminated the equity component. Refer to Note 2 to the consolidated financial statements included
or accounting for convertible
ff
r
Initially, the Company allocated the total transaction costs incurred to the liability and equity components based on their
relative values. However, subsequent to the adoption of the new guidance for accounting for convertible instruments, all
transaction costs are presented as a reduction to the 2027 Notes. Prior to January 1, 2022, transaction costs attributable to the
liability component were being amortized to interest expense over the term of the 2027 Notes, and subsequent to the adoption
of the new guidance, all transaction costs are being amortized to interest expense over the term of the 2027 Notes.
The 2027 Notes consisted of the following components as of December 31, 2022 and 2021 (in thousands):
Liability component:
Principal
Less: debt discount and issuance costs, net of amortization
Net carrying amount
Equity component:
December 31,
2022
December 31,
2021
$
$
$
1,150,000
(8,707)
1,141,293
$
$
1,150,000
(169,030)
980,970
— $
220,529
The estimated fair value of the 2027 Notes at December 31, 2022 and 2021 was $1,111.0 million and $1,359.3 million,
ff
respectively. The fair value was determined based on the quoted price of the 2027 N
trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. Based on the closing price
of the Company's common stock of $84.30 on December 31, 2022, the value of the 2027 Notes if converted to common stock
was less than the principal amount of $1,150.0 million.
otes in an inactive market on the last
The Company used $100.0 million of the proceeds from the offering to repurchase shares of its common stock, concurrent
with the issuance of the 2027 Notes. The repurchase was made in accordance with a share repurchase program previously
approved by the board of directors. Additionally, $127.1 million of the proceeds was used for the net cost of the convertible
note hedge and warrant transactions. The remaining net proceeds are intended to be used for share repurchases, working capital
and general corporate purposes, including potential acquisitions and other strategic transactions.
76
Note HedgeHH
To minimize the impact of potential dilution upon conversion of the 2027 Notes, the Company entered into convertible
note hedge transactions with respect to its common stock in August 2019. The Company paid $312.2 million for the note hedge
transactions. The note hedge transactions cover approximately 9.9 million shares of the Company’s common stock at a strike
price that corresponds to the initial conversion price of the 2027 Notes, also subject to adjustment, and are exercisable upon
conversion of the 2027 Notes. The Company determined that the note hedge meets the definition of a derivative and is
ff
classified in s
election, may receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's
common stock. The Company recorded the purchase of the hedge as a decrease to additional paid-in capital. The Company does
not recognize subsequent changes in fair value of the note hedge in its consolidated financial statements.
tockholders’ equity, as the note hedge is indexed to the Company's common stock, and the Company, at its
WarWW rants
Separately, in August 2019, the Company entered into warrant transactions, whereby the Company sold warrants to
acquire, subject to anti-dilution adjustments, up to 9.9 million shares of the Company’s common stock at a strike price of
approximately $178.74 per share. The Company received aggregate proceeds of $185.2 million from the sale of the warrants.
The convertible note hedge and warrant transactions will generally have the effect of increasing the conversion price of the
2027 Notes to approximately $178.74 per share. The Company determined that the warrants meet the definition of a derivative
and are classified in stockholders’ equity, as the warrants are indexed to the Company's common stock, and the Company, at its
election, may pay or deliver to holders cash or shares of the Company's common stock. The Company recorded the proceeds
frff om issuance of the warrants as an increase to additional paid-in capital. The Company does not recognize subsequent changes
in fair value of the warrants in its consolidated financial statements.
Convertible Senior Notes – Due 2025
In May 2018, the Company issued $1,150.0 million in par value of convertible senior notes due 2025 (the "2025 Notes").
The 2025 Notes are senior unsecured obligations of the Company, bear regular interest of 0.125%, payable semi-annually on
May 1 and November 1 of each year, and mature on May 1, 2025, unless repurchased or converted prior to maturity.
Each $1,000 principal amount of the notes will be convertible into 10.5150 shares of the Company's common stock, which
is equivalent to a conversion price of approximately $95.10 per share, subject to adjustments in certain events. At their option,
holders may convert their 2025 Notes prior to the close of business on the business day immediately preceding January 1, 2025,
only under the following circumstances:
•
•
•
during any calendar quarter commencing after the calendar quarter ended June 30, 2018 (and only during such
calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether
or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of
the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable
trading day;
during the five business day period after any five consecutive trading day period in which the trading price per $1,000
principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of
the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or
upon the occurrence of specified corporate events.
On or after J
ff
anuary 1, 2025, holders may convert all or any portion of their 2025 Notes at any time prior to the close of
business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing
circumstances.
In December 2021, the Company made an irrevocable election to settle the principal amount of the 2025 Notes only in
cash. Accordingly, upon conversion, the Company will pay the principal amount in cash and will pay, or deliver, as the case
may be, any amount in excess of the principal amount in cash, shares of common stock or a combination of cash and shares of
the Company stock, at the Company's election. Prior to this election, upon conversion, the Company, could have elected to
deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common
stock for the principal amount.
77
Prior to January 1, 2022, in accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into
ff
liability and equity components. The carrying cost of the liability component was calculated by measuring the fair value of a
similar debt obligation that does not have an associated convertible feature. The carrying amount of the equity component
representing the conversion option was determined by deducting the fair value of the liability component from the par value of
the 2025 Notes. The difference between the principal amount of the 2025 Notes and the proceeds allocated to the liability
component (“debt discount”) is amortized to interest expense using the effective interest method over the term of the 2025
Notes. The equity component is recorded in additional paid-in capital in the consolidated balance sheet to meet the conditions
ff
for equity classification. On January 1, 2022, the Company adopted the new guidance f
ff
instruments
elsewhere in this report for details on the new guidance for accounting for convertible instruments.
, which eliminated the equity component. Refer to Note 2 to the consolidated financial statements included
or accounting for convertible
ff
r
Initially, the Company allocated the total transaction costs incurred to the liability and equity components based on their
relative values. However, subsequent to the adoption of the new guidance for accounting for convertible instruments, all
transaction costs are presented as a reduction to the 2025 Notes. Prior to January 1, 2022, transaction costs attributable to the
liability component were being amortized to interest expense over the term of the 2025 Notes, and subsequent to the adoption
of the new guidance, all transaction costs are being amortized to interest expense over the term of the 2025 Notes.
The 2025 Notes consisted of the following components as of December 31, 2022 and 2021 (in thousands):
Liability component:
Principal
Less: debt discount and issuance costs, net of amortization
Net carrying amount
Equity component:
December 31,
2022
December 31,
2021
$
$
$
1,150,000
(6,035)
1,143,965
$
$
1,150,000
(154,803)
995,197
— $
285,225
The estimated fair value of the 2025 Notes at December 31, 2022 and 2021 was $1,209.1 million and $1,510.4 million,
ff
respectively. The fair value was determined based on the quoted price of the 2025 N
trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. Based on the closing price
of the Company's common stock of $84.30 on December 31, 2022, the value of the 2025 Notes if converted to common stock
was less than the principal amount of $1,150.0 million.
otes in an inactive market on the last
The Company used $46.2 million of the proceeds from the offering to repurchase shares of its common stock, concurrent
with the issuance of the 2025 Notes. The repurchase was made in accordance with a share repurchase program previously
approved by the board of directors. Additionally, $141.8 million of the proceeds was used for the net cost of convertible note
hedge and warrant transactions. The Company also used a portion of the net proceeds to repay at maturity $690.0 million in par
value of convertible senior notes due in 2019. The remaining net proceeds are intended to be used for share repurchases,
working capital and general corporate purposes, including potential acquisitions and other strategic transactions.
Note HedgeHH
To minimize the impact of potential dilution upon conversion of the 2025 Notes, the Company entered into convertible
note hedge transactions with respect to its common stock in May 2018. The Company paid $261.7 million for the note hedge
transactions. The note hedge transactions cover approximately 12.1 million shares of the Company’s common stock at a strike
price that corresponds to the initial conversion price of the 2025 Notes, also subject to adjustment, and are exercisable upon
conversion of the 2025 Notes. The Company determined that the note hedge meets the definition of a derivative and is
classified in s
ff
election, may receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's
common stock. The Company recorded the purchase of the hedge as a decrease to additional paid-in capital. The Company does
not recognize subsequent changes in fair value of the note hedge in its consolidated financial statements.
tockholders’ equity, as the note hedge is indexed to the Company's common stock, and the Company, at its
78
WarWW rants
Separately, in May 2018, the Company entered into warrant transactions, whereby the Company sold warrants to acquire,
subject to anti-dilution adjustments, up to 12.1 million shares of the Company’s common stock at a strike price of
approximately $149.18 per share. The Company received aggregate proceeds of $119.9 million from the sale of the warrants.
