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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________ 
FORM 10-Q
 ______________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to    
            

Commission file number 0-27275
______________________________________________ 
Akamai Technologies, Inc.

(Exact name of registrant as specified in its charter)
Delaware 04-3432319
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
145 Broadway
Cambridge, MA 02142
(617) 444-3000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
______________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock - par value $0.01 per share
AKAMNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No  x
The number of shares outstanding of the registrant’s common stock as of November 3, 2020: 162,793,988
1

Table of Contents
AKAMAI TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

2

Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS

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

3

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

(in thousands, except share data) (unaudited)September 30,
2020
December 31,
2019
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$114,850 $138,946 
Accrued expenses369,815 334,861 
Deferred revenue88,942 71,223 
Operating lease liabilities136,292 139,463 
Other current liabilities7,225 8,843 
Total current liabilities717,124 693,336 
Deferred revenue3,954 4,368 
Deferred income tax liabilities31,946 29,187 
Convertible senior notes1,889,743 1,839,791 
Operating lease liabilities682,623 692,181 
Other liabilities81,386 90,065 
Total liabilities3,406,776 3,348,928 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 700,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued or outstanding
  
Common stock, $0.01 par value; 700,000,000 shares authorized; 164,062,652 shares issued and 162,799,784 shares outstanding at September 30, 2020, and 162,000,843 shares issued and outstanding at December 31, 2019
1,641 1,620 
Additional paid-in capital3,781,228 3,653,486 
Accumulated other comprehensive loss(45,854)(45,144)
Treasury stock, at cost, 1,262,868 shares at September 30, 2020, and no shares at December 31, 2019
(121,078) 
Retained earnings491,680 47,996 
Total stockholders’ equity4,107,617 3,657,958 
Total liabilities and stockholders’ equity$7,514,393 $7,006,886 

The accompanying notes are an integral part of the consolidated financial statements.
4

Table of Contents
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
    
 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
(in thousands, except per share data) (unaudited)2020201920202019
Revenue$792,845 $709,912 $2,351,862 $2,121,494 
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)283,439 246,938 828,825 729,874 
Research and development66,773 64,887 202,087 192,467 
Sales and marketing122,749 122,258 370,004 383,640 
General and administrative128,365 123,216 385,435 366,167 
Amortization of acquired intangible assets10,340 9,624 31,155 28,871 
Restructuring charge (benefit)21 (300)10,439 6,879 
Total costs and operating expenses611,687 566,623 1,827,945 1,707,898 
Income from operations181,158 143,289 523,917 413,596 
Interest income6,307 7,908 22,852 22,953 
Interest expense(17,324)(12,127)(51,778)(32,689)
Other expense, net(2,158)(752)(7,869)(819)
Income before provision for income taxes167,983 138,318 487,122 403,041 
(Provision) benefit for income taxes(8,801)960 (41,764)(42,718)
Loss from equity method investment(559)(1,388)(1,674)(1,388)
Net income$158,623 $137,890 $443,684 $358,935 
Net income per share:
Basic$0.97 $0.85 $2.73 $2.20 
Diluted$0.95 $0.84 $2.69 $2.18 
Shares used in per share calculations:
Basic162,757 162,445 162,387 163,029 
Diluted166,519 164,558 164,990 164,788 

The accompanying notes are an integral part of the consolidated financial statements.
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AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

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

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AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months
Ended September 30,
(in thousands) (unaudited)20202019
Cash flows from operating activities:
Net income$443,684 $358,935 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization350,681 324,874 
Stock-based compensation146,901 140,262 
(Benefit) provision for deferred income taxes(22,548)24,581 
Amortization of debt discount and issuance costs47,057 30,761 
Other non-cash reconciling items, net16,284 3,778 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(85,439)(38,144)
Prepaid expenses and other current assets(21,380)(11,663)
Accounts payable and accrued expenses49,818 (29,441)
Deferred revenue14,803 16,714 
Other current liabilities(1,638)(21,850)
Other non-current assets and liabilities(14,316)(22,643)
Net cash provided by operating activities923,907 776,164 
Cash flows from investing activities:
Cash received (paid) for business acquisitions, net of cash acquired106 (121,409)
Cash paid for asset acquisition(36,376) 
Cash paid for equity method investment (36,008)
Purchases of property and equipment(395,793)(268,766)
Capitalization of internal-use software development costs(168,634)(159,645)
Purchases of short- and long-term marketable securities(1,153,526)(1,373,563)
Proceeds from sales of short- and long-term marketable securities29,809 547 
Proceeds from maturities of short- and long-term marketable securities1,301,354 878,779 
Other non-current assets and liabilities(1,980)1,895 
Net cash used in investing activities(425,040)(1,078,170)
Cash flows from financing activities:
Proceeds from the issuance of convertible senior notes 1,135,629 
Proceeds from the issuance of warrants 185,150 
Purchase of note hedge related to convertible senior notes (312,225)
Repayment of convertible senior notes (690,000)
Proceeds related to the issuance of common stock under stock plans45,812 43,204 
Employee taxes paid related to net share settlement of stock-based awards(77,299)(61,116)
Repurchases of common stock(121,078)(291,788)
Other non-current assets and liabilities (1,558)
Net cash (used in) provided by financing activities(152,565)7,296 
Effects of exchange rate changes on cash, cash equivalents and restricted cash3,535 (2,650)
Net increase (decrease) in cash, cash equivalents and restricted cash349,837 (297,360)
Cash, cash equivalents and restricted cash at beginning of period394,146 1,036,987 
Cash, cash equivalents and restricted cash at end of period$743,983 $739,627 
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AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

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

The accompanying notes are an integral part of the consolidated financial statements.
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AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

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

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

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

Nine Months Ended September 30, 2020
(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance as of January 1, 2020162,000,843 $1,620 $3,653,486 $(45,144)$ $47,996 $3,657,958 
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes1,667,888 17 (76,696)(76,679)
Issuance of common stock under employee stock purchase plan393,921 4 29,166 29,170 
Stock-based compensation175,272 175,272 
Repurchases of common stock(1,262,868)(121,078)(121,078)
Net income443,684 443,684 
Foreign currency translation adjustment(7,292)(7,292)
Change in unrealized gain on investments, net of tax6,582 6,582 
Balance as of September 30, 2020162,799,784 $1,641 $3,781,228 $(45,854)$(121,078)$491,680 $4,107,617 


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

Nine Months Ended September 30, 2019
(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance as of January 1, 2019162,904,550 $1,629 $3,670,033 $(48,912)$ $(430,890)$3,191,860 
Cumulative-effect adjustment to accumulated deficit related to adoption of new accounting pronouncement851 851 
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes1,833,758 18 (59,653)(59,635)
Issuance of common stock under employee stock purchase plan473,462 5 27,664 27,669 
Stock-based compensation167,475 167,475 
Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880
240,820 240,820 
Issuance of warrants related to convertible senior notes185,150 185,150 
Purchase of note hedge related to convertible senior notes(312,225)(312,225)
Repurchases of common stock(3,552,268)(291,788)(291,788)
Net income358,935 358,935 
Foreign currency translation adjustment(10,744)(10,744)
Change in unrealized gain on investments, net of tax3,232 3,232 
Balance as of September 30, 2019161,659,502 $1,652 $3,919,264 $(56,424)$(291,788)$(71,104)$3,501,600 


The accompanying notes are an integral part of the consolidated financial statements.
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AKAMAI TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

Akamai Technologies, Inc. (the “Company”) provides solutions for delivering, optimizing and securing content and business applications over the Internet. Its globally-distributed platform comprises approximately 325,000 servers across more than 130 countries. The Company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company currently operates in one industry segment: providing cloud services for delivering, optimizing and securing content and business applications over the Internet.

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying financial statements.

Certain information and footnote disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes have been condensed in, or omitted from, these interim financial statements. Accordingly, the unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 28, 2020.

The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair statement of the results of all interim periods reported herein.

Newly-Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance that introduces a new methodology for accounting for credit losses on financial instruments. The guidance establishes a new "expected credit loss model" that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances. The Company prospectively adopted this standard on January 1, 2020. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued guidance that addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance for capitalizing costs associated with developing or obtaining internal-use software. The Company prospectively adopted this standard on January 1, 2020. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements

In August 2020, the FASB issued guidance that is expected to reduce complexity and improve comparability of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. This guidance will be effective for the Company on January 1, 2022. The Company is evaluating the potential impact of adopting this new accounting guidance on its consolidated financial statements.
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2. Fair Value Measurements

The following is a summary of available-for-sale marketable securities held as of September 30, 2020 and December 31, 2019 (in thousands):

Gross UnrealizedClassification on Balance Sheet
Amortized CostGainsLossesAggregate
Fair Value
Short-Term
Marketable
Securities
Long-Term
Marketable
Securities
As of September 30, 2020
Commercial paper$11,954 $42 $ $11,996 $11,996 $ 
Corporate bonds1,410,954 11,095 (274)1,421,775 636,405 785,370 
U.S. government agency obligations359,014 529 (241)359,302 52,637 306,665 
$1,781,922 $11,666 $(515)$1,793,073 $701,038 $1,092,035 
As of December 31, 2019
Certificates of deposit$150,000 $ $ $150,000 $150,000 $ 
Commercial paper73,829 23 (7)73,845 73,845  
Corporate bonds1,368,668 1,840 (378)1,370,130 753,538 616,592 
U.S. government agency obligations369,475 80 (74)369,481 165,623 203,858 
$1,961,972 $1,943 $(459)$1,963,456 $1,143,006 $820,450 

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

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

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

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

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

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

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

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3. Accounts Receivable

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

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

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

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

4. Incremental Costs to Obtain a Contract with a Customer

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

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

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

5. Goodwill and Acquired Intangible Assets

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

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

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

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

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

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

6. Acquisitions

Asavie

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

Instart

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

7. Debt

Convertible Notes Due 2027

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

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

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

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

upon the occurrence of specified corporate events.

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

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

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

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

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

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

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

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

Note Hedge

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

Warrants

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

Convertible Notes Due 2025

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

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

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

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

upon the occurrence of specified corporate events.

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

Upon conversion, the Company, at its election, may pay or deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The initial conversion rate is 10.5150 shares of the Company's common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $95.10 per share, subject to adjustments in certain events, and represents a potential conversion into 12.1 million shares.

In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components. The carrying cost of the liability component was calculated by measuring the fair value of a similar debt obligation that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 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 and will not be remeasured as long as it continues to meet the conditions for equity classification.
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In accounting for the transaction costs related to the issuance of the 2025 Notes, the Company allocated the total transaction costs incurred to the liability and equity components based on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the term of the 2025 Notes, and transaction costs attributable to the equity component are netted against the equity component of the 2025 Notes in stockholders’ equity.

The 2025 Notes consisted of the following components as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,
2020
December 31,
2019
Liability component:
Principal$1,150,000 $1,150,000 
Less: debt discount and issuance costs, net of amortization(207,185)(237,281)
Net carrying amount$942,815 $912,719 
Equity component:$285,225 $285,225 

The estimated fair value of the 2025 Notes at September 30, 2020 and December 31, 2019 was $1,486.4 million and $1,270.7 million, respectively. The fair value was determined based on the quoted price of the 2025 Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. Based on the closing price of the Company's common stock of $110.54 on September 30, 2020, the value of the 2025 Notes if converted to common stock was more than the principal amount of $1,150.0 million.

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 the $690.0 million in par value of convertible senior notes due in 2019.

Note Hedge

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 note hedge transactions are intended to reduce dilution in the event of conversion of the 2025 Notes.

Warrants

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.

Convertible Notes Due 2019

In February 2014, the Company issued $690.0 million in par value of convertible senior notes due 2019 (the "2019 Notes"). The 2019 Notes were senior unsecured obligations of the Company and did not bear regular interest. The 2019 Notes matured and were repaid in full on February 15, 2019 as no repurchases or conversions occurred prior to maturity.

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Revolving Credit Facility

In May 2018, the Company entered into a $500.0 million five-year, revolving credit agreement (the “Credit Agreement”). Borrowings under the Credit Agreement may be used to finance working capital needs and for general corporate purposes. The 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 Credit Agreement expires in May 2023.

Borrowings under the Credit Agreement bear 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 Credit Agreement. Regardless of what amounts, if any, are outstanding under the Credit Agreement, the Company is 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 the Company's consolidated leverage ratio specified in the Credit Agreement.

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. Principal covenants include a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. There were no outstanding borrowings under the Credit Agreement as of September 30, 2020. 

Interest Expense

The 2027 Notes bear interest at a fixed rate of 0.375%. The interest is payable semi-annually on March 1 and September 1 of each year. The 2027 Notes have an effective interest rate of 3.1% attributable to the conversion feature. The 2025 Notes bear interest at a fixed rate of 0.125%. The interest is payable semi-annually on May 1 and November 1 of each year, commencing in November 2018. The 2025 Notes have an effective interest rate of 4.26% attributable to the conversion feature. The 2019 Notes did not bear regular interest, but had an effective interest rate of 3.2% attributable to the conversion feature. The Company is also obligated to pay ongoing commitment fees under the terms of the Credit Agreement. The following table sets forth total interest expense included in the consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Amortization of debt discount and issuance costs$16,866 $12,982 $50,130 $35,657 
Coupon interest payable on 2025 Notes360 359 1,078 1,077 
Coupon interest payable on 2027 Notes1,078 479 3,234 479 
Revolving credit facility contractual interest expense139 156 409 372 
Capitalization of interest expense(1,119)(1,849)(3,073)(4,896)
Total interest expense$17,324 $12,127 $51,778 $32,689 

8. Restructuring

During the fourth quarter of 2019, management committed to an action to restructure certain parts of the Company to focus on investments with the potential to accelerate revenue growth. As a result, certain headcount reductions were necessary and certain capitalized internal-use software charges were realized for software not yet placed into service that will not be completed and implemented due to this action. The Company has incurred restructuring charges of $20.6 million as part of this action, of which an insignificant amount was incurred during the three months ended September 30, 2020 and $10.4 million was incurred during the nine months ended September 30, 2020. Included in the charge is $6.2 million related to impairment of a right-of-use asset related to the exit of a leased facility. The Company does not expect to incur material additional restructuring charges related to this action.

During the fourth quarter of 2018, management committed to an action to restructure certain parts of the Company with the intent of re-balancing investments to ensure long-term growth and scale. As a result, certain headcount reductions were necessary and certain capitalized internal-use software charges were realized for software not yet placed into service that will not be completed and implemented due to this action. The Company has incurred restructuring charges of $19.0 million as part of this action, of which a benefit of $0.3 million and a charge of $6.7 million, respectively, was incurred during the three and
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nine months ended September 30, 2019. There were no charges related to these actions during the nine months ended September 30, 2020, and no additional charges are expected.

The following table summarizes the activity of the Company's restructuring accrual during the nine months ended September 30, 2020 (in thousands):

Employee Severance and Related BenefitsSoftware ChargesOtherTotal
Balance as of January 1, 2020$5,707 $99 $151 $5,957 
Costs incurred4,180  57 4,237 
Cash disbursements(9,645)(99)(208)(9,952)
Non-cash charges  (11)(11)
Balance as of September 30, 2020$242 $ $(11)$231 

9. Stockholders’ Equity

Share Repurchase Program

Effective November 2018, the Board of Directors of the Company authorized a $1.1 billion share repurchase program through December 2021. During the three and nine months ended September 30, 2020, the Company repurchased 0.1 million and 1.3 million shares of its common stock, respectively, for $13.2 million and $121.1 million, respectively. The Company's goals for the share repurchase program are to offset 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.

Stock-Based Compensation

The following table summarizes stock-based compensation included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):
 
 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Cost of revenue$6,384 $5,555 $18,374 $16,917 
Research and development12,722 12,842 36,336 36,943 
Sales and marketing16,809 15,593 48,555 46,384 
General and administrative14,302 12,825 43,636 40,018 
Total stock-based compensation50,217 46,815 146,901 140,262 
Provision for income taxes(15,604)(14,867)(45,063)(41,658)
Total stock-based compensation, net of income taxes$34,613 $31,948 $101,838 $98,604 

In addition to the amounts of stock-based compensation reported in the table above, the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $7.1 million and $21.9 million, respectively, before taxes, and for the three and nine months ended September 30, 2019, include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $7.5 million and $22.9 million, respectively, before taxes.

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10. Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, net of tax, which is reported as a component of stockholders' equity, for the nine months ended September 30, 2020 (in thousands):

Foreign Currency Translation Net Unrealized Gains on InvestmentsTotal
Balance as of January 1, 2020$(52,924)$7,780 $(45,144)
Other comprehensive (loss) income(7,292)6,582 (710)
Balance as of September 30, 2020$(60,216)$14,362 $(45,854)

There were no amounts reclassified from accumulated other comprehensive loss to net income for the nine months ended September 30, 2020.

11. Revenue from Contracts with Customers

The Company sells its solutions 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. The following table summarizes revenue by geography included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
U.S.$437,381 $413,116 $1,309,979 $1,248,175 
International355,464 296,796 1,041,883 873,319 
Total revenue$792,845 $709,912 $2,351,862 $2,121,494 

While the Company sells its solutions through a geographically dispersed sales force, it manages its customer relationships in two divisions: the Web Division and the Media and Carrier Division. Customers are assigned to a division for relationship management purposes according to their predominant purchasing activity; however, customers may purchase solutions managed by the other division as well. As of January 1, 2020, the Company reassigned some of its customers between the Media and Carrier Division and the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented. As the purchasing patterns and required account expertise of customers change over time, the Company may reassign a customer's division from one to another. The following table summarizes revenue by division included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Web Division$418,064 $387,662 $1,228,401 $1,139,422 
Media and Carrier Division374,781 322,250 1,123,461 982,072 
Total revenue$792,845 $709,912 $2,351,862 $2,121,494 

Most content delivery and security services sold by the Company represent obligations that are satisfied over time as the customer simultaneously receives and consumes the services provided. Accordingly, the majority of the Company's revenue is recognized over time, generally ratably over the term of the arrangement due to consistent monthly traffic commitments that expire each period. A small percentage of the Company's services 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.

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During the nine months ended September 30, 2020 and 2019, the Company recognized $66.0 million and $51.0 million of revenue that was included in deferred revenue as of December 31, 2019 and 2018, respectively.

As of September 30, 2020, the aggregate amount of remaining performance obligations from contracts with customers was $2.7 billion. The Company expects to recognize approximately 70% of its remaining performance obligations as revenue over the next 12 months, with the remaining 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 satisfied at the reporting date. This consists of future committed revenue for monthly, quarterly or annual periods within current contracts with customers, as well as deferred revenue arising from consideration invoiced in prior periods for which the related performance 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.

12. Income Taxes

The Company's effective income tax rate is based on estimated income for the year, the estimated composition of the income in different jurisdictions and discrete adjustments, if any, in the applicable quarterly periods. Potential discrete adjustments include tax charges or benefits related to stock-based compensation, changes in tax legislation, settlements of tax audits or assessments, uncertain tax positions and acquisitions, among other items.

In the second quarter of 2018, the Company filed an appeal with the Massachusetts Appellate Tax Board (“MATB”) contesting adverse audit findings related to certain tax benefits and exemptions. In July 2020, the MATB ruled in the Company’s favor; however, the decision is eligible for appeal by the Massachusetts Department of Revenue. The Company has determined that it is more-likely-than-not that it will ultimately prevail in the event of any such appeal. Accordingly, no reserve has been recorded related to these controversies. The Company has, however, estimated that an adverse ruling could result in a gross income tax charge of approximately $41.0 million, which may be partially offset by certain state tax credits of $26.0 million, which are not currently benefited as a result of the Company's valuation allowance assessment.

The Company’s effective income tax rate was 8.6% and 10.6% for the nine months ended September 30, 2020 and 2019, respectively. The lower effective tax rate for the nine months ended September 30, 2020, is primarily due to an increase in foreign income taxed at lower rates, an increase in the excess tax benefit related to stock-based compensation and a decrease in intercompany sales of intellectual property. These amounts were partially offset by the release of certain tax reserves related to the expiration of local statutes of limitations in 2019 and a decrease in the benefit of U.S. federal, state and foreign research and development credits.

For the nine months ended September 30, 2020, the effective income tax rate was lower than the federal statutory tax rate due to foreign 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 nine months ended September 30, 2019, the effective income tax rate was lower than the federal statutory tax rate due to the release of certain tax reserves related to the expiration of local statutes of limitations, foreign 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 the valuation allowance recorded against deferred tax assets related to state tax credits, non-deductible executive compensation, state taxes and an intercompany sale of intellectual property.

In response to the novel coronavirus, or COVID-19, pandemic, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in March 2020. The CARES Act did not have a material impact on the effective tax rate for the period ended September 30, 2020. The Company will continue to monitor further changes to the global legislative and regulatory developments enacted as a result of COVID-19.

13. 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, restricted stock units ("RSUs"), deferred stock units ("DSUs"), convertible senior notes and warrants issued by the Company. The dilutive effect of outstanding awards and convertible securities is reflected in diluted earnings per share by application of the treasury stock method.

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The following table sets forth the components used in the computation of basic and diluted net income per share for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share data):
 
 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 2020201920202019
Numerator:
Net income$158,623 $137,890 $443,684 $358,935 
Denominator:
Shares used for basic net income per share162,757 162,445 162,387 163,029 
Effect of dilutive securities:
Stock options6 36 27 59 
RSUs and DSUs2,024 2,077 1,781 1,700 
Convertible senior notes1,732  795  
Warrants related to issuance of convertible senior notes    
Shares used for diluted net income per share166,519 164,558 164,990 164,788 
Basic net income per share$0.97 $0.85 $2.73 $2.20 
Diluted net income per share$0.95 $0.84 $2.69 $2.18 

For the three and nine months ended September 30, 2020 and 2019, certain potential outstanding common shares issuable in respect of stock options, service-based RSUs, 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 common shares excluded from the computation of diluted net income per share for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Service-based RSUs116 139 751 959 
Market- and performance-based RSUs1,383 1,484 1,418 1,484 
Convertible senior notes9,898 21,991 13,929 21,991 
Warrants related to issuance of convertible senior notes21,991 21,991 21,991 21,991 
Total shares excluded from computation33,388 45,605 38,089 46,425 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q, particularly Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below, and notes to our unaudited consolidated financial statements included herein contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “forecasts,” “if,” “continues,” “goal,” “likely” or similar expressions indicates 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. See “Risk Factors” elsewhere in this quarterly report on Form 10-Q for a discussion of certain risks associated with our business. We disclaim any obligation to update forward-looking statements as a result of new information, future events or otherwise.