The convertible note hedge and warrant transactions will generally have the effect of increasing the conversion price of the
2025 Notes to approximately $149.18 per share. The Company determined that the warrants meet the definition of a derivative
and are classified in stockholders’ equity, as the warrants are indexed to the Company's common stock, and the Company, at its
election, may pay or deliver to holders cash or shares of the Company's common stock. The Company recorded the proceeds
frff om issuance of the warrants as an increase to additional paid-in capital. The Company does not recognize subsequent changes
in fair value of the warrants in its consolidated financial statements.
Revolving Credit Facility
In May 2018, the Company entered into a $500.0 million five-year, revolving credit agreement (the “2018 Credit
Agreement”). Borrowings under the 2018 Credit Agreement bore interest, at the Company's option, at a base rate plus a spread
of 0.00% to 0.25% or an adjusted LIBOR rate plus a spread of 0.875% to 1.25%, in each case with such spread being
determined based on the Company's consolidated leverage ratio specified in the 2018 Credit Agreement. Regardless of what
amounts, if any, outstanding under the 2018 Credit Agreement, the Company was also obligated to pay an ongoing commitment
awn amounts at a rate of 0.075% to 0.15%, with such rate being based on the Company's consolidated leverage ratio
ff
fee on undr
ff
specified in the 2018 Cr
edit Agreement.
ff
In November 2022, the Company entered into a $500.0 million five-year, revolving credit agreement (the “2022 Credit
Agreement”). The 2022 Credit Agreement replaces the 2018 Credit Agreement. Borrowings under the 2022 Credit Agreement
may be used to finance working capital needs and for general corporate purposes. The 2022 Credit Agreement provides for an
initial $500.0 million in revolving loans. Under specified circumstances, the facility can be increased to up to $1.0 billion in
aggregate principal amount. The 2022 Credit Agreement expires, and any amounts outstanding thereunder will become due and
payable, on November 22, 2027, subject to up to two one-year extensions at the Company's request and with the consent of the
lenders party thereto.
Borrowings under the 2022 Credit Agreement bear interest, at the Company's option, and subject to a credit spread
adjustment, at a term benchmark rate plus a spread of 0.75% to 1.125%, a reference rate plus a spread of 0.75% to 1.125%, or a
base rate plus a spread of 0.00% to 0.125%, in each case with such spread being determined based on the Company's
consolidated leverage ratio specified in the 2022 Credit Agreement. Regardless of what amounts, if any, are outstanding under
the 2022 Credit Agreement, the Company is also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of
0.07% to 0.125%, with such rate being based on the Company's consolidated leverage ratio specified in the 2022 Credit
Agreement.
ff
The 2022 Credit Agreement contains customary representations and warranties, affirmative and negative covenants and
events of default. The negative covenants include restrictions on subsidiary indebtedness, liens and fundamental changes. These
covenants are subject to a number of important exceptions and qualifications. The principal financial covenant requires a
maximum consolidated leverage ratio. There were no outstanding borrowings under the 2022 Credit Agreement as of
December 31, 2022.
ff
79
Interest Expense
The 2027 Notes bear interest at a fixed rate of 0.375%, with interest is payable semi-annually on March 1 and September 1
of each year. The 2025 Notes bear interest at a fixed rate of 0.125%, with interest is payable semi-annually on May 1 and
November 1 of each year. The Company is also obligated to pay ongoing commitment fees under the terms of its credit
agreements, in addition to interest payable on outstanding borrowings. Prior to the adoption of the new guidance for accounting
for conver
ff
the 2027 Notes and the 2025 Notes. Interest expense included in the consolidated statements of income for the years ended
December 31, 2022, 2021 and 2020 was as follows (in thous
tible instruments on January 1, 2022, the Company also amortized as interest expense the value of debt discounts of
ands):
ff
ff
Amortization of debt discount and issuance costs
Coupon interest payable on 2025 Notes
Coupon interest payable on 2027 Notes
Interest payable under credit agreements
Capitalization of interest expense
Total interest expense
12. Leases
2022
2021
2020
$
4,688
$
69,697
$
67,153
1,437
4,312
952
(293)
1,437
4,313
557
1,437
4,312
548
(3,672)
(4,330)
$
11,096
$
72,332
$
69,120
The Company has entered into various operating lease agreements for its offices and co-location sites and related
ff
equipment. The Company has also entered into sublease agreements with tenants of various offices previously vacated by the
Company. These operating leases have lease periods expiring between 2023 and 2034. The Company’s operating lease costs forff
the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):
2022
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total operating lease costs
2021
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total operating lease costs
2020
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total operating lease costs
Real Estate
Arrangements
Co-location
Arrangements
Total
$
$
$
$
$
$
82,761
52
25,167
(25,743)
82,237
84,100
58
22,016
(21,033)
85,141
83,574
229
21,235
(22,064)
82,974
$
$
$
$
$
$
152,215
21,741
35,025
—
208,981
136,673
17,660
31,428
—
185,761
113,554
15,620
34,259
—
163,433
$
$
$
$
$
$
234,976
21,793
60,192
(25,743)
291,218
220,773
17,718
53,444
(21,033)
270,902
197,128
15,849
55,494
(22,064)
246,407
Lease costs for r
ff
eal estate arrangements are included in general and administrative expenses in the consolidated statements
of income. Lease costs for co-location arrangements are primarily included in cost of revenue.
ff
80
Weighted average remaining lease terms and discount rates related to the Company's operating leases as of December 31,
2022 and 2021 were as follows:
ff
December 31, 2022
December 31, 2021
Real Estate
Arrangements
Co-location
Arrangements
Real Estate
Arrangements
Co-location
Arrangements
Weighted average remaining lease term (in years)
Weighted average discount rate
10.3
3.6 %
3.9
2.8 %
11.1
3.6 %
3.9
1.3 %
Maturities of operating lease liabilities as of December 31, 2022 were as follows (in thousands):
2023
2024
2025
2026
2027
Thereafter
ff
Total lease payments
Less: imputed interest
Total lease liabilities
Real Estate
Arrangements
Co-location
Arrangements
$
78,714
$
119,527
79,081
72,242
66,020
60,717
358,338
715,112
119,106
$
596,006
$
67,081
46,196
34,871
24,346
18,584
310,605
17,252
293,353
As of December 31, 2022, the Company had additional operating leases for co-location sites that had not yet commenced
of $141.7 million, of which a majority will commence in 2023, with lease terms of one year to eight years. The table above
excludes $223.6 million of future sublease income that is expected to be recognized through 2034.
As of December 31, 2022, the Company had outstanding letters of credit in the amount of $5.0 million, primarily related to
operating leases. The letters of credit remain in effect until the Company fulfills its obligations under these leases or as such
obligations expire under the terms of the letters of credit.
13. Commitments and Contingencies
As of December 31, 2022, the Company had long-term commitments for bandwidth usage with various networks and ISPs.
Additionally, as of December 31, 2022, the Company had entered into purchase orders with various vendors. The minimum
ff
futur
e commitments as of December 31, 2022 were as follows (in thousands):
2023
2024
2025
2026
2027
Total
MM
Legal Matters
Bandwidth
Commitments
82,949
$
23,487
10,519
1,065
46
118,066
$
Purchase Order
Commitments
378,816
$
45,113
8,094
2,427
546
434,996
$
The Company is party to various litigation matters that management considers routine and incidental to its business.
Management does not expect the results of any of these routine actions to have a material effect on the Company’s business,
results of operations, financial condition or cash flows.
ff
ff
81
IndemII
nification
ff
ff
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, vendors 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 or the Company’s negligence, willful misconduct or violation of law. Subject to applicable
statutes of limitation, the term of each of these indemnification agreements is generally perpetual from the time of execution of
the agreement. The maximum potential amount of future payments the Company could be required to make under these
indemnification agr
ff
to its services and activities and that could limit the Company’s exposure in that respect.
eements is unlimited; however, the Company carries insurance that covers certain third-party claims relating
The Company has agreed to indemnify each of its officers and directors, or employees who serve as officers or directors of
its subsidiaries at management's request, during his or her lifetime for certain events or occurrences that happen by reason of the
ff
fact that the officer or director is or was or has agreed to serve as an officer or director of the Company. The Company has
director and offff icer insurance policies that may limit its exposure and may enable the Company to recover a portion of certain
ff
futur
e amounts paid.
ff
r
To date, the Company has not encountered material costs as a result of such indemnification obligations and has not
accrued any related liabilities in its financial statements. In assessing whether to establish an accrual, the Company considers
such factor
ff
of loss.
s as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount
14. Stockholders’ Equity
Stock Repurchase Program
In November 2018, the board of directors authorized a $1.1 billion repurchase program through December 2021. In
October 2021, the board of directors authorized a new $1.8 billion share repurchase program, effective January 2022 through
December 2024. The Company's goals for the share repurchase programs are to of
fsff et the dilution created by its employee
equity compensation programs over time and provide the flexibility to return capital to shareholders as business and market
conditions warrant, while still preserving its ability to pursue other strategic opportunities.
ff
ff
During the years ended December 31, 2022, 2021 and 2020, the Company repurchased 6.4 million, 4.7 million and 2.0
million shares, respectively, of its common stock for $608.0 million, $522.3 million and $193.6 million, respectively, pursuant
to the repurchase programs described above. As of December 31, 2022, the Company had $1.2 billion available for future
purchases of shares under the current repurchase program.
The board of directors authorized the retirement of all the outstanding shares of its treasury stock as of each of December
31, 2022, 2021 and 2020. The retired shares were returned to the number of authorized but unissued shares of the Company's
common stock, and the retirement was recorded to additional paid-in capital.
82
15. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss, net of tax, which is reported as a component of stockholders' equity, for
the years ended December 31, 2022 and 2021 were as follows (in thousands):
Balance as of January 1, 2021
Other comprehensive loss
Balance as of December 31, 2021
Other comprehensive loss
Balance as of December 31, 2022
$
$
Foreign
Currency
Translation
Net Unrealized
Gains (Losses)
on Investments
13,094
(10,390)
2,704
(26,562)
(23,858) $
$
(33,295) $
(38,514)
(71,809)
(44,665)
(116,474) $
Total
(20,201)
(48,904)
(69,105)
(71,227)
(140,332)
Amounts reclassified from accumulated other comprehensive loss to net income wer
ff
e immaterial for the years ended
December 31, 2022 and 2021.
16. Revenue from Contracts with Customers
The Company sells its services through a sales force located both domestically and abroad. Revenue derived from
operations outside of the U.S. is determined based on the country in which the sale originated. Other than the U.S., no single
country accounted for 10% or more of the Company’s total revenue for any reported period. Revenue by geography included in
the Company’s consolidated statements of income for the years ended December 31, 2022, 2021 and 2020 was as follows (in
thousands):
ff
rr
U.S.
International
Total revenue
2022
1,902,051
1,714,603
3,616,654
$
$
2021
1,837,508
1,623,715
3,461,223
$
$
2020
1,777,435
1,420,714
3,198,149
$
$
The Company reports its revenue in three solution categories: security, delivery and compute. Prior to January 1, 2022,
revenue by solution was reported by product group: Security Technology Group and Edge Technology Group. Revenue from
security solutions was previously presented as Security Technology Group revenue and revenue from delivery and compute
solutions was previously presented as Edge Technology Group revenue. The periods presented prior to January 1, 2022 have
been revised to reflect this new presentation. Security includes solutions that are des
infrastructure, websites, applications and users safe. Delivery includes solutions that are designed to enable business online,
including media delivery and web performance. Compute includes cloud computing, edge applications, cloud optimization and
storage. Revenue by solution category included in the Company’s consolidated statements of income for the years ended
December 31, 2022, 2021 and 2020 was as follows (in thous
igned to protect business online by keeping
ands):
ff
r
ff
ff
Security
Delivery
Compute
Total revenue
2022
2021
2020
$
1,541,941
$
1,334,836
$
1,061,622
1,669,257
1,873,243
1,929,810
405,456
253,144
206,717
$
3,616,654
$
3,461,223
$
3,198,149
Most security, delivery and compute services represent obligations that are satisfied over time as the customer
rr
simultaneously receives and consumes the services provided by the Company. Accordingly, the majority of the Company's
revenue is recognized over time, generally ratably over the term of the arrangement due to consistent monthly usage
commitments that expire each period. Any usage over a given commitment is recognized in the period in which the units are
served. A small percentage of the Company's contracts are satisfied at a point in time, such as one-time professional services
contracts, integration services and most license sales where the primary obligation is delivery of the license at the start of the
term. In these cases, revenue is recognized at a point in time of delivery or satisfaction of the performance obligation.
83
During the years ended December 31, 2022, 2021 and 2020, the Company recognized $105.1 million, $78.8 million and
$69.9 million of revenue that was included in deferred revenue as of December 31, 2021, 2020 and 2019, respectively.
As of December 31, 2022, the aggregate amount of remaining performance obligations from contracts with customers was
$3.5 billion. The Company expects to recognize approximately 65% of its remaining performance obligations as revenue over
the next 12 months, with the remainder recognized thereafter. Remaining performance obligations represent the amount of the
transaction price under contracts with customers that are attributable to performance obligations that are unsatisfied or partially
eporting date. This consists of future committed revenue for monthly, quarterly or annual periods within current
satisfied at the r
contracts with customers, as well as deferred revenue arising from consideration invoiced in prior periods for which the related
ff
perforff mance obligations have not been satisfied. It excludes estimates of variable consideration such as usage-based contracts
with no committed contract as well as anticipated renewed contracts. Revenue recognized during the years ended December 31,
2022, 2021 and 2020, related to performance obligations satisfied in previous periods was not material.
ff
ff
17. Employee Benefit Plan
The Company has established a savings plan for its employees that is designed to be qualified under Section 401(k) of the
Internal Revenue Code. Eligible employees are permitted to contribute to this plan through payroll deductions within statutory
and plan limits. The Company contributed $18.8 million, $17.7 million and $17.5 million of cash to the savings plan for the
years ended December 31, 2022, 2021 and 2020, respectively, under a matching program.
18. Stock-Based Compensation
Equity Plans
In May 2013, the Company's stockholders approved the Akamai Technologies, Inc. 2013 Stock Incentive Plan, which was
amended with Company shareholder approval in each of 2015, 2017 and 2019 and was amended and restated with Company
shareholder approval in each of 2021 and 2022 (as amended and restated, the "2013 Plan"). The 2013 Plan replaced the Akamai
Technologies, Inc. 2009 Stock Incentive Plan (the "2009 Plan"), which in turn replaced the Akamai Technologies, Inc. 2006
Stock Incentive Plan, the Akamai Technologies, Inc. 2001 Stock Incentive Plan and the Akamai Technologies, Inc. 1998 Stock
Incentive Plan (such plans, together with the 2009 Plan, the "Previous Plans"). The Company no longer issues equity awards
under the Previous Plans, and they solely exist to satisfy outstanding equity awards previously granted under those plans. The
2013 Plan allows for the is
suance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted
stock, restricted stock units, other stock-based awards and cash-based awards for up to 26.5 million shares of common stock,
subject to certain adjustments, to employees, offff icers, directors, consultants and advis
ers of the Company. Additionally, the
Company may grant up to 3.8 million shares of common stock thereunder that were available for grant under the 2009 Plan
immediately prior to stockholder approval of the 2013 Plan. Any shares of common stock that are currently outstanding under
ant under the 2013 Plan.
the Previous Plans that are terminated, canceled, surrendered or forfeited will become available to gr
As of December 31, 2022, the Company had reserved 6.2 million shares of common stock available for future issuance of
equity awards under the 2013 Plan.
ff
ff
ff
The Company has assumed certain stock incentive plans and the outstanding stock incentives of companies that it has
acquired (“Assumed Plans”). Stock incentive awards outstanding as of the date of acquisition under the Assumed Plans were
exchanged for the Company’
applicable acquisition agreement, but are otherwise administered in accordance with the terms of the Assumed Plans. Stock
incentive awards under the Assumed Plans generally vest over three years to four years, and outstanding stock options under the
Assumed Plans expire ten years from the date of grant.
s stock incentive awards and adjusted to reflect the appropriate conversion ratio as specified by the
ff
The 1999 Employee Stock Purchase Plan ("1999 ESPP") permits eligible employees to purchase up to 1.5 million shares
each June 1 and December 1, provided that the aggregate number of shares issued shall not exceed 20.0 million. The 1999
tock as
ESPP allows participants to purchase shares of common stock at a 15% discount from the fair market value of the s
determined on specific dates at six-month intervals. During the years ended December 31, 2022, 2021 and 2020, the Company
issued 0.7 million, 0.6 million and 0.7 million shares under the 1999 ESPP, respectively, with a weighted average purchase
price per share of $82.83, $92.05 and $80.71, respectively. Total cash proceeds from the purchase of shares under the 1999
ESPP in the years ended December 31, 2022, 2021 and 2020 were $56.6 million, $59.7 million and $58.4 million, respectively.
As of December 31, 2022, approximately $5.8 million had been withheld from employees for future purchases under the 1999
ESPP.
ff
84
Stock-Based Compensation Expense
m
Components of total stock-based compensation expense included in the Company’s consolidated statements of income for
the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
Provision for income taxes
Total stock-based compensation, net of taxes
ff
2022
2021
2020
$
$
28,354
78,116
47,789
62,926
217,185
(46,829)
170,356
$
$
27,143
65,950
46,342
63,324
202,759
(56,084)
146,675
$
$
24,829
48,855
65,257
58,470
197,411
(62,153)
135,258
In addition to the amounts of stock-based compensation reported in the table above, the Company’s consolidated
statements of income for the years ended December 31, 2022, 2021 and 2020 also include stock-based compensation reflected
as a component of amortization primarily consisting of capitalized internal-use software; the additional stock-based
compensation was $31.3 million, $32.4 million and $29.6 million, respectively, before taxes.