Our management’s discussion and analysis of our financial condition and results of operations is based upon our unaudited consolidated financial statements included elsewhere in this quarterly report on Form 10-Q, which we have prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim periods and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The preparation of these unaudited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related items, including, but not limited to, revenue recognition, accounts receivable and related reserves, valuation and impairment of marketable securities, goodwill and acquired intangible assets, capitalized internal-use software development costs, impairment and useful lives of long-lived assets, income taxes and stock-based compensation. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time they are made. Actual results may differ from our estimates. See the section entitled "Application of Critical Accounting Policies and Estimates" in our annual report on Form 10-K for the year-ended December 31, 2019 for further discussion of our critical accounting policies and estimates.

Overview

We provide solutions for securing, delivering and optimizing content and business applications over the Internet. The key factors that influence our financial success are our ability to build on recurring revenue commitments for our security and performance offerings, increase media traffic on our network, effectively manage the prices we charge for our solutions, develop new products and carefully manage our capital spending and other expenses.

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 media customers where usage of our solutions is more variable. As a result, our revenue is impacted by the amount of media and software download traffic we serve on our network, 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 shopping, can cause unpredictable revenue swings from quarter to quarter. 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.

We have observed the following trends related to our revenue in recent years:

Increased sales of our security solutions have made a significant contribution to revenue growth. We plan to continue to invest in this area with a focus on further enhancing our product portfolio and extending our go-to-market capabilities.

We have experienced increases in the amount of traffic delivered for customers that use our solutions for video, gaming downloads and social media, contributing to an increase in our revenue in the first three quarters of 2020 as compared to the same period in 2019. In addition, as a result of the novel coronavirus, or COVID-19, outbreak, and resultant pandemic-related shutdowns and restrictions in various locations around the world during some of 2020, the rate of growth in traffic in the first three quarters of 2020, as compared to prior quarters, accelerated significantly due to increased online commerce and consumption of streaming media and games online. This increased year-over-year growth could continue for the remainder of 2020, or moderate, depending on future restrictions, or lack thereof.
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While we have increased committed recurring revenue from our solutions by upselling incremental solutions to our existing customers and adding new customers, we have also experienced slower revenue growth in recent quarters in our web performance solutions. We expect the trend of slower revenue growth in our web solutions to continue in the fourth quarter of 2020 as our customers, particularly in the commerce and travel and hospitality industries, continue to experience financial pressure, especially in light of the negative impacts of the COVID-19 pandemic on these customers' operations.

The prices paid by some of our customers have declined, particularly in the context of contract renewals and large media consolidations, reflecting the impact of competition and volume discounts. Our revenue would have been higher absent these price declines.

Revenue from our international operations has been growing at a faster pace than from our U.S. operations, particularly in terms of new customer acquisition and cross-selling of incremental solutions. Because we publicly report in U.S. dollars, if the dollar continues to strengthen, our reported revenue results will be negatively impacted. Conversely, a weaker dollar would benefit our reported results.

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 software and gaming releases by our customers; whether there are large live sporting or other events or situations (like the COVID-19 pandemic) that impact the amount of media traffic on our network; and the frequency and timing of purchases of custom solutions or licensed software.

Expenses

Our level of profitability is also impacted by our expenses, including direct costs to support our revenue such as bandwidth and co-location costs. We have observed the following trends related to our profitability in recent years:

Our profitability improved during 2019 and the first nine months of 2020, as compared the prior years, due to higher revenue as well as the effects of cost savings and efficiency initiatives we have undertaken and, more recently in 2020, from lower travel and marketing expenses because of pandemic-related shutdowns and restrictions. In order to maintain our current levels of profitability, we will need to continue to undertake efforts intended to improve the efficiency of operations and ensure that our expense growth does not exceed our revenue growth.

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 software development to improve the performance and efficiency of our network. Our total bandwidth costs may increase in the future as a result of expected higher traffic levels and serving more traffic from higher cost regions. We will need to continue to effectively manage our bandwidth costs to maintain current levels of profitability.

Co-location costs are also a significant portion of our cost of revenue. By improving our internal-use software and managing our hardware deployments to enable us to use servers more efficiently, we have been able to manage the growth of co-location costs. We expect to continue to scale our network in the future and will need to continue to effectively manage our co-location costs to maintain current levels of profitability.

We expect to continue to manage our headcount and payroll costs in the future to focus investments on certain areas of the business while maintaining efficient operations in others. We expect to continue to hire employees in support of our strategic initiatives, but do not expect overall headcount to increase significantly in the fourth quarter of 2020.

Depreciation expense related to our network equipment also contributes to our overall expense levels. During the second and third quarters of 2020, we accelerated our purchases of servers and other equipment used in our network to help meet the increased traffic demands arising during the COVID-19 pandemic and to make up for supply chain issues we experienced in the first quarter.
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We report our revenue by division, which is a customer-focused reporting view that reflects revenue from customers that are managed by the division. We report our revenue in two divisions: the Web Division and the Media and Carrier Division. As the purchasing patterns and required account expertise of customers change over time, we may reassign a customer from one division to another. In 2020, we reassigned some of our customers between the Media and Carrier Division and the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented.

Nearly all of our employees are working remotely due to the COVID-19 pandemic. We have re-opened five smaller offices in Asia (one of which has re-closed) and are continuously evaluating whether to re-open additional offices or re-close others that have been re-opened. Our operations have not been significantly disrupted by the shift to remote working, and we are not requiring employees whose roles do not require in-person presence to perform their jobs to return to offices before July 1, 2021. While we expect to incur expenses associated with enabling remote work and reconfiguring work spaces to ensure the safety and well being of employees accessing our locations, we do not currently believe those costs will materially impact our financial condition or results of operations. In the near term, we expect to continue to rely on the use of online marketing events and one-on-one web conferencing with customers to promote and sell our solutions.

Results of Operations

The following table sets forth, as a percentage of revenue, consolidated statements of income data for the periods indicated:

 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 2020201920202019
Revenue100.0 %100.0 %100.0 %100.0 %
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)35.7 34.8 35.2 34.4 
Research and development8.4 9.1 8.6 9.1 
Sales and marketing15.5 17.2 15.7 18.1 
General and administrative16.2 17.4 16.4 17.3 
Amortization of acquired intangible assets1.3 1.4 1.3 1.4 
Restructuring charge (benefit)— — 0.4 0.3 
Total costs and operating expenses77.1 79.9 77.6 80.6 
Income from operations22.9 20.1 22.4 19.4 
Interest income0.8 1.1 1.0 1.1 
Interest expense(2.2)(1.7)(2.2)(1.5)
Other expense, net(0.3)(0.1)(0.3)— 
Income before provision for income taxes21.2 19.4 20.9 19.0 
(Provision) benefit for income taxes(1.1)0.1 (1.8)(2.0)
Loss from equity method investment(0.1)(0.2)(0.1)(0.1)
Net income20.0 %19.3 %19.0 %16.9 %

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Revenue

Revenue by division during the periods presented was as follows (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
20202019% Change% Change at Constant Currency20202019% Change% Change at Constant Currency
Web Division$418,064 $387,662 7.8 %7.3 %$1,228,401 $1,139,422 7.8 %8.4 %
Media and Carrier Division374,781 322,250 16.3 15.8 1,123,461 982,072 14.4 14.8 
Total revenue$792,845 $709,912 11.7 %11.2 %$2,351,862 $2,121,494 10.9 %11.4 %

During the three- and nine-month periods ended September 30, 2020, the increase in our revenue as compared to the same periods in 2019 was primarily the result of higher media traffic volumes due in part to the impact of the outbreak of COVID-19 and continued strong growth in sales of our Cloud Security Solutions. During the three-month period ended September 30, 2020, our Cloud Security Solutions revenue was $265.9 million as compared to $215.9 million during the three-month period ended September 30, 2019, which represents a 23.1% increase. During the nine-month period ended September 30, 2020, our Cloud Security Solutions revenue was $765.5 million, as compared to $610.8 million during the nine-month period ended September 30, 2019, which represents a 25.3% increase. Cloud Security Solutions revenue increased in both periods due to higher sales of solutions across our security portfolio.

The increase in Web Division revenue during the three- and nine-month periods ended September 30, 2020, as compared to the same periods in 2019, was primarily the result of increased sales of both new and existing Cloud Security Solutions to this customer base. Customers that are experiencing financial difficulties as a result of the COVID-19 pandemic, specifically those in the commerce, retail and travel and hospitality verticals, are primarily assigned to our Web Division. Web Division revenue was negatively impacted during the three- and nine-month periods ended September 30, 2020 as a result of the pandemic. However, it is difficult to predict the length of time and amount by which the Web Division will continue to be impacted by the pandemic given its uncertain nature.

The increase in Media and Carrier Division revenue during the three- and nine-month periods ended September 30, 2020, as compared to the same periods in 2019, was primarily the result of increased customer traffic volumes from video delivery, gaming and social media usage, due in part to the impact of the outbreak of COVID-19 and increased sales of Cloud Security Solutions to this customer base.

Revenue derived in the U.S. and internationally during the periods presented was as follows (in thousands):
    
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
20202019% Change% Change at Constant Currency20202019% Change% Change at Constant Currency
U.S.$437,381 $413,116 5.9 %5.9 %$1,309,979 $1,248,175 5.0 %5.0 %
International355,464 296,796 19.8 18.4 1,041,883 873,319 19.3 20.5 
Total revenue$792,845 $709,912 11.7 %11.2 %$2,351,862 $2,121,494 10.9 %11.4 %

For the three-month period ended September 30, 2020, approximately 44.8% of our revenue was derived from our operations located outside the U.S., compared to 41.8% for the three-month period ended September 30, 2019. For the nine-month period ended September 30, 2020, approximately 44.3% of our revenue was derived from our operations located outside the U.S., compared to 41.2% for the nine-month period ended September 30, 2019. No single country outside the U.S. accounted for 10% or more of revenue during either of these periods. During the three- and nine-month periods ended September 30, 2020, we continued to see strong revenue growth from our operations in the Asia-Pacific region and steady revenue growth in our EMEA and Latin America regions. Changes in foreign currency exchange rates impacted our revenue by a favorable $3.7 million and an unfavorable $10.6 million during the three-and nine-month periods ended September 30, 2020, respectively, as compared to the same periods in 2019.
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Cost of Revenue

Cost of revenue consisted of the following for the periods presented (in thousands):

 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 20202019% Change20202019% Change
Bandwidth fees$49,815 $38,373 29.8 %$147,671 $123,039 20.0 %
Co-location fees39,170 32,042 22.2 111,572 92,955 20.0 
Network build-out and supporting services34,112 26,369 29.4 97,969 72,477 35.2 
Payroll and related costs65,959 62,888 4.9 195,386 184,902 5.7 
Stock-based compensation, including amortization of prior capitalized amounts13,064 12,695 2.9 39,113 38,688 1.1 
Depreciation of network equipment42,991 31,840 35.0 118,194 91,402 29.3 
Amortization of internal-use software38,328 42,731 (10.3)118,920 126,411 (5.9)
Total cost of revenue$283,439 $246,938 14.8 %$828,825 $729,874 13.6 %
As a percentage of revenue35.7 %34.8 %35.2 %34.4 %

The increase in cost of revenue for the three- and nine-month periods ended September 30, 2020, as compared to the same periods in 2019, was primarily due to investments in our network to support current and anticipated future traffic growth, which resulted in increases to amounts paid for network build-out and supporting services, higher depreciation costs of our network equipment and increases to expenses related to our co-location facilities. Bandwidth fees also increased during this period due to growth in the amount of traffic served on our network.