The Company uses the Black-Scholes option pricing model to determine the fair value of the Company’s stock option
awards. This model requires the input of subjective assumptions, including expected stock price volatility and the estimated
term of each award. The estimated fair value of the Company's stock-based awards, less expected forfeitures, is amortized over
the awards’ vesting period on a straight-line basis. Expected volatilities are based on the Company’s historical stock price
volatility and implied volatility from traded options in its stock. The Company uses historical data to estimate the expected term
of options granted within the valuation model. The risk-free interest rate for periods commensurate with the expected term of
the option is based on the U.S. Treasury yield rate in effect at the time of grant. The expected dividend yield is zero, as the
Company currently does not pay a dividend and does not anticipate doing so in the future.
ff
The grant-date fair values of awards granted under the 1999 ESPP during the years ended December 31, 2022, 2021 and
2020 were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:
Expected term (in years)
Risk-frff ee interest rate
Expected volatility
Dividend yield
2022
2021
2020
0.5
1.9 %
26.0 %
— %
0.5
0.1 %
32.2 %
— %
0.5
0.7 %
30.4 %
— %
For the years ended December 31, 2022, 2021 and 2020, the weighted average fair value of awards granted under the 1999
ESPP was $33.26 per share, $36.17 per share and $32.30 per share, respectively.
As of December 31, 2022, total pre-tax unrecognized compensation cost for stock options, restricted stock units, deferred
stock units and shares of common stock issued under the 1999 ESPP was $399.3 million. The expense is expected to be
recognized through 2025 over a weighted average period of 2.0 years.
85
O
Stock Options
Stock option activity during the year ended December 31, 2022 was as follows:
Outstanding at January 1, 2022
Exercised
Outstanding at December 31, 2022
Exercisable at December 31, 2022
Vested or expected to vest December 31, 2022
Shares
(in thousands)
1
—
1
1
1
Weighted
Average
Exercise Price
41.08
$
40.44
41.28
41.28
41.28
$
$
$
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
0.6 $
0.6 $
0.6 $
43
43
43
The total pre-tax intrinsic value of options exercised during the year ended December 31, 2022 was insignificant. The total
pre-tax intrinsic value of options exercised during the years ended December 31, 2021 and 2020 were $0.6 million and $1.0
million, respectively. No options vested during the years ended December 31, 2022, 2021 and 2020.
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s
closing stock price of $84.30 on December 31, 2022, that would have been received by the option holders had all option holders
exercised their “in-the-money” options as of that date. The total number of shares issuable upon the exercise of “in-the-money”
options exercisable as of December 31, 2022 was 1,002.
Deferred Stock Units
The Company has granted deferred s
ff
tock units ("DSUs") to non-employee members of its board of directors. Each DSU
represents the right to receive one share of the Company’s common stock upon vesting. The holder may elect to defer receipt of
the vested shares of stock represented by the DSU for a period of at least one year but not more than ten years from the grant
date. DSUs vest 100% on the first anniversary of the grant date. If a director has completed one year of service, vesting of
100% of the DSUs held by such director will accelerate at the time of his or her departure from the board.
DSU activity for the year ended December 31, 2022 was as follows:
Outstanding at January 1, 2022
Granted
Vested and distributed
Outstanding at December 31, 2022
Units
(in thousands)
98
27
(45)
80
Weighted
Average Grant
Date Fair Value
72.96
$
97.40
73.33
81.11
$
The total pre-tax intrinsic value of DSUs that were vested and distributed during the years ended December 31, 2022, 2021
and 2020 was $4.9 million, $4.1 million and $0.9 million, respectively. The total fair value of DSUs that were vested and
distributed during the years ended December 31, 2022, 2021 and 2020 was $3.3 million, $2.7 million and $0.7 million,
respectively. The grant-date fair value is calculated based upon the Company’s closing stock price on the date of grant. For the
years ended December 31, 2022, 2021 and 2020, the weighted average fair value of DSU awards granted was $97.40 per share,
$114.56 per share and $100.58 per share, respectively. As of December 31, 2022, 27,306 DSUs were unvested, with an
aggregate intrinsic value of approximately $2.3 million and a weighted average remaining contractual life of approximately 0.4
years. These units are expected to vest in May 2023.
86
Restricted Stock and Restricted Stock Units
Different types of restricted stock units ("RSUs") granted by the Company during the year ended December 31, 2022 were
as follow
ff
s (in thousands):
RSUs with service-based vesting conditions
RSUs with market-based vesting conditions
RSUs with performance-based vesting conditions
Total
December 31,
2022
3,243
81
239
3,563
RSUs represent the right to receive one share of the Company’s common stock upon vesting. RSUs are granted at the
discretion of the board of directors, a committee thereof or, subject to defined limitations, the Chief Executive Officer of the
Company, acting as a committee of one director, to whom such authority has been delegated. The Company has issued RSUs
that vest based on the passage of time assuming continued service with the Company, RSUs that vest based upon total
shareholder return ("TSR") measured against the benchmark TSR of a peer group and RSUs that vest only upon the
achievement of defined performance metrics tied primarily to revenue and earnings targets.
For RSUs with service-based vesting conditions, the fair value is calculated based upon the Company’s closing stock price
on the date of grant, and the stock-based compensation expense is being recognized over the vesting period. Most RSUs with
service-based vesting provisions vest in installments over a three- or four-year period following the grant date.
The Company uses the Monte Carlo simulation model to determine the fair value of the Company's RSUs bas
ed on TSR.
This model requires the input of assumptions, including the estimated term of each award, the risk-free interest rate, historical
stock price volatility of the Company's shares and historical stock price volatility of peer-company shares. The grant-date fair
values of the TSR-based RSUs granted during the years ended December 31, 2022, 2021 and 2020 were estimated using a
Monte Carlo simulation model with the following assumptions:
ff
Expected term (in years)
Risk-frff ee interest rate
Akamai historical share price volatility
Average volatility of peer-company share price
2022
2021
2020
3.0
1.7 %
30.3 %
40.7 %
3.0
0.3 %
32.7 %
39.6 %
3.0
0.7 %
28.2 %
28.9 %
For the years ended December 31, 2022, 2021 and 2020, management measured compensation expense for performance-
based RSUs based upon a review of the Company’s expected achievement against specified financial performance targets. Such
Us, to the
compensation cost is being recorded using a graded-vesting method for each series of grants of performance-based RS
extent management has deemed that such awards are probable of vesting based upon the expected achievement against the
specified targets. On a periodic bas
cost, if needed, at such time.
is, management reviews the Company’s expected performance and adjusts the compensation
ff
ff
RSU activity for the year ended December 31, 2022 was as follows:
ff
Outstanding at January 1, 2022
Granted
Vested
Forfeited
Outstanding at December 31, 2022
Units
(in thousands)
4,389
3,563
(2,096)
(578)
5,278
Weighted
Average Grant
Date Fair Value
95.75
$
107.17
110.57
102.92
121.92
$
87
The shares granted during 2022 and presented in the table above include 172,271 RSUs assumed by the Company as a
result of the acquisition of Linode.
The total pre-tax intrinsic value of RSUs that vested during the years ended December 31, 2022, 2021 and 2020 was $227.1
million, $226.4 million and $192.5 million, respectively. The total fair value of RSUs that vested during the years ended
December 31, 2022, 2021 and 2020 was $231.7 million, $233.0 million and $198.9 million, respectively. The grant-date fair
value of each RSU is calculated based upon the Company’s closing stock price on the date of grant. For the years ended
December 31, 2022, 2021 and 2020, the weighted average fair value of RSU awards granted was $107.17 per share, $99.09 per
share and $92.42 per share, respectively. As of December 31, 2022, 5.3 million RSUs were outstanding and unvested, with an
aggregate intrinsic value of $445.1 million and a weighted average remaining vesting period of approximately 2.3 years. These
RSUs are expected to vest on various dates through 2026.
19. Income Taxes
The components of income before provision for income taxes were as follows for the years ended December 31, 2022,
ff
2021 and 2020 (in thousands):
U.S.
Foreign
Income before provision for income taxes
2022
2021
2020
$
$
61,383
596,620
658,003
$
$
$
70,300
70,300
657,921
728,221
$
$
45,074
571,008
616,082
The provision for income taxes consisted of the following for the years ended December 31, 2022, 2021 and 2020 (in
thousands):
Current tax provision (benefit):
Federal
State
Foreign
Deferred tax benefit:ff
Federal
State
Foreign
Change in valuation allowance
Total
2022
2021
2020
$
$
49,808
9,214
172,645
(73,826)
(18,657)
(16,595)
4,107
126,696
$
$
11,824
8,515
90,026
(33,366)
(14,611)
(4,358)
4,541
62,571
$
$
(1,765)
5,346
76,162
(19,845)
(14,509)
(6,023)
6,556
45,922
88
ff
The Company’s effff ective tax rate differ
ed from the U.S. federal statutory tax rate as follows for the years ended December
31, 2022, 2021 and 2020:
U.S. federal income tax rate
State taxes
Stock-based compensation
U.S. federal, state and foreign research and development credits
Foreign earnings
Nondeductible (nontaxable) foreign items
Global intangible low-taxed income
Release of uncertain tax position reserve
Intercompany sale of intellectual property
Valuation allowance
Other
2022
2021
2020
21.0 %
0.7
2.0
(5.1)
(6.6)
0.7
2.5
(0.7)
4.0
0.6
0.2
19.3 %
21.0 %
0.7
0.1
(3.7)
(7.3)
—
0.5
(1.0)
—
0.6
(2.3)
8.6 %
21.0 %
1.0
(0.6)
(4.4)
(7.7)
(0.4)
0.6
(0.9)
0.2
1.1
(2.4)
7.5 %
The components of the net deferred tax assets and liabilities and the related valuation allowance as of December 31, 2022
ff
and 2021 were as follows (in thousands):
ff
Accrued bonus
Deferred revenue
Operating lease liabilities
Stock-based compensation
NOLs
Tax credit carryforwards
Capitalized research and development costs
Convertible senior notes interest
Depreciation and amortization
Other
Deferred tax assets
Acquired intangible assets
Operating lease right-of-use assets
Deferred commissions
Capitalized internal-use software development costs
Deferred tax liabilities
Valuation allowance
Net deferred tax assets
21,181
11,925
125,567
19,874
18,172
93,672
43,215
75,603
79,595
28,879
517,683
(530)
(113,118)
(12,949)
(30,559)
(157,156)
(41,250)
319,277
$
$
2021
26,261
6,683
133,298
21,507
53,088
88,710
—
18,552
85,438
15,679
449,216
(86,567)
(124,833)
(13,468)
(59,837)
(284,705)
(37,143)
127,368
$
$
As summary of activity in the valuation allowance on deferred tax ass
rr
ets for the years ended December 31, 2022, 2021 and
2020 is as follows (in thousands):
Beginning balance
Charges to income tax expense
Release of valuation allowance
Ending balance
2022
2021
2020
$
$
37,143
4,392
(285)
41,250
$
$
32,602
4,707
(166)
37,143
$
$
26,046
6,588
(32)
32,602
89
Valuation allowances will be recognized on deferred tax assets if it is more-likely-than-not that some or all of the deferred
tax assets will not be utilized. In measuring deferred tax assets, the Company considers all available evidence, both positive and
negative, to determine whether a valuation allowance is needed. As of December 31, 2022, the Company recorded a $41.3
million valuation allowance against deferred tax assets related to state tax credits and state and foreign NOLs in which it is
more-likely-than-not that such attributes will expire prior to utilization. The increase in the valuation allowance during 2022
was $4.1 million. The increase in the valuation allowance is primarily related to state tax credits.
The Company's NOL and tax credit carryforwards in U.S. federal, state and foreign jurisdictions as of December 31, 2022
and 2021 were as follows (in thousands, except years):
ff
2022
2021
Expirations at
Various Dates
Through:
NOL carryforwards:
Federal
State
Foreign
$
$
30,100
22,400
40,100
44,000
15,500
180,100
Federal and state research and development tax credit and other credit
carryforwards
121,300
113,500
2037
2042
2037
2037
The Company's U.S. federal and state NOL carryforwards relate to acquisitions completed in 2022, 2021, 2019, 2017 and
2012.
As of December 31, 2022, accumulated earnings outside the U.S. totaled $1.9 billion, the majority of which have been
taxed due to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings and the tax on
global intangible low taxed income required by the U.S. Tax Cuts and Jobs Act ("TCJA"). No provision for U.S. state income
taxes and forff eign withholding taxes has been provided for any remaining undistributed foreign earnings not subject to tax under
the TCJA, or any additional basis differences inherent in the Company's international subsidiaries, as these amounts continue to
be indefinitely reinvested. Determination of the amount of the unrecognized deferred tax liability on outside basis differences is
not practicable because of the complexity of laws and regulations, the varying tax treatment of alternative repatriation scenarios
and the variation due to multiple potential assumptions relating to the timing of any future repatriation.
ff
The changes in the Company’s unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 were as
ff
ff
follow
s (in thousands):
Balance at beginning of year
Gross increases – tax positions of prior periods
Gross increases – current period tax positions
Gross decreases – tax positions of prior periods
Gross decreases – lapse of applicable statute of limitations
Balance at end of year
2022
2021
2020
$
$
22,563
3,880
45,975
(688)
(3,772)
67,958
$
$
24,105
4,293
3,607
(816)
(8,626)
22,563
$
$
27,359
2,539
1,946
(3,540)
(4,199)
24,105
As of December 31, 2022, 2021 and 2020, the Company had $38.3 million, $23.1 million and $29.5 million of
unrecognized tax benefits, respectively. Total interest and penalties for unrecognized tax benefits includes $8.6 million, $7.2
million and $7.7 million as of December 31, 2022, 2021 and 2020, respectively. Interest and penalties related to unrecognized
e recorded in the provision for income taxes and were $2.0 million, $0.5 million and $1.2 million for the years
tax benefits ar
ended December 31, 2022, 2021 and 2020, respectively. The amount of unrecognized tax benefits that, if recognized, would
impact the effff ective income tax rate is $38.3 million.
ff
ff
As of December 31, 2022, it is reasonably possible that $3.6 million of unrecognized tax benefits may be recognized within
the next 12 months due to the expiration of local statutes of limitations. Certain U.S. state and foreign income tax returns from
2013 through 2022 are currently under audit. The Company has reserved for those positions that are not more-likely-than-not to
be sustained.
90
20. Net Income per Share
Basic net income per share is computed using the weighted average number of common shares outstanding during the
applicable period. Diluted net income per share is computed using the weighted average number of common shares outstanding
during the period, plus the dilutive effect of potential common stock. Potential common stock consists of shares issuable
pursuant to stock options, RSUs, DSUs, convertible senior notes and warrants issued by the Company. For the year ended
December 31, 2022, the dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the
treasury srr
of the if-ff converted method. For the years ended December 31, 2021 and 2020, the dilutive effect of outstanding awards and
convertible securities is reflected in diluted earnings per share by application of the treasury stock method.
tock method and the dilutive effect of the convertible securities is reflected in diluted earnings per share by application
ff
The components used in the computation of basic and diluted net income per share for the years ended December 31, 2022,
2021 and 2020 were as follows (in thousands, except per share data):
ff
Numerator:
Net income
Denominator:
Shares used for basic net income per share
ff
Effff ect of dilutive securities:
ff
Stock options
RSUs and DSUs
Convertible senior notes
Warrants related to issuance of convertible senior notes
Shares used for diluted net income per share
Basic net income per share
Diluted net income per share
2022
2021
2020
$
523,672
$
651,642
$
557,054
159,089
162,665
162,490
21
637
720
—
21
1,518
1,600
—
31
1,819
873
—
160,467
165,804
165,213
$
$
3.29
3.26
$
$
4.01
3.93
$
$
3.43
3.37
For the years ended December 31, 2022, 2021 and 2020, certain potential outstanding shares from service-based RSUs,
ff
convertible notes and warrants were excluded from the computation of diluted net income per share because the effect of
including these items was anti-dilutive. Additionally, certain performance-based RSUs were excluded from the computation of
diluted net income per share because the underlying performance conditions for such RSUs had not been met as of these dates.
The number of potentially outstanding shares excluded from the computation of diluted net income per share for the years
ended December 31, 2022, 2021 and 2020 were as follows (in thousands):
Service-based RSUs
Market- and performance-based RSUs
Convertible senior notes
Warrants related to issuance of convertible senior notes
Total shares excluded from computation
21. Akamai Foundation
2022
2021
2020
2,211
1,030
—
21,991
25,232
776
1,199
9,898
21,991
33,864
591
1,409
12,922
21,991
36,913
The Akamai Foundation is a private non-profit organization founded in 2000 by certain current and former employees of
ff
ff
rff om the Foundation’s initiatives, therefore the Foundation is not consolidated. The Foundation's initiatives
the Company (the “Foundation”). The Company has the right to appoint the directors of the Foundation, but receives no
economic benefit f
are to support youth education, with a focus on mathematics and science, as well as other charitable causes. In 2020, the
Foundation expanded its initiatives to include supporting increased diversity in the technology industry. The Company
contributed $20.0 million in that year in support of the Foundation's expanded initiatives. This expense is included in general
and administrative expenses in the consolidated statements of income for the year ended December 31, 2020.