During the remainder of 2020, we plan to continue to focus our efforts on managing our operating margins, including continuing to manage our bandwidth and co-location costs. We anticipate depreciation of network equipment to increase in the fourth quarter of 2020 due to the increased investments in our network to address expected traffic increases.

Research and Development Expenses

Research and development expenses consisted of the following for the periods presented (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 20202019% Change20202019% Change
Payroll and related costs$103,817 $94,957 9.3 %$305,293 $284,393 7.3 %
Stock-based compensation12,721 12,842 (0.9)36,335 36,943 (1.6)
Capitalized salaries and related costs(51,750)(45,501)13.7 (147,007)(136,969)7.3 
Other expenses1,985 2,589 (23.3)7,466 8,100 (7.8)
Total research and development$66,773 $64,887 2.9 %$202,087 $192,467 5.0 %
As a percentage of revenue8.4 %9.1 %8.6 %9.1 %

The increase in research and development expenses during the three- and nine-month periods ended September 30, 2020, as compared to the same periods in 2019, was primarily due to growth in payroll and related costs as a result of mid-year merit increases and headcount growth to support investments in new product development and network scaling.

Research and development costs are expensed as incurred, other than certain internal-use software development costs 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. During the three-month periods ended September 30, 2020 and September 30, 2019, we capitalized $9.0 million and $8.1 million of stock-based compensation, respectively. During the nine-month periods ended September 30, 2020 and September 30, 2019, we capitalized $26.5 million and $25.6 million of stock-based compensation, respectively. These
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capitalized internal-use software development costs are amortized to cost of revenue over their estimated useful lives, which is generally two years, but can be up to seven years based on the software developed and its expected useful life.

We expect research and development costs to increase in the remainder of 2020, as compared to 2019, as we maintain our focus on innovation; however, we do not expect these costs to increase as a percentage of revenue as we continue to manage costs.

Sales and Marketing Expenses

Sales and marketing expenses consisted of the following for the periods presented (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 20202019% Change20202019% Change
Payroll and related costs$94,457 $92,799 1.8 %$282,696 $277,576 1.8 %
Stock-based compensation16,809 15,593 7.8 48,555 46,383 4.7 
Marketing programs and related costs9,536 9,545 (0.1)29,250 41,560 (29.6)
Other expenses1,947 4,321 (54.9)9,503 18,121 (47.6)
Total sales and marketing$122,749 $122,258 0.4 %$370,004 $383,640 (3.6)%
As a percentage of revenue15.5 %17.2 %15.7 %18.1 %

Restrictions associated with the COVID-19 pandemic have resulted in the cancellation or postponement of in-person marketing events and led to a decline in travel expenses such as airfare, lodging and other costs related to in-person customer events and meetings; as a result, we have experienced a decrease in sales and marketing expenses in 2020 as compared to 2019. During the three months ended September 30, 2020, these decreases were offset by higher payroll and related costs as a result of mid-year merit increases and increased headcount to support our Web Division's go-to-market strategies in pursuit of growth opportunities.

We expect the decreased level of marketing and travel related expenditures when compared to 2019 to continue through the remainder of 2020 as we continue to be impacted by COVID-19, which is limiting in-person marketing events and customer meetings and eliminating the associated expenses. We also plan to continue to carefully manage costs in our efforts to refine and optimize our go-to-market efforts and improve operating margins.

General and Administrative Expenses

General and administrative expenses consisted of the following for the periods presented (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 20202019% Change20202019% Change
Payroll and related costs$50,159 $47,892 4.7 %$148,233 $145,248 2.1 %
Stock-based compensation14,302 12,825 11.5 43,636 40,018 9.0 
Depreciation and amortization20,554 19,269 6.7 61,673 56,420 9.3 
Facilities-related costs25,099 21,413 17.2 73,669 63,478 16.1 
(Benefit) provision for doubtful accounts(1,627)623 (361.2)3,465 2,338 48.2 
Acquisition-related costs1,051 219 379.9 1,189 1,194 (0.4)
License of patent— — — — (8,855)100.0 
Legal settlements— — — 275 — 100.0 
Professional fees and other expenses18,827 20,975 (10.2)53,295 66,326 (19.6)
Total general and administrative$128,365 $123,216 4.2 %$385,435 $366,167 5.3 %
As a percentage of revenue16.2 %17.4 %16.4 %17.3 %

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The increase in general and administrative expenses for the three- and nine-month periods ended September 30, 2020, as compared to the same periods in 2019, was primarily due to expansion of company infrastructure throughout 2019, including moving into our new corporate headquarters in Cambridge, Massachusetts, which increased facilities-related costs and depreciation and amortization. Additionally, the nine-month period ended September 30, 2019 included license patent fees received as a result of our litigation with Limelight Networks, Inc. that did not recur in 2020. The 2020 increases in general and administrative expenses were also partially offset by a decrease in amounts paid to professional service providers for advisory services.

Our general and administrative expenses can be categorized across three areas. Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, 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 amortization of facility and IT-related assets, software and software-related costs, business insurance and taxes. Our network infrastructure function is responsible for network planning, sourcing, architecture evaluation and platform security. Other expense includes acquisition-related costs, allowance for doubtful accounts, legal settlements and the license of a patent.

General and administrative expenses for the three- and nine-month periods ended September 30, 2020 and 2019 are broken out by category as follows (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
20202019% Change20202019% Change
Global functions$47,559 $47,731 (0.4)%$142,243 $146,661 (3.0)%
As a percentage of revenue6.0 %6.7 %6.0 %6.9 %
Infrastructure81,365 74,643 9.0 238,262 219,302 8.6 
As a percentage of revenue10.3 %10.5 %10.1 %10.3 %
Other(559)842 (166.4)4,930 204 2,316.7 
Total general and administrative expenses$128,365 $123,216 4.2 %$385,435 $366,167 5.3 %
As a percentage of revenue16.2 %17.4 %16.4 %17.3 %

For the remainder of 2020, we plan to continue to focus our efforts on managing our operating margins and, in particular, assessing opportunities to reduce third-party spending and increase automation of manual tasks.

Amortization of Acquired Intangible Assets

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
(in thousands)20202019% Change20202019% Change
Amortization of acquired intangible assets$10,340 $9,624 7.4 %$31,155 $28,871 7.9 %
As a percentage of revenue1.3 %1.4 %1.3 %1.4 %

The increase in amortization of acquired intangible assets for the three- and nine-month periods ended September 30, 2020, as compared to the same periods in 2019, was the result of amortization of assets related to our recent acquisitions. Based on our intangible assets at September 30, 2020, we expect amortization of acquired intangible assets to be approximately $10.5 million for the remainder of 2020, and $43.0 million, $37.3 million, $28.9 million and $20.5 million for 2021, 2022, 2023 and 2024, respectively.

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Restructuring Charge (Benefit)

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
(in thousands)20202019% Change20202019% Change
Restructuring charge (benefit)$21 $(300)107.0 %$10,439 $6,879 51.8 %
As a percentage of revenue— %— %0.4 %0.3 %

The restructuring charges for the three- and nine-month periods ended September 30, 2020 were primarily the result of management actions initiated in the fourth quarter of 2019 to focus on investments having the potential to accelerate revenue growth. The restructuring charges relate to certain headcount reductions and a $6.2 million impairment of a right-of-use asset related to the exit of a leased facility. We do not expect material additional restructuring charges related to these actions.

The restructuring (benefit) charge for the three- and nine-month periods ended September 30, 2019 were primarily the result of certain restructuring actions initiated in the fourth quarter of 2018. Management's intention in implementing the restructuring was to re-balance investments with the goal of improving long-term revenue growth and scale. The restructuring charges primarily consist of costs associated with headcount reductions. We do not expect additional restructuring charges related to this action.

Non-Operating Income (Expense)

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
(in thousands)20202019% Change20202019% Change
Interest income$6,307 $7,908 (20.2)%$22,852 $22,953 (0.4)%
As a percentage of revenue0.8 %1.1 %1.0 %1.1 %
Interest expense$(17,324)$(12,127)42.9 %$(51,778)$(32,689)58.4 %
As a percentage of revenue(2.2)%(1.7)%(2.2)%(1.5)%
Other expense, net$(2,158)$(752)187.0 %$(7,869)$(819)860.8 %
As a percentage of revenue(0.3)%(0.1)%(0.3)%— %

For the periods presented, interest income primarily consisted of interest earned on invested cash balances and marketable securities. The decrease in interest income for the three- and nine-month periods ended September 30, 2020, as compared to the same periods in 2019, was primarily the result of investing in marketable securities at lower rates in 2020 due to lower interest rates in 2020 as compared to the same periods in 2019.

Interest expense is related to our debt transactions, which are described in Note 7 to the consolidated financial statements. The increase in interest expense for the three- and nine-month periods ended September 30, 2020, as compared to the same periods in 2019, was due to the August 2019 issuance of $1,150.0 million in principal amount of convertible senior notes due 2027.

Other expense, net primarily represents net foreign exchange gains and losses and other non-operating expense and income items. The fluctuation in other expense, net for the three- and nine-month periods ended September 30, 2020, as compared to the same periods in 2019, is primarily due to the unfavorable impact of changes in foreign exchange rates.

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(Provision) Benefit for Income Taxes

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
(in thousands)20202019% Change20202019% Change
(Provision) benefit for income taxes$(8,801)$960 (1,016.8)%$(41,764)$(42,718)(2.2)%
As a percentage of revenue(1.1)%0.1 %(1.8)%(2.0)%
Effective income tax rate(5.2)%0.7 %(8.6)%(10.6)%

For the three-month period ended September 30, 2020, as compared to the same period in 2019, our provision for income taxes increased due to an increase in profitability and release of certain tax reserves related to the expiration of local statutes of limitations in 2019. These amounts were partially offset by an increase in foreign income taxed at lower rates, a decrease in intercompany sales of intellectual property, a decrease in the valuation allowance recorded against deferred tax assets related to state tax credits and additional benefits related to the issuance of certain final Tax Cuts and Jobs Act, or the TCJA, tax regulations in July 2020.

For the three- and nine-month periods ended September 30, 2020, our effective income tax rate was lower than the federal
statutory tax rate due to foreign income taxed at lower rates, the impact of the excess tax benefit related to stock-based compensation, the benefit of U.S. federal, state and foreign research and development credits and additional benefits related to the issuance of certain final TCJA tax regulations in July 2020. These amounts were partially offset by non-deductible stock-based compensation and state taxes.

For the three- and nine-month periods ended September 30, 2019, our effective income tax rate was lower than the federal statutory tax rate due to the release of certain tax reserves related to the expiration of local statutes of limitations, foreign 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 the valuation allowance recorded against deferred tax assets related to state tax credits, non-deductible executive compensation, state taxes and an intercompany sale of intellectual property.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was enacted in March 2020. The CARES Act did not have a material impact on the effective tax rate for the period ended September 30, 2020. We will continue to monitor further changes to the global legislative and regulatory developments enacted as a result of COVID-19.

In determining our net deferred tax assets and valuation allowances, annualized effective income tax rates and cash paid for income taxes, management is required to make judgments and estimates about domestic and foreign profitability, the timing and extent of the utilization of net operating loss carryforwards, applicable tax rates, transfer pricing methodologies and tax planning strategies. Judgments and estimates related to our projections and assumptions are inherently uncertain; therefore, actual results could differ materially from our projections.