91
22. Segment and Geographic Information
The Company’s chief operating decision-maker is the chief executive officer and the executive management team. A
December 31, 2022, the Company is currently organized and operates as one reportable and operating segment. The Company
is not organized by market and is managed and operated as one business. A single management team that reports to the chief
executive offff icer comprehensively manages the entire busines
s. The Company does not operate any material separate lines of
business or separate business entities with respect to its services. Accordingly, the Company does not accumulate discrete
ff
financial information w
ith respect to separate entities and does not have separate operating or reportable segments.
s of
ff
ff
The Company deploys its servers into networks worldwide. Net property and equipment, excluding internal-use software
and operating lease right-of-use assets, located in the U.S. and foreign locations, as of December 31, 2022 and 2021 was as
ff
follow
s (in thousands):
Property and equipment, net, excluding internal-use software, located in the U.S.
Property and equipment, net, excluding internal-use software, located in foreign locations
Operating lease right-of-use assets located in the U.S.
Operating lease right-of-use assets located in forff eign locations
$
$
568,590
516,127
608,854
204,518
568,040
510,695
625,424
190,330
December 31,
2022
December 31,
2021
23. Quarterly Financial Data (Unaudited)
Revision of Previously Issued Financial Statements
ff
ff
During the preparation of the financial statements for the year ended December 31, 2022, an error was identified in the
operty that occurred during 2022. During each of the first
Company’s accounting for an intercompany sale of intellectual pr
three quarters of 2022, the Company failed to record a deferred tax asset in the jurisdiction where the intellectual property was
is that was achieved with the sale. This caused net deferred taxes to be understated in the interim
sold for the step up in tax bas
condensed consolidated balance sheets, the provision for income taxes to be overstated and net income and earnings per share
to be understated in the interim condensed consolidated statements of income. Management evaluated the error and determined
that the related impact was not material to any of the Company's previously issued financial statements.
ff
The financial data below has been derived from the Company’s quarterly reports on Form 10-Q filed for the respective
ff
periods, with 2022 periods adjusted to reflect the impact of the error. The Company will also correct previously reported
ff
financial information f
ff
or this error in its future filings, as applicable.
r share data)
,
(i(( n thousands, exee cept pe
e
Year ended December 31, 2022
Revenue
Cost of revenue (exclusive of amortization of acquired
intangible assets)
Net income
Basic net income per share
Diluted net income per share
Year ended December 31, 2021
Revenue
Cost of revenue (exclusive of amortization of acquired
intangible assets)
Net income
Basic net income per share
Diluted net income per share
,
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
903,647
$
903,332
$
881,896
$
927,779
332,752
133,376
0.83
0.82
346,649
137,840
0.86
0.85
346,450
123,694
0.78
0.78
357,968
128,762
0.82
0.82
$
842,708
$
852,824
$
860,333
$
905,358
306,687
155,695
0.95
0.94
320,000
156,497
0.96
0.94
316,866
178,916
1.10
1.08
325,403
160,534
0.99
0.97
92
The changes to the condensed consolidated balance sheets as a result of the error were as follows (in thousands):
,
red income tax assets
March 31, 2022
Deferff
Total assets
Deferred income tax liabilities
Total liabilities
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
red income tax assets
,
June 30, 2022
Deferff
Total assets
Deferred income tax liabilities
Total liabilities
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
,
red income tax assets
September 30, 2022
p
Deferff
Total assets
Deferred income tax liabilities
Total liabilities
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
As Previously
Reported
Adjustment
As Revised
$
$
$
$
$
$
265,946
8,303,779
41,131
4,003,257
1,515,842
4,300,522
8,303,779
292,817
8,211,054
39,367
3,930,576
1,635,379
4,280,478
8,211,054
285,722
8,107,369
38,146
3,874,185
1,743,533
4,233,184
8,107,369
$
$
$
8,610
8,610
(5,603)
(5,603)
14,213
14,213
8,610
19,698
19,698
(12,818)
(12,818)
32,516
32,516
19,698
29,112
29,112
(18,944)
(18,944)
48,056
48,056
29,112
274,556
8,312,389
35,528
3,997,654
1,530,055
4,314,735
8,312,389
312,515
8,230,752
26,549
3,917,758
1,667,895
4,312,994
8,230,752
314,834
8,136,481
19,202
3,855,241
1,791,589
4,281,240
8,136,481
Changes to the condensed consolidated statements of income as a result of the error were as follows (in thousands, except
per share data):
Provision for income taxes
ff
Net income
Net income per share:
Basic
Diluted
For the Three Months Ended
March 31, 2022
As Previously
Reported
$
$
$
(34,050)
119,163
0.74
0.73
$
$
$
Adjustment
14,213
14,213
0.09
0.09
$
$
$
As Revised
(19,837)
133,376
0.83
0.82
93
For the Three Months Ended
June 30, 2022
For the Six Months Ended
June 30, 2022
As Previously
Reported
(
51,058) $
119,537
Provision for income taxes $
ff
Net income
Net income per share:
Adjustment
18,303
18,303
Basic
Diluted
$
$
0.75
0.74
$
$
0.11
0.11
$
$
$
As Revised
As Previously
Reported
Adjustment
As Revised
(32,755) $
137,840
(85,108) $
238,700
32,516 $
32,516
(52,592)
271,216
0.86
0.85
$
$
1.49 $
1.47 $
0.20 $
0.20 $
1.69
1.67
For the Three Months Ended
September 30, 2022
For the Nine Months Ended
September 30, 2022
As Previously
Reported
(
50,006) $
108,154
Provision for income taxes $
ff
Net income
Net income per share:
Adjustment
15,540
15,540
Basic
Diluted
$
$
0.68
0.68
$
$
0.10
0.10
$
$
$
As Revised
As Previously
Reported
Adjustment
As Revised
(34,466) $
123,694
(135,114) $
346,854
48,056 $
48,056
(87,058)
394,910
0.78
0.78
$
$
2.17 $
2.15 $
0.30 $
0.30 $
2.47
2.45
The condensed consolidated statements of shareholders' equity, condensed consolidated statements of cash flows and
condensed consolidated statements of comprehensive income for the quarterly and year-to-date periods ended March 31, 2022,
June 30, 2022 and September 30, 2022 were also revised to reflect the impact to net income as stated in the tables above. The
benefit f
ff
ff
had no net impact on cash flows from operating, investing or financing activities in these periods.
o adjusted in the condensed consolidated statement of cash flows, however, the error
or deferred income tax line was als
ff
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal
ff
executive offff icer and principal financial officer, respectively), evaluated the effectiveness of our dis
closure controls and
procedures as of December 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") means controls and other procedures
of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, w
controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal
executive and principal financial offff icers, as appropriate to allow timely decisions r
egarding required disclosures. Based on the
evaluation of our disclosure controls and procedures as of December 31, 2022, our Chief Executive Officer and Chief Financial
Offff icer concluded that, as of such date, our disclosure controls and procedures were not effective to provide reasonable
assurance due to a material weakness in internal control over financial reporting described below.
ithout limitation,
r
ff
ff
MM
Managem
ent’s Annual Report on Inter
’
nal Control over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for
eporting. Internal control over financial reporting is
establishing and maintaining adequate internal control over financial r
defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the
supervision of, the company's principal executive and principal financial officers and effected by the company’s board of
directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and
ff
ff
94
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the company’s assets that could have a material effect on the financial statements.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2022. Based on this assessment, our management concluded that as of December 31, 2022, our internal control over financial
reporting was not effective as of December 31, 2022, due to a material weakness in internal control over financial reporting
described below. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis.
A material weakness in internal control over financial reporting related to income taxes was identified in the Company’s
internal control over financial reporting as of December 31, 2022. Specifically, the Company did not design and maintain
effff ective controls over the adoption and application of new accounting standards related to income taxes.
ff
ff
This material weakness resulted in immaterial errors to net deferred tax assets and provision for income taxes for the
interim periods ended March 31, 2022, June 30, 2022 and September 30, 2022. These immaterial errors also resulted in a
revision to previously issued quarterly financial statements for each of these periods. Additionally, this material weakness could
ould result in a material misstatement to the
result in misstatements of the aforementioned account balances or disclosures that w
ff
Company's annual or interim consolidated financial s
tatements that would not be prevented or detected.
ff
ff
The effff ectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by
ff
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report, which is included in
Item 8 of this annual report on Form 10-K.
ff
Remediation Plan
The Company’s management, under the oversight of the Audit Committee, is in the process of designing and implementing
changes in processes and controls to remediate the material weakness. We expect our remediation plan to include the
enhancement of the design and precision of our process for evaluating the adoption and application of new accounting standards
in the area of income taxes, including the involvement of external tax advisors, as applicable.
The material weakness will not be considered remediated until management completes its remediation plan and the
enhanced controls operate for a suffff icient period of time and management has concluded, through testing, that the related
ff
controls are effff ective. The Company w
as appropriate.
ill monitor the effectiveness of its remediation plan and will refine its remediation plan
ff
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the fourth quarter ended December 31, 2022 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
ff
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
95
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The complete response to this Item regarding the backgrounds of our executive officers and director
s and other information
required by Items 401, 405 and 407 of Regulation S-K will be contained in our definitive proxy statement for our 2023 Annual
Meeting of Stockholders under the sections captioned “Executive Compensation Matters,” “Delinquent Section 16(a) Reports”
and “Corpor
ate Governance Highlights” and is incorporated by reference herein.
r
ff
Our executive officers and directors and their positions as of February 28, 2023, are as follows:
ame
F. Thomson Leighton
Edward McGowan
Aaron Ahola
Robert Blumofe
ff
Adam Karon
Kim Salem-Jackson
Paul Joseph
Mani Sundaram
Anthony Williams
Sharon Bowen
Marianne Brown
Monte Ford
Daniel Hesse
Tom Killalea
Jonathan Miller
Madhu Ranganathan
ident and Chief Technology Officer
irector (Principal Executive Officer)
Position
Chief Executive Offff icer, President and D
ff
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Executive Vice President, General Counsel and Corporate Secretary
Executive Vice Pres
Chief Operating Officer and General Manager of the Cloud Technology Group
Executive Vice President and Chief Marketing Officer
Executive Vice President, Global Sales and Services
Executive Vice President and General Manager of the Security Technology Group
Executive Vice President and Chief Human Resources Officer
Director
Director
Director
Director
Director
Director
Director
ff
ff
Bernardus Verwaayen Director
William Wagner
Director
We have adopted a written code of business ethics, as amended, that applies to our principal executive officer, principal
ff
financial officer and principal accounting officer or persons s
ff
members of our board of directors. The text of our amended code of ethics is available on our website at www.akamai.com. If
we amend, or grant a waiver under, our code of business ethics that applies to our principal executive officer, principal financial
offff icer and pr
amendment or waiver on our website at www.akamai.com.
incipal accounting officer, or persons performing similar functions, we intend to post information about such
erving similar functions and all of our other employees and
ff
Item 11. Executive Compensation
The inforff mation required by this Item is incorporated by reference herein to our definitive proxy s
r
Annual Meeting of Stockholders under the sections captioned “Executive Compensation Matters,” “Corporate Governance
Highlights,” “Compensation Committee Interlocks and Insider Participation” and “Director Compensation.”
tatement for our 2023
r
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The inforff mation required by this Item is incorporated by reference herein to our definitive proxy s
r
tatement for our 2023
Annual Meeting of Stockholders under the sections captioned “Executive Compensation Matters,” “Security Ownership of
uance Under Equity Compensation Plans.”
Certain Beneficial Owners and Management” and “Securities Authorized for Iss
ff
Item 13. Certain Relationships and Related Transactions, and Director Independence
96
The inforff mation required by this Item is incorporated by reference herein to our definitive proxy s
r
tatement for our 2023
Annual Meeting of Stockholders under the sections captioned “Certain Relationships and Related Party Transactions; Code of
Ethics; Interest in Annual Meeting Matters,” “Corporate Governance Highlights” and “Compensation Committee Interlocks and
Insider Participation.”
Item 14. Principal Accounting Fees and Services
The inforff mation required by this Item is incorporated by reference herein to our definitive proxy s
r
tatement for our 2023
Annual Meeting of Stockholders under the section captioned “Ratification of Selection of Independent Auditors.”
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents Filed as Part of this Annual Report on Form 10-K
1. Financial Statements (included in Item 8 of this Annual Report on Form 10-K):
•
•
•
•
•
•
•
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
ff
2. Financial Statement Schedules
Financial statements schedules are omitted as they are either not required or the information is otherwise included
in the consolidated financial statements.
(b) Exhibits
3.1(A)
3.2(B)
4.1(C)
4.2(D)
4.3(E)
4.4(F)
4.5(F)
4.6(B)
EXHIBIT INDEX
Amended and Restated Certificate of Incorporation of Akamai Technologies
r
, Inc., as amended
Amended and Restated Bylaws of Akamai Technologies, Inc., effective December 13, 2022
ff
Specimen common stock certificate
Indenture (including form of Notes) with respect to Akamai’s 0.125% Convertible Senior Notes due 2025,
dated as of May 21, 2018, between Akamai and U.S. Bank National Association, as trustee
Indenture (including form of Notes) with respect to the Registrant’s 0.375% Convertible Senior Notes due
September 1, 2027, dated as of August 16, 2019, between the Registrant and U.S. Bank National
Association, as trusr
tee
First Supplemental Indenture with respect to 0.125% Convertible Senior Notes due 2025, dated December
16, 2021, between Akamai Technologies, Inc. and U.S. Bank National Association, as trustee
r
First Supplemental Indenture with respect to 0.375% Convertible Senior Notes due 2027, dated December
16, 2021, between Akamai Technologies, Inc. and U.S. Bank National Association, as trustee
r
Description of Registrant's Securities Registered Under Section 12 of the Exchange Act
10.1(G)@
Amended and Restated 1999 Employee Stock Purchase Plan of the Registrant
10.2(H)@
Amendment to Amended and Restated 1999 Employee Stock Purchase Plan of the Registrant
10.3(I)@
10.4(J)@
2009 Akamai Technologies, Inc. Stock Incentive Plan
Akamai Technologies, Inc. Second Amended and Restated 2013 Stock Incentive Plan
97
10.5(K)
10.6(L)
10.7(M)
10.8(N)@
10.9@
Prolexic Technologies, Inc. 2011 Equity Incentive Plan
Cotendo, Inc. Amended and Restated 2008 Stock Plan
Linode Limited Liability Company 2022 RSU Plan
Form of Restricted Stock Unit Agreement for use under the 2013 Stock Incentive Plan, as amended (time
vesting)
ff
ff
Form of Restricted Stock Unit Agreement for use under the 2013 Stock Incentive Plan (perf
vesting)
ff
ormance
10.10(O)@
Form of Stock Option Agreement for use under the 2013 Stock Incentive Plan
10.11(O)
Form of Deferred Stock Unit Agreement for use under the 2013 Stock Incentive Plan
10.12@
10.13@
Form of Performance-Based Vesting Restricted Stock Unit Agreement with Retirement Provision
Non-Employee Director Compensation Plan
10.14(N)@
Form of Restricted Stock Unit Agreement for use under the 2013 Stock Incentive Plan (2019)
ff
10.15(P)@
Form Executive Bonus Plan
10.16(Q)@
Akamai Technologies, Inc. Executive Severance Pay Plan, as amended
10.17(R)@
Form of Change in Control and Severance Agreement
10.18(S)@
Akamai Technologies, Inc. Policy on Departing Director Compensation
10.19(T)@
Akamai Technologies, Inc. U.S. Non-Qualified Deferred Compensation Plan
10.20(U)@
Employment Letter Agreement between the Registrant and F. Thomson Leighton dated February 25, 2013
10.21(R)@
Amendment to Employment Letter Agreement between the Registrant and F. Thomson Leighton dated
November 12, 2015
10.22(V)
Indenture of Lease for 145 Broadway, Cambridge, Massachusetts dated November 7, 2016
10.23(V)
Must-Take Premises and Right of First Offer Agreement among the Registrant, Boston Properties Limited
Partnership and the Trustees of Ten Cambridge Center Trust dated November 7, 2016
10.24(W)
150 Broadway Real Property Lease Dated December 20, 2017
10.25(X)†
Exclusive Patent and Non-Exclusive Copyright License Agreement, dated as of October 26, 1998, between
the Registrant and Massachusetts Institute of Technology
10.26(Y)
10.27(D)
10.28(D)
10.29(E)
10.30(E)
21.1
23.1
31.1
31.2
32.1
32.2
Credit Agreement by and among Akamai Technologies, Inc., the financial institutions identified therein as
lenders and JPMorgan Chase Bank, N.A., as administrative agent, dated November 22, 2022
ff
Form of Call Option Confirmation between Akamai and each Option Counterparty
Form of Warrant Confirmation between Akamai and each Option Counterparty
r
Form of Call Option Confirmation between the Registrant and each Option Counterparty
Form of Warrant Confirmation between the Registrant and each Option Counterparty
r
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Rule 13a- 14(a)/Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended
Certification of Chief Financial Officer pursuant to Rule 13a- 14(a)/Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
r
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
r
101.INS
Inline XBRL Instance Document – The instance document does not appear in the interactive data file
because its XBRL tags are embedded within the inline XBRL document.*
98
101.SCH
Inline XBRL Taxonomy Extension Schema Document*
101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
Inline XBRL Taxonomy Label Linkbase Document*
101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document*
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101.INS)
ated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275, 18884226) filed with
ated by reference to the Registrant’s Annual Report on Form 8-K (File No. 000-27275, 221467934) filed with
ated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-85679, 99727819), as
ated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275, 18852548) filed with
ated by reference to the Registration's Current Report on Form 8-K (File No. 000-27275, 191033874) filed with
ated by reference to the Registrant’s Annual Report Current Report on Form 8-K (File No. 000-27275,
ated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-27275, 06691330) filed with
________________
(A)
Incorpor
r
the Commission on June 6, 2018.