Loss from Equity Method Investment

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
(in thousands)20202019% Change20202019% Change
Loss from equity method investment$(559)$(1,388)(59.7)%$(1,674)$(1,388)20.6 %
As a percentage of revenue(0.1)%(0.2)%(0.1)%(0.1)%

During 2019, we began recognizing our share of earnings from our investment with Mitsubishi UFJ Financial Group in a joint venture, Global Open Network, Inc., or GO-NET. GO-NET intends to operate a new blockchain-based online payment network. For the three- and nine-month periods ended September 30, 2020, the losses recognized reflect our share of the losses incurred by GO-NET. We expect to record additional losses in 2020 and beyond as GO-NET continues executing on the early stages of its business plan.

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Non-GAAP Financial Measures

In addition to providing financial measurements based on generally accepted accounting principles in the United States of America, or GAAP, we provide additional financial metrics that are not prepared in accordance with GAAP, or non-GAAP financial measures. Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across 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 share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, as discussed below.

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 comparison of financial results across accounting periods and to those of our 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.

The non-GAAP financial measures do not replace 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:

Amortization of acquired intangible assets – We have incurred amortization of intangible assets, included in our GAAP financial statements, related to various acquisitions 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 interpret; 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.

Acquisition-related costs – Acquisition-related costs include transaction fees, advisory fees, due diligence costs and other direct costs associated with strategic activities. In addition, subsequent adjustments to our initial estimated amounts of contingent consideration and indemnification associated with specific acquisitions are included within acquisition-related costs. These amounts 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 significantly based on the magnitude of our acquisition transactions and do not reflect our core operations.

Restructuring charges – We have incurred restructuring charges that are included in our GAAP financial statements, primarily related to workforce reductions and charges associated with exiting facility lease commitments. We exclude these items from our non-GAAP financial measures when evaluating our continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of our business.

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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%. In February 2014, we issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rates of these convertible senior notes were 3.10%, 4.26% and 3.20%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying values of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded from our non-GAAP results is comprised of these non-cash components and is excluded from management's assessment of our operating performance because management believes the non-cash expense is not representative of ongoing operating performance.

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 of events giving rise to them are not representative of our core business operations and ongoing operating performance.

Legal settlements – We have incurred losses related to the settlement of legal matters. We believe excluding these amounts from 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.
Transformation costs – We have incurred professional services fees associated with internal transformation programs designed to improve operating margins and that are part of a planned program intended to significantly change the manner in which business is conducted. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events and activities giving rise to them occur infrequently and are not representative of our core business operations and ongoing operating performance.

Income and losses from equity method investment – We record income or losses on our share of earnings and losses of our equity method investment. We exclude such income and losses because we lack 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.

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The following table reconciles GAAP income from operations to non-GAAP income from operations and non-GAAP operating margin for the periods presented (in thousands):

 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 2020201920202019
Income from operations$181,158 $143,289 $523,917 $413,596 
Amortization of acquired intangible assets10,340 9,624 31,155 28,871 
Stock-based compensation50,217 46,815 146,901 140,262 
Amortization of capitalized stock-based compensation and capitalized interest expense7,913 8,455 24,540 25,738 
Restructuring charge (benefit)21 (300)10,439 6,879 
Acquisition-related costs1,051 219 1,189 1,194 
Legal settlements— — 275 — 
Transformation costs— — — 5,527 
Non-GAAP income from operations$250,700 $208,102 $738,416 $622,067 
GAAP operating margin23 %20 %22 %19 %
Non-GAAP operating margin32 %29 %31 %29 %

The following table reconciles GAAP net income to non-GAAP net income for the periods presented (in thousands):

 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 2020201920202019
Net income$158,623 $137,890 $443,684 $358,935 
Amortization of acquired intangible assets10,340 9,624 31,155 28,871 
Stock-based compensation50,217 46,815 146,901 140,262 
Amortization of capitalized stock-based compensation and capitalized interest expense7,913 8,455 24,540 25,738 
Restructuring charge (benefit)21 (300)10,439 6,879 
Acquisition-related costs1,051 219 1,189 1,194 
Legal settlements— — 275 — 
Transformation costs— — — 5,527 
Amortization of debt discount and issuance costs15,747 11,133 47,057 30,761 
Gain on investments— — — (440)
Loss from equity method investment559 1,388 1,674 1,388 
Income tax effect of above non-GAAP adjustments and certain discrete tax items(28,689)(34,631)(68,481)(61,389)
Non-GAAP net income$215,782 $180,593 $638,433 $537,726 

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The following table reconciles GAAP net income per diluted share to non-GAAP net income per diluted share for the periods presented (in thousands, except per share data):

 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 2020201920202019
GAAP net income per diluted share$0.95 $0.84 $2.69 $2.18 
Amortization of acquired intangible assets0.06 0.06 0.19 0.18 
Stock-based compensation0.30 0.28 0.89 0.85 
Amortization of capitalized stock-based compensation and capitalized interest expense0.05 0.05 0.15 0.16 
Restructuring charge (benefit)— — 0.06 0.04 
Acquisition-related costs0.01 — 0.01 0.01 
Legal settlements— — — — 
Transformation costs— — — 0.03 
Amortization of debt discount and issuance costs0.09 0.07 0.29 0.19 
Gain on investments— — — — 
Loss from equity method investment— 0.01 0.01 0.01 
Income tax effect of above non-GAAP adjustments and certain discrete tax items(0.17)(0.21)(0.42)(0.37)
Adjustment for shares(1)
0.02 — 0.02 — 
Non-GAAP net income per diluted share (2)
$1.31 $1.10 $3.89 $3.26 
Shares used in GAAP diluted per share calculations166,519 164,558 164,990 164,788 
Impact of benefit from note hedge transactions(1)
(1,732)— (795)— 
Shares used in non-GAAP diluted per share calculations(1)
164,787 164,558 164,195 164,788 

(1) Shares used in non-GAAP diluted per calculations have been adjusted for the three and nine months ended September 30, 2020, for the benefit of our note hedge transactions. During the three months ended September 30, 2020, 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 further discussion below.

(2) Amounts may not foot due to rounding

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 shares 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 offsetting 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 net income per share. Unless our weighted average stock price is greater than $95.10, the initial 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.

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 be part of our core operations. We define Adjusted EBITDA as GAAP net income excluding the following items: interest income; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; transformation costs; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; gains 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.

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The following table reconciles GAAP net income to Adjusted EBITDA and Adjusted EBITDA margin for the periods presented (in thousands):

 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 2020201920202019
Net income$158,623 $137,890 $443,684 $358,935 
Interest income(6,307)(7,908)(22,852)(22,953)
Provision (benefit) for income taxes8,801 (960)41,764 42,718 
Depreciation and amortization100,644 92,525 294,992 270,265 
Amortization of capitalized stock-based compensation and capitalized interest expense7,913 8,455 24,540 25,738 
Amortization of acquired intangible assets10,340 9,624 31,155 28,871 
Stock-based compensation50,217 46,815 146,901 140,262 
Restructuring charge (benefit)21 (300)10,439 6,879 
Acquisition-related costs1,051 219 1,189 1,194 
Legal settlements— — 275 — 
Transformation costs— — — 5,527 
Interest expense17,324 12,127 51,778 32,689 
Gain on investments— — — (440)
Loss from equity method investment559 1,388 1,674 1,388 
Other expense, net2,158 752 7,869 1,259 
Adjusted EBITDA$351,344 $300,627 $1,033,408 $892,332 
Adjusted EBITDA margin44 %42 %44 %42 %

Impact of Foreign Currency Exchange Rates

Revenue and earnings from our international operations have historically been important contributors 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 foreign subsidiaries weaken, generally our consolidated results stated in U.S. dollars are negatively impacted.

Because exchange rates are a meaningful factor 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 foreign currency exchange rates presented is calculated by translating current period results using monthly average foreign currency exchange rates from 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.

Liquidity and Capital Resources

To date, we have financed our operations primarily through public and private sales of debt and equity securities and cash generated by operations. As of September 30, 2020, our cash, cash equivalents and marketable securities, which primarily consisted of corporate bonds, totaled $2.6 billion. Factoring in the $2.3 billion in principal amount of convertible senior notes we have outstanding, our net cash at September 30, 2020 was $254.1 million. We place our cash investments in instruments that meet high-quality credit standards, as specified in our investment policy. Our investment policy is also designed to limit 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 revenues, accounts payable and various accrued expenses, as well as changes
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in our capital and financial structure due to common stock repurchases, debt repayments and issuances, purchases and sales of marketable securities and similar events. We do not expect events related to the outbreak of COVID-19 to have a material impact to our liquidity in the near term; however, some of our customers may be unable to pay us for our services or may be unable to remit payments in a timely manner due to financial stresses the outbreak may have caused them. We believe that, particularly in situations like these, our strong balance sheet and cash position are important competitive differentiators that provide the financial stability and flexibility to enable us to continue to make investments at opportune times.

As of September 30, 2020, we had cash and cash equivalents of $465.9 million held in accounts outside the U.S. The TCJA 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 materially impacted by the amount of cash and cash equivalents held in accounts outside the U.S.

Cash Provided by Operating Activities

For the Nine Months
Ended September 30,
(in thousands)20202019
Net income$443,684 $358,935 
Non-cash reconciling items included in net income538,375 524,256 
Changes in operating assets and liabilities(58,152)(107,027)
Net cash provided by operating activities$923,907 $776,164 

The increase in cash provided by operating activities for the nine-month period ended September 30, 2020, as compared to the same period in 2019, was primarily due to increased profitability, lower cash paid for taxes in 2020 and timing of vendor payments. The increase was partially offset by the timing of payments from customers.

Cash Used in Investing Activities

For the Nine Months
Ended September 30,
(in thousands)20202019
Cash received (paid) for business acquisition, net of cash acquired$106 $(121,409)
Cash paid for asset acquisition(36,376)— 
Cash paid for equity method investment— (36,008)
Purchases of property and equipment and capitalization of internal-use software development costs(564,427)(428,411)
Net marketable securities activity177,637 (494,237)
Other investing activity(1,980)1,895 
Net cash used in investing activities$(425,040)$(1,078,170)

The decrease in cash used in investing activities during the nine-month period ended September 30, 2020, as compared to the same period in 2019, was driven by an increase in purchases of marketable securities with the proceeds from our August 2019 issuance of convertible senior notes. Additionally, the 2019 period included cash paid for our acquisition of Janrain, Inc. and our investment in GO-NET. These were partially offset by increased purchases of property and equipment in support of our network growth.

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Cash (Used in) Provided by Financing Activities

For the Nine Months
Ended September 30,
(in thousands)20202019
Activity related to convertible senior notes$— $318,554 
Activity related to stock-based compensation(31,487)(17,912)
Repurchases of common stock(121,078)(291,788)
Other financing activities— (1,558)
Net cash (used in) provided by financing activities$(152,565)$7,296 

Cash used in financing activities increased during the nine-month period ended September 30, 2020, as compared to the same period in 2019, due to $1.1 billion of proceeds received in 2019 from our convertible notes due in 2027 partially offset by the repayment of $690 million in convertible senior notes due in February 2019 and fewer share repurchases in 2020.

Effective November 2018, our Board of Directors authorized a $1.1 billion share repurchase program through December 2021. Our goals for the share repurchase program are to offset the dilution created by our employee equity compensation programs and provide the flexibility to return capital to shareholders as business and market conditions warrant.