Incorpor
r
the Commission on December 16, 2022.
Incorpor
r
amended, filed with the Commission on October 13, 1999.
Incorpor
r
the Commission on May 22, 2018.
Incorpor
r
the Commission on August 16, 2019.
Incorpor
r
211497782) filed with the Commission on December 16, 2021.
Incorpor
r
the Commission on March 16, 2006.
Incorpor
r
with the Commission on May 12, 2008.
Incorpor
r
the Commission on May 23, 2011.
Incorpor
r
the Commission on May 13, 2022.
Incorpor
r
filed with the Commission on March 3, 2014.
Incorpor
r
12689764) filed with the Commission on March 14, 2012.
Incorpor
r
21, 2022.
Incorpor
r
with the Commission on May 9, 2019.
Incorpor
r
with the Commission on August 9, 2013.
r
Incorpor
the Commission on February 24, 2023.
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
(K)
(L)
(M)
(N)
(O)
(P)
ated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-27275, 08823347) filed
ated by reference to the Registrant's Current Report on Form 8-K (File No. 000-27275, 11865051) filed with
ated by reference to the Registrant's Current Report on Form 8-K (File No. 000-27275, 22922830) filed with
ff
ated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-194278, 14660564)
ated by reference to the Registrant’s Registration Statement on Form S-8 filed (File No. 333-180088,
ated by reference to the Registrant’s Registration Statement on Form S-8 filed with the Commission on March
ated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-27275, 19810440) filed
ated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 000-27275, 131025074) filed
ated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275, 23668192) filed with
99
(Q)
(R)
(S)
(T)
(U)
(V)
(W)
(X)
(Y)
Incorpor
r
the Commission on October 2, 2019.
Incorpor
r
the Commission on February 25, 2022.
Incorpor
r
the Commission on February 28, 2017.
Incorpor
r
the Commission on May 11, 2015.
Incorpor
r
the Commission on March 1, 2013.
Incorpor
r
the Commission on November 10, 2016.
Incorpor
r
the Commission on March 1, 2018.
Incorpor
r
October 28, 1999.
Incorpor
r
the Commission on November 23, 2022.
ated by reference to the Registrant's Current Report on Form 8-K (File No. 000-27275, 191132693) filed with
ated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275, 22680595) filed with
ated by reference to the Registrant's Annual Report on form 10-K (File No. 000-27275, 17647667) filed with
ated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 000-27275, 15850176) filed with
ated by reference to the Registrant's Annual Report on Form 10-K (File No. 000-27275, 13657899) filed with
ated by reference to the Registrant's Current Report on Form 8-K (File No. 000-27275, 161988699) filed with
ff
ated by reference to the Registrant's Annual Report on Form 10-K (File No. 000-27275, 18654889) filed with
ated by reference to the Registrant's Registration Statement on Form S-1/A filed with the Commission on
ated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275, 221416292) filed with
_______________
@ Management contract or compensatory plan or arrangement filed as an exhibit to this Annual Report on Form
ff
ff
10-K pursuant to Item 15(b) of this Annual Report.
Confidential Treatment has been granted as to certain portions of this Exhibit. S
and filed separately with the Securities and Exchange Commission.
Submitted electronically herewith.
†
*
uch portions have been omitted
(c) Not applicable.
Item 16. Form 10-K Summary
None.
100
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
rr
Februar
rr
y 28, 2023
AKAKK MAI TECHNOLOGIES, INC.
By:
/s/ EDWARD MCGOWAN
Edward McGowan
Executive Vice President, Chief Financial Officer and
Treasurer
ff
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ F. THOMSON LEIGHTON
F. Thomson Leighton
Chief Executive Officer, President and
ff
Director (Principal Executive Officer)
February 28, 2023
/s/ EDWARD MCGOWAN
Edward McGowan
/s/ LAURA HOWELL
Laura Howell
/s/ SHARON Y. BOWEN
Sharon Y. Bowen
/s/ MARIANAA NE C. BROWN
Marianne C. Brown
/s/ MONTE E. FORD
Monte E. Ford
/s/ DANA IEL R. HESSE
Daniel R. Hesse
/s/ PETER T. KILLALEA
Peter T. Killalea
/s/
JONATHAN F. MILLER
Jonathan F. Miller
/s/ MADHU RANAA GANAA ATHAN
Madhu Ranganathan
/s/ BERNARDUS VERWAAYEN
Bernardus Verwaayen
/s/ WILLIAM R. WAGNER
William R. Wagner
Executive Vice President, Chief Financial
ff
Offff icer and Treas
urer (Principal Financial
ff
Offff icer)
February 28, 2023
Chief Accounting Officer (Principal
Accounting Officer)
ff
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
Director
Director
Director
Director
Director
Director
Director
Director
Director
101
Our Leadership
EXECUTIVE OFFICERS
BOARD OF DIRECTORS
Tom Leighton
(cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4)(cid:41)(cid:92)(cid:73)(cid:71)(cid:89)(cid:88)(cid:77)(cid:90)(cid:73)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86)(cid:4)
Aaron Ahola
Executive Vice President,
General Counsel and Corporate Secretary
Robert Blumofe
Executive Vice President and
(cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4)(cid:56)(cid:73)(cid:71)(cid:76)(cid:82)(cid:83)(cid:80)(cid:83)(cid:75)(cid:93)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86)
Paul Joseph
Executive Vice President,
Global Sales and Services
Adam Karon
(cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4)(cid:51)(cid:84)(cid:73)(cid:86)(cid:69)(cid:88)(cid:77)(cid:82)(cid:75)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)
General Manager, Cloud Technology Group
Edward McGowan
Executive Vice President
(cid:69)(cid:82)(cid:72)(cid:4)(cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4)(cid:42)(cid:77)(cid:82)(cid:69)(cid:82)(cid:71)(cid:77)(cid:69)(cid:80)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86)
Kim Salem-Jackson
Executive Vice President
(cid:69)(cid:82)(cid:72)(cid:4)(cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4)(cid:49)(cid:69)(cid:86)(cid:79)(cid:73)(cid:88)(cid:77)(cid:82)(cid:75)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86)
Mani Sundaram
Executive Vice President and
General Manager, Security Technology Group
Anthony Williams
Executive Vice President and
(cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:4)(cid:44)(cid:89)(cid:81)(cid:69)(cid:82)(cid:4)(cid:54)(cid:73)(cid:87)(cid:83)(cid:89)(cid:86)(cid:71)(cid:73)(cid:87)(cid:4)(cid:51)(cid:446)(cid:71)(cid:73)(cid:86)
Daniel Hesse
Board Chair
Sharon Bowen
Director
Marianne Brown
Director
Monte Ford
Director
Tom Killalea
Director
Tom Leighton
Director
Jonathan Miller
Director
Madhu Ranganathan
Director
Bernardus Verwaayen
Director
William Wagner
Director
Corporate Headquarters
Akamai Technologies, Inc.
145 Broadway
Cambridge, MA 02142
Tel: 617.444.3000
U.S. Toll-Free Tel: 877.425.2624
Corporate Counsel
Goodwin Procter LLP
Boston, MA
Wilmer Cutler Pickering Hale and Dorr LLP
Boston, MA
Transfer Agent
Stock Listing
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
U.S. Toll-Free Tel: 877.282.1168
Independent Auditors
PricewaterhouseCoopers LLP
Boston, MA
Akamai’s common stock is traded on
the Nasdaq Global Select Market under the
symbol “AKAM”
Investor Inquiries
Additional copies of this report
(cid:69)(cid:82)(cid:72)(cid:4)(cid:83)(cid:88)(cid:76)(cid:73)(cid:86)(cid:4)(cid:444)(cid:82)(cid:69)(cid:82)(cid:71)(cid:77)(cid:69)(cid:80)(cid:4)(cid:77)(cid:82)(cid:74)(cid:83)(cid:86)(cid:81)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:4)(cid:69)(cid:86)(cid:73)(cid:4)
available through investor relations
at akamai.com