During the nine-month period ended September 30, 2020, we repurchased 1.3 million shares of common stock at a weighted average price of $95.88 per share for an aggregate of $121.1 million. As of September 30, 2020, $644.4 million remains available for future share repurchases. The timing and amount of any future share repurchases will be determined by our management based on its evaluation of market conditions and other factors.

Convertible Senior Notes

In August 2019, we issued $1,150.0 million in principal amount of convertible senior notes due 2027 and entered into related convertible note hedge and warrant transactions. We intend 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 principal amount 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 principal amount of convertible senior notes due in 2019.

In February 2014, we issued $690.0 million in principal amount of convertible senior notes due 2019 and entered into related convertible note hedge and warrant transactions. We repaid the full principal amount due in cash in February 2019, as the notes matured and no conversions occurred.

The terms of the notes and hedge transactions are discussed more fully in Note 7 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Revolving Credit Facility

In May 2018, we entered into a $500.0 million, five-year revolving credit agreement, or the Credit Agreement. Borrowings under the facility may be used to finance working capital needs and for general corporate purposes. The facility 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.

Borrowings under the Credit Agreement bear 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 Credit Agreement. Regardless of what amounts, if any, are outstanding under the Credit Agreement, we are 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 Credit Agreement.

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants, and events of default. Principal covenants include a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. There were no outstanding borrowings under the Credit Agreement as of September 30, 2020. 
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Liquidity Outlook

Based on our present business plan, we expect our current cash, cash equivalents and marketable securities balances and our forecasted cash flows from operations to be sufficient to meet our foreseeable cash needs for at least the next 12 months. Our foreseeable cash needs, in addition to our recurring operating costs, include our expected capital expenditures, investments in information technology, opportunistic business acquisitions, anticipated share repurchases, lease and purchase commitments and settlements of other long-term liabilities.

Contractual Obligations

Our principal commitments consist of service agreements with various vendors for bandwidth usage, obligations under leases with co-location facilities for data center capacity, obligations under leases for office space and open vendor purchase orders. Our minimum commitments related to bandwidth usage and co-location leases may vary from period to period depending on the timing and length of contract renewals with our vendors. As of September 30, 2020, there have been no significant changes in our future non-cancelable minimum payments under these commitments from those reported in our annual report on Form 10-K for the year ended December 31, 2019, other than normal period-to-period variations.

Off-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 from patent or copyright infringement or our negligence. These indemnification obligations are considered off-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 also Note 13 to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019 for further discussion of these indemnification agreements. The fair value of guarantees issued or modified during the nine months ended September 30, 2020 was determined to be immaterial.

As of September 30, 2020, we did not have any additional material off-balance sheet arrangements.

Significant Accounting Policies and Estimates

See Note 1 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for information regarding recent and newly adopted accounting pronouncements. See also Note 2 to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019. There have been no material changes to our significant accounting policies and estimates from those reported in our annual report on Form 10-K for the year ended December 31, 2019.

Item 3. 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 U.S. government agency obligations, high-quality corporate debt securities, commercial paper, mutual funds and money market funds. The majority of our investments are classified as available-for-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.

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 conditions, changes in political climate, differing tax structures and other regulations and restrictions.

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Transaction Exposure

Foreign exchange rate fluctuations may adversely impact our consolidated results of operations as exchange rate fluctuations on transactions denominated in currencies other than our functional currencies result in gains and losses that are reflected in our consolidated statements of income. We enter into short-term foreign 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 our consolidated statements of income within other income, net. Foreign currency transaction gains and losses from these forward contracts were determined to be immaterial during the nine months ended September 30, 2020. We do not enter into derivative financial instruments for trading or speculative purposes.

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 foreign 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.

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 September 30, 2020 and December 31, 2019, no customer had an accounts receivable balance greater than 10% of our accounts receivable. We believe that at September 30, 2020, the concentration of credit risk related to accounts receivable was insignificant.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020. 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, or 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, without limitation, 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 officers, as appropriate to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

We are party to litigation that we consider routine and incidental to our business. We do not currently expect the results of any of these litigation matters to have a material effect on our business, results of operations, financial condition or cash flows.

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Item 1A. Risk Factors

The following 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 quarterly report on Form 10-Q or presented elsewhere by management from time to time. We have updated the following risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2019 to reflect the actual and potential impact of the novel coronavirus outbreak or similar events on our business: We may face slowing revenue growth which could negatively impact our profitability and stock price; If we are unable to continue to increase the amount of traffic we deliver over our network, it will be difficult to maintain or improve our current level of profitability without impacting our operations; Our business strategy depends on the ability to source adequate transmission capacity and the servers we need to operate our network; failure to have access to those resources could lead to loss of revenue and service disruptions; If we do not continue to develop new solutions that are attractive to enterprises, our revenues and operating results could be adversely affected; Cybersecurity breaches and attacks on us, as well as steps we need to take to prevent them, could lead to significant costs and disruptions that harm our business, financial results and reputation; We face risks associated with global operations that could harm our business; Defects or disruptions in our products and IT systems could require us to increase spending on upgrading systems, diminish demand for our solutions or subject us to substantial liability; Our failure to effectively manage our operations as our business evolves could harm us; If we are unable to retain our key employees and hire and retain qualified sales, technical, marketing and support personnel, our ability to compete could be harmed; Our stock price has been, and may continue to be, volatile, and your investment could lose value; We may have exposure to greater-than-anticipated tax liabilities; and 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.

We may face slowing revenue growth which could negatively impact our profitability and stock price.

The revenue growth rate we have enjoyed in recent years may not continue in future periods and could decline. Our revenue depends on continued growth in demand for our solutions and our ability to maintain the prices we charge for them. Our traditional offerings, particularly our Media and Web Performance solutions, are subject to increasing pricing pressure in certain verticals and geographies due to competition and business conditions affecting many of our customers. This has increased the difficulty of accelerating revenue growth. We have seen a significant increase in revenue from our media solutions so far this year; that rate of increase may be difficult to replicate in future periods if the increased media usage related to the COVID-19 pandemic and associated stay-at-home orders across the globe stabilizes or the amount of traffic on our network otherwise does not grow at rates similar to those we enjoyed in the first three quarters half of this year. Our ability to increase our revenue depends on many other factors including how well we can:
    
increase traffic on our network;
retain existing customers and sell new and additional products to them;
attract new customers;
develop and sell new solutions that are attractive to our current and potential customers and not easily replicable by competitors;
address potential commoditization of our delivery-based solutions, which can lead to lower prices and loss of customers to competitors;
counteract multi-vendor policies designed to reduce reliance on any particular provider, such as us;
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 incorporate surcharges for usage above committed levels;
anticipate and react to changes in usage or adoption rates of the Internet, e-commerce and electronic devices;
handle the impact of competition across our business;
cope with any inability of our customers, particularly commerce, travel and media companies, to continue their operations and spending levels; and
manage the impact of changes in general economic conditions, public health issues, natural disasters and public unrest.

Many of our customers are facing significant disruptions to their business as a result of the international public health emergency associated with the COVID-19 outbreak. Many sporting events that were to be broadcast over the Internet have been canceled or postponed, reducing our anticipated revenues. In addition, we have renegotiated contract terms with numerous customers, including retailers, travel and hospitality companies and airlines, that are facing financial difficulty; those and other companies impacted by the pandemic may significantly reduce their purchases of our solutions or become unable to pay us for those they have committed to use. The economic fallout from the COVID-19 pandemic is likely to have far-reaching consequences across many other industries, which could lead to reduced spending by many other enterprises on technology solutions such as those we offer. Some of our American customers have filed for bankruptcy protection; an extended recession
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could lead to more bankruptcies among our customers. Any of these circumstances would negatively impact our revenues. Restrictions on travel could also make it more difficult for us to finalize customer contracts.

A slowing revenue growth rate could negatively impact our profitability and stock price.

If we are unable to continue to increase the amount of traffic we deliver over our network or otherwise increase revenue, it will be difficult to maintain or improve our current level of profitability without impacting our operations.

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 rate of growth; however, many of our expenses are fixed cost in nature for some minimum 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 anticipation of higher traffic on our network, including the significant traffic increases we have seen coincident with the COVID-19 outbreak and related changes in lifestyles and working situations, we have increased capital expenditures in recent quarters and expect to continue doing so in the near-term future. While it is always challenging to anticipate traffic growth, our ability to do so is even more limited now due to uncertainty about how long and at what levels the growth we have seen as a result of COVID-19 will continue. If such anticipated traffic growth does not materialize, our profitability will be negatively affected. Numerous factors can impact traffic growth including:

the pace of introduction of over-the-top (often referred to as OTT) video delivery initiatives by our customers;
the popularity of our customers' streaming offerings as compared to those offered by companies that do not use our solutions;
the pace at which our customers' enterprise applications move from behind the firewall to the cloud;
media and other customers utilizing their own data centers and implementing delivery approaches that limit or eliminate reliance on third party providers like us;
global pandemics such as COVID-19; and
general economic conditions and industry pressures.

If we are unable to increase revenue through traffic growth or otherwise and limit expenses, our results of operations will suffer. If we are required to significantly reduce expenses to maintain or improve profitability, such actions may negatively affect our ability to invest in our business for innovation, systems improvement and other initiatives.

Our business strategy depends on the ability to source adequate transmission capacity and the servers we need to operate our network; failure to have access to those resources could lead to loss of revenue and service disruptions.

With the COVID-19 pandemic, Internet traffic has grown rapidly in 2020 due to stay-at-home orders across the globe or voluntary practices that limit in-person interactions and require remote work. Our ability to handle increased traffic is dependent in part upon transmission capacity provided by third party telecommunications network providers and availability of co-location facilities to house our servers. We may be unable to purchase the bandwidth and space we need from these providers due to limitations on their resources or other reasons outside of our control. Inability to access facilities where we would like to install servers, or perform maintenance on existing servers, because of governmental restrictions on access due to stay-at-home orders or social distancing requirements 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 bandwidth demands by our customers, particularly those under cyber-attack or impacted by pandemic-related events. Failure to put in place the capacity we require to operate our business effectively could result in a reduction in, or disruption of, service to our customers and ultimately a loss of those customers. The Akamai Intelligent Edge Platform relies on hundreds of thousands of servers deployed around the world. Disruptions in our supply chain could prevent us from purchasing servers and other needed equipment at attractive prices or at all. For example, it has been, and may continue to be, more difficult to purchase servers, component parts and other equipment that are manufactured in areas that face disruptions to operations due to unrest or other political activity, public health issues (such as the COVID-19 pandemic), safety issues, natural disasters or general economic conditions. Failure to have adequate server deployment could harm the quality of our services, which could lead to the loss of customers and revenue.
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If we are unable to compete effectively, our business will be adversely 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 offered, price, and financial strength. Our competitors include some of our current partners and customers.

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:

develop superior products or services;
enter new markets more easily;
gain greater market acceptance for their products and services;
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 less appealing to current and potential customers;
more quickly adapt to new or emerging technologies and changes in customer requirements;
take advantage of acquisition, investment and other opportunities more readily;
offer lower prices than ours;
spend more money on the promotion, marketing, and sales of their products and services; and
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.

Smaller and more nimble competitors may be able to:

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 recent initial public 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.

Ultimately, any type of increased competition could result in price and revenue reductions, loss of customers and loss of market share, each of which could materially impact our business, profitability, financial condition, results of operations and cash flows.

If current and potential large customers shift to hardware-based or other DIY internal solutions, our business will be negatively impacted.

We are reliant on large media and other customers to direct significant amounts of 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 Akamai 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 alternative 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, profitability, financial condition, results of operations and cash flows.

If we do not continue to develop new solutions that are attractive to enterprises, our revenues and operating results could be adversely affected.

Innovation is important to our revenue growth and profitability. We must develop new solutions that customers want to purchase in a rapidly-changing technology environment where it can be difficult to anticipate the needs of potential customers
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and competitors are also developing new solutions. The process of developing new solutions is complex, lengthy, and uncertain; 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 for which a viable market for our products does not ultimately develop. This could cause our expenses to grow more rapidly than our revenue. Similarly, trying to innovate through acquisition can be costly and with uncertain prospects for success. If we choose to cut research and development expenses to increase our profitability, investment in innovation could suffer and limit our development of new products. Restrictions on the ability of our developers and other employees to work in our facilities as a result of restrictions imposed by governments to combat the COVID-19 pandemic could reduce their effectiveness including, for example, by making it more difficult for them to collaborate as effectively in the development of new solutions. Failure to develop, on a cost-effective 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 flows.

We and other companies that compete in this industry and these markets experience continually shifting business relationships, commercial focuses and business priorities, all of which occur in reaction to industry and market forces 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 large 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 difficulties in adjusting to the changes or our core strategies could become obsolete. Any of these developments could harm our business.

Cybersecurity breaches and attacks on us, as well as steps we need to take to prevent them, could lead to significant costs and disruptions that harm our business, financial results and reputation.

The Akamai Intelligent Edge Platform transmits and stores both our and our customers' information, data, and encryption keys; customer information and data may, in turn, include personal data of and about individuals. Maintaining the security of the information we hold and of our solutions, network and internal IT systems, which include hundreds of thousands of servers, is a critical issue for us and our customers. Internet-based attacks on our customers and our own network are frequent and take a variety of forms that evolve over time, including distributed denial of service, or DDoS, attacks, infrastructure attacks, botnets, malicious file uploads, cross-site scripting, credential abuse, ransomware, bugs, viruses, worms and malicious software programs. Malicious actors also attempt to fraudulently induce employees or suppliers to disclose sensitive information through illegal electronic spamming, phishing or other tactics. In addition, unauthorized parties may attempt to gain physical access to our facilities in order to infiltrate our internal-use information systems. Cyberthreats are constantly evolving, increasing the difficulty of detecting and successfully defending against them.

The complexities in managing the security profile of a distributed network with vast scale and geographic reach that evolves to incorporate new capabilities expose us to both known and unknown vulnerabilities. These vulnerabilities, resident in either software or configurations, may persist for extended periods of time. Our ability to detect vulnerabilities could be particularly limited during extraordinary events, such as the COVID-19 pandemic, where more workers are working remotely and dealing with unusual distractions. Similar security risks exist with respect to acquired companies, our business partners and the third-party vendors that we rely on for aspects of our information technology support services and administrative functions. As a result, we are subject to risks that the activities of our business partners and third-party vendors may adversely affect our business even if an attack or breach does not directly target our systems.

To defend against security threats to our internal IT systems and cloud-based services, 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, products, and services. This is frequently costly, with a negative impact on near-term profitability. We may need to increase our spending in the future; these costs could reduce our operating margin.

Breaches of our facilities, network, or data security could, among other things:

disrupt the security of our systems and business applications;
impair our ability to provide solutions to our customers and protect their data;
result in product development delays;
compromise confidential or technical business information, thereby harming our reputation or competitive position;
result in theft or misuse of our intellectual property or other assets;
expose us to lawsuits, fines or other penalties under privacy laws and other regulations;
require us to allocate more resources to improved technologies; or
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otherwise adversely affect our business.

Any of these occurrences could have a material detrimental effect on our business, results of operations, financial condition and cash flows.

Evolving privacy, content and other regulations could negatively impact our profitability and business operations.

Laws and regulations that apply to the Internet related to privacy, security requirements, data localization, content liability and restrictions on social media or other content could pose risks to our revenues, intellectual property, and customer relationships as well as increase expenses or create other disadvantages to our business. Interpretations of laws or regulations that would subject us to regulatory supervision or, in the alternative, require us to exit a line of business or a country, could lead to loss of significant revenues and have a negative impact on the quality of our solutions.

Privacy laws are rapidly proliferating, changing and evolving globally. Governments, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. New laws, such as the European Union General Data Protection Regulation, or GDPR, and the California Consumer Privacy Act of 2018, or 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, whether or not consistent with current regulations and industry practices, may subject us to public criticism or boycotts, class action lawsuits, reputational harm, or claims by regulators, industry groups or other third parties, all of which could disrupt our business and expose us to liability. Compliance with GDPR and other laws may be administratively difficult and expensive.

Engineering efforts to build new capabilities to facilitate compliance with data localization, privacy, law enforcement access requirements, or other regulations 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.

Our ability to leverage the data generated by our global network of servers is important to the value of many of the solutions we offer, our operational efficiency and future product development opportunities. Our ability to use data in this way may be constrained by regulatory developments. Compliance with applicable laws and regulations regarding personal data may require changes in services, business practices, or internal systems that result in increased costs, lower revenue, reduced efficiency, or greater difficulty in competing with foreign-based firms. Compliance with data regulations might limit our ability to innovate or offer certain features and functionality in some jurisdictions where we operate. Failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged non-compliant activity, as well as negative publicity and diversion of management time and effort.

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 data security, and other practices we follow may not prevent the improper disclosure or misuse of customer or end user data we store and manage. Improper disclosure or misuse of personal data could harm our reputation, lead to legal exposure to end customers or end users, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue.

We face risks associated with global operations that could harm our business.

A significant portion of our revenue growth in recent quarters has been attributable to revenue gains outside the United States. Our operations in foreign countries subject us to risks (in addition to the regulatory risks discussed above) that may increase our costs, make our operations less efficient and require significant management attention. These risks include:

uncertainty regarding liability for content or services;
loss of revenues if the U.S. or foreign governments impose limitations on doing business with significant current or potential customers;
adjusting to different employee/employer relationships and different regulations governing such relationships;
becoming subject to regulatory oversight, which may become more likely as governments exercise more oversight of the Internet in times of crisis such as the COVID-19 pandemic or under other circumstances;
corporate and personal liability for alleged or actual violations of laws and regulations;
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difficulty in staffing, developing and managing foreign operations as a result of distance, language and cultural differences;
theft of intellectual property in high-risk countries where we operate;
difficulties in transferring funds from, or converting currencies in, certain countries;
managing the costs and processes necessary to comply with export control, sanctions, anti-corruption, data protection and competition laws and regulations;
geo-political developments that impact our customers' ability to operate or deliver traffic in a country, such as regulations recently adopted in India to prevent certain applications from being served there and announced U.S. regulations restricting delivery of certain Chinese applications;
reliance on channel partners over which we have limited control or influence on a day-to-day basis; and
potentially adverse tax consequences.

To continue to grow our revenues generated outside the United States, we will likely need to increase our reliance on resellers, systems integrators, and other strategic partners and to leverage those relationships to expand our distribution channels. We have not always been successful at developing these relationships due to the complexity of our solutions, our historical reliance on an internal sales force, and other factors. Our failure to maintain and increase the number and quality of relationships with channel partners, and any inability to successfully execute on the partnerships we initiate, could significantly impede our revenue growth prospects in the short and long term.

Actions taken to address the COVID-19 pandemic have made, and are expected to continue to make, it more difficult for us to manage international operations, including as a result of travel restrictions on us and our customers. Geo-political events such as the United Kingdom's withdrawal from the European Union, commonly referred to as Brexit, may impact our business in different parts of the world. In particular, it is possible that the level of economic activity in the United Kingdom and the rest of Europe will be adversely impacted and that we will face increased regulatory and legal complexities, including those related to tax, trade, security and employee relations as a result of Brexit. Such developments could be disruptive to our operations and business relationships in affected regions. We also face the risk of lost revenues due to potential sanctions that may be imposed by the U.S. government against doing business with certain non-U.S. persons and entities. Trade disputes and unrest and other political activity, public health emergencies such as the COVID-19 outbreak, natural disasters or general economic or political factors that disrupt our customers' businesses or our own operations could negatively impact our revenue and ability to offer services in impacted countries.

We entered into a Non-Prosecution Agreement with the U.S. Securities and Exchange Commission, or the Commission, in June 2016 in connection with resolution of an investigation relating to sales practices in a country outside the U.S. In the event we violate the terms of this Non-Prosecution Agreement, we could be subject to additional investigation or enforcement by the Commission or the Department of Justice. Although we have implemented policies and procedures designed to ensure compliance with the Non-Prosecution Agreement and relevant laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies or applicable laws. Any such violations could result in fines and penalties, criminal sanctions against us or our employees and prohibitions on the conduct of our business and on our ability to offer our solutions in one or more countries. They could also materially affect our brand or reputation, our global operations, any international expansion efforts, our ability to attract and retain employees, our business overall, and our financial results.

Fluctuations in foreign currency exchange rates affect our operating results in U.S. dollar terms.

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 rates that impact the settlement of transactions in non-functional currencies. While we have implemented a foreign currency hedging program to mitigate transactional exposures, there is no guarantee that such program will be effective.

Defects or disruptions in our products and IT systems 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 software that underlies our platform that have given rise to service incidents or otherwise impacted our operations. We have also experienced customer dissatisfaction with the quality of some of our media delivery and other services, which has led to loss of business and could lead to loss of customers in the future. While we have robust quality control processes in place, there may be additional errors and defects in our software that may adversely affect our operations. We may not have in place adequate quality assurance procedures to ensure that we detect errors in our software in a timely manner, and we may have insufficient resources to
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efficiently address multiple service incidents happening simultaneously or in rapid succession. If we are unable to efficiently and cost-effectively fix errors or other problems that may be identified and improve the quality of our solutions or systems, or if there are unidentified errors that allow persons to improperly access our services or systems, we could experience loss of revenue and market share, damage to our reputation, increased expenses, delayed payments and be exposed to legal actions by our customers.

Our business relies on our data systems, traffic measurement systems, billing systems, ordering processes and other operational and financial reporting and control systems. All of these systems have become increasingly complex due to the diversification and complexity of our business, 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. We will need to continue to upgrade and improve our data systems, traffic measurement systems, billing systems, ordering processes and other operational and financial systems, procedures and controls. These upgrades and improvements may be difficult and costly. In addition, we could face strains on, or failures of, our internal IT systems if the COVID-19 persists for a longer period or governmental restrictions 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.

Acquisitions and other strategic transactions we complete could result in operating difficulties, dilution, diversion of management attention and other harmful consequences that may adversely impact our business and results of operations.

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:

difficulty integrating the technologies, operations and personnel of acquired businesses;
potential disruption of our ongoing business;
potential distraction of management;
diversion of business resources from core operations;
financial consequences including an increase in operating expenses and other dilutive effects on our earnings;
assumption of legal risks related to compliance with laws, including privacy and anti-corruption regulations;
failure to realize synergies or other expected benefits;
acquisition of IT systems that expose us to cybersecurity 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 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 intended benefits of the acquisition. As we complete any future acquisitions, we may encounter difficulty in incorporating 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.

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Our failure to effectively manage our operations as our business evolves could harm us.

Our future operating results will depend on our ability to manage our operations. As a result of the diversification of our business, personnel growth, increased usage of alternative working arrangements, 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 efforts, our growth and operations could be adversely affected. With the restrictions on businesses intended to curb the spread of the COVID-19 virus, most of our employees worldwide have been working remotely since the first quarter of 2020. A long-term continuation of these restrictions 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. As a result, our business could suffer.

Our restructuring and reorganization activities may be disruptive to our operations and harm our business.

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. 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 expense 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.

If we are unable to retain our key employees and hire and retain qualified sales, technical, marketing and support personnel, our ability to compete could be harmed.

Our future success depends upon the services of our executive officers and other key technology, sales, marketing and support personnel who have critical industry experience and relationships. There is significant competition for talented individuals in the regions in which our primary offices are located, which affects both our ability to retain key employees and hire new ones. None of our officers or key employees is bound by an employment agreement for any specific term, and members of our senior management have left Akamai over the years for a variety of reasons. If restrictions on activities imposed by governments across the world as a result of the COVID-19 pandemic persist for an extended period, we may have difficulty fully addressing our hiring needs due to associated logistical and other issues. The loss of the services of a significant number of our employees or any of our key employees (including as a result of health issues related to the COVID-19 pandemic) or our inability to attract and retain new talent may be disruptive to our operations and overall business.

We may need to defend against patent or copyright infringement claims, which would cause us to incur substantial costs or limit our ability to use certain technologies in the future.

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 from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or
redesign products or services.

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If we are forced to take any of these actions, our business may be seriously harmed.

Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.

We rely on a combination of patent, copyright, trademark and trade secret laws and contractual restrictions on disclosure to protect our intellectual property rights. These legal protections afford only limited protection. 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 difficult, 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.

We rely on certain “open-source” software the use of which could result in our having to distribute our proprietary software, including our source code, to third parties on unfavorable terms, which could materially affect our business.

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 software. Such action could include replacing certain source code used in our software, discontinuing certain of our products or 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. 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 available at no cost. Furthermore, open-source software may have security flaws and other deficiencies that could make our solutions less reliable and damage our business.

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:

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;
changes in financial estimates and recommendations by securities analysts;
failure to meet the expectations of securities analysts;
purchases or sales of our stock by our officers and directors;
general economic conditions and other macro-economic factors;
repurchases of shares of our common stock;
successful cyber-attacks affecting our network or systems;
performance by other companies in our industry; and
geopolitical conditions such as acts of terrorism, military conflicts or global pandemics.

Furthermore, our revenue, particularly that portion attributable to usage of our solutions beyond customer commitments, can be difficult to forecast, and, as a result, our quarterly operating results can fluctuate substantially. This concern is particularly acute with respect to our media and commerce customers. We have introduced new billing models over the years, including recently offering a zero overage plan that eliminates surcharges for certain traffic. In the future, our customer contracting models may 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
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portion of our cost structure is largely fixed in the short-term, revenue shortfalls tend to have a disproportionately negative impact on our 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.

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.

If the accounting estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may be adversely affected.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments about, among other things, taxes, revenue recognition, stock-based compensation costs, capitalization of internal-use software development costs, investments, contingent obligations, allowance for doubtful accounts, intangible assets, and restructuring charges. These 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 related 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. In addition, new accounting pronouncements and interpretations of accounting pronouncements have occurred and may occur in the future that could adversely affect our reported financial results.

We may have exposure 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. We have recorded certain tax reserves to address potential exposures involving our income 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 including the Commonwealth of Massachusetts. In the second quarter of 2018, we filed an appeal with the Massachusetts Appellate Tax Board, or MATB, contesting adverse audit findings relating to our eligibility to claim certain tax benefits and exemptions. In July 2020, the MATB ruled in our favor. The ruling is subject to appeal. If the ultimate outcome of our appeal and other 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 materially affect our financial results in the period or periods for which such determination is made.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or 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.

We have complied with Section 404 of the Sarbanes-Oxley Act of 2002 by assessing, strengthening and testing our system of internal controls. Even though we concluded our internal control over financial reporting and disclosure controls and procedures were effective as of the end of the period covered by this report, we need to continue to maintain our processes and systems and adapt them to changes as our business evolves 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 continue to provide adequate control over our financial processes and reporting and ensure compliance with Section 404. 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 will 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 material weaknesses,
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the disclosure of that fact, even if quickly remediated, could reduce the market's confidence in our financial statements and harm our stock price.

Any failure to meet our debt obligations 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 in 2027 and we had total principal amount of $1,150.0 million of convertible senior notes outstanding due in 2025. We also entered into a credit facility in May 2018 that provides for an initial $500.0 million in revolving loans; under specified circumstances, we would be able to borrow an additional $500.0 million thereunder. Our ability to repay any amounts we borrow under our credit facility, refinance the notes, make cash payments in connection with conversions of the notes or repurchase the notes in 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 convertible senior notes in an optimally productive and profitable manner. If we are unable to remain profitable or if we use 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. In addition, if we are unable to make cash payments upon conversion of the notes, we would be required to issue significant amounts of our common stock, which would be dilutive to the stock of existing stockholders. If we do not have sufficient cash 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 facility include certain financial ratios that potentially limit our future indebtedness, the terms of the notes do not do so. If we incur significantly more debt, this could intensify the risks described above.

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, shares of our common stock, it may materially and adversely affect the market price of our common stock.

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. 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. Most of our government contracts are subject to legislative approval of appropriations to fund the expenditures under these contracts. These factors 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.

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 ordinary course of our business, including patent, commercial, product liability, breach of contract, employment, class action, 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.

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Global climate change and related natural resource conservation regulations could adversely impact our business.

The long-term effects of climate change on the global economy and our industry in particular remain unknown. 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. Catastrophic natural disasters could negatively impact our office locations. 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. 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 less profitable in future periods. Failure to comply with applicable laws and regulations or other requirements imposed on us could lead to fines, lost revenue and damage to our reputation.

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 future 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.

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, 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;
stockholders needing to provide advance notice 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 corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder 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.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities
 
The following is a summary of our repurchases of our common stock in the third quarter of 2020 (in thousands, except share and per share data):

Period (1)
(a) Total Number of Shares Purchased (2)
(b) Average Price Paid per Share (3)
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (4)
(d) Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs(4)
July 1, 2020 – July 31, 2020— $— — $657,601 
August 1, 2020 – August 31, 202050,566 109.52 50,566 652,063 
September 1, 2020 – September 30, 202069,431 110.33 69,431 644,403 
Total119,997 $109.99 119,997 $644,403 

(1)Information is based on settlement dates of repurchase transactions.
(2)Consists of shares of our common stock, par value $0.01 per share.
(3)Includes commissions paid.
(4)Effective November 2018, our Board of Directors authorized a $1.1 billion repurchase program through December 2021.

56

Table of Contents
Item 6. Exhibits

Exhibit 31.1  
Exhibit 31.2  
Exhibit 32.1  
Exhibit 32.2  
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.*
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*
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101.INS)

*Submitted electronically herewith

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2020 and December 31, 2019, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019, (iv) Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 and (vi) Notes to Unaudited Consolidated Financial Statements.
57

Table of Contents
SIGNATURES

Pursuant to the requirements 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.
 
Akamai Technologies, Inc.
November 6, 2020By:
/s/ Edward McGowan
Edward McGowan
Chief Financial Officer
(Duly Authorized Officer, Principal Financial Officer)

58
Document

EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, F. Thomson Leighton, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Akamai Technologies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date:November 6, 2020/s/ F. Thomson Leighton
F. Thomson Leighton, Chief Executive Officer


Document

EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Edward McGowan, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Akamai Technologies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 

Date:November 6, 2020/s/ Edward McGowan
Edward McGowan, Chief Financial Officer


Document

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Akamai Technologies, Inc. (the “Company”) for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, F. Thomson Leighton, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:November 6, 2020
/S/    F. Thomson Leighton 
F. Thomson Leighton, Chief Executive Officer


Document

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Akamai Technologies, Inc. (the “Company”) for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Edward McGowan, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:November 6, 2020/s/ Edward McGowan
Edward McGowan, Chief Financial Officer


v3.20.2
Cover Page - shares
9 Months Ended
Sep. 30, 2020
Nov. 03, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 0-27275  
Entity Registrant Name Akamai Technologies, Inc  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 04-3432319  
Entity Address, Address Line One 145 Broadway  
Entity Address, City or Town Cambridge  
Entity Address, State or Province MA  
Entity Address, Postal Zip Code 02142  
City Area Code 617  
Local Phone Number 444-3000  
Title of 12(b) Security Common Stock - par value $0.01 per share  
Trading Symbol AKAM  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   162,793,988
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0001086222  
Current Fiscal Year End Date --12-31  
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 742,521 $ 393,745
Marketable securities 701,515 1,143,249
Accounts receivable, net of reserves of $3,696 and $1,880 at September 30, 2020, and December 31, 2019, respectively 630,406 551,943
Prepaid expenses and other current assets 168,779 142,676
Total current assets 2,243,221 2,231,613
Marketable securities 1,110,058 835,384
Property and equipment, net 1,383,480 1,152,153
Operating lease right-of-use assets 745,089 758,450
Acquired intangible assets, net 184,478 179,431
Goodwill 1,598,919 1,600,265
Deferred income tax assets 97,801 76,528
Other assets 151,347 173,062
Total assets 7,514,393 7,006,886
Current liabilities:    
Accounts payable 114,850 138,946
Accrued expenses 369,815 334,861
Deferred revenue 88,942 71,223
Operating lease liabilities 136,292 139,463
Other current liabilities 7,225 8,843
Total current liabilities 717,124 693,336
Deferred revenue 3,954 4,368
Deferred income tax liabilities 31,946 29,187
Convertible senior notes 1,889,743 1,839,791
Operating lease liabilities 682,623 692,181
Other liabilities 81,386 90,065
Total liabilities 3,406,776 3,348,928
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 700,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued or outstanding 0 0
Common stock, $0.01 par value; 700,000,000 shares authorized; 164,062,652 shares issued and 162,799,784 shares outstanding at September 30, 2020, and 162,000,843 shares issued and outstanding at December 31, 2019 1,641 1,620
Additional paid-in capital 3,781,228 3,653,486
Accumulated other comprehensive loss (45,854) (45,144)
Treasury stock, at cost, 1,262,868 shares at September 30, 2020, and no shares at December 31, 2019 (121,078) 0
Retained earnings 491,680 47,996
Total stockholders’ equity 4,107,617 3,657,958
Total liabilities and stockholders’ equity 7,514,393 7,006,886
Accounts receivable reserve $ 3,696 $ 1,880
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 5,000,000 5,000,000
Preferred stock, shares designated as Series A Junior Participating Preferred Stock (in shares) 700,000 700,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 700,000,000 700,000,000
Common stock, shares issued (in shares) 164,062,652 162,000,843
Common stock, shares outstanding (in shares) 162,799,784 162,000,843
Treasury stock (in shares) 1,262,868 0
v3.20.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Accounts receivable reserve $ 3,696 $ 1,880
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 5,000,000 5,000,000
Preferred stock, shares designated as Series A Junior Participating Preferred Stock (in shares) 700,000 700,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 700,000,000 700,000,000
Common stock, shares issued (in shares) 164,062,652 162,000,843
Common stock, shares outstanding (in shares) 162,799,784 162,000,843
Treasury stock (in shares) 1,262,868 0
v3.20.2
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Revenue $ 792,845 $ 709,912 $ 2,351,862 $ 2,121,494
Costs and operating expenses:        
Cost of revenue (exclusive of amortization of acquired intangible assets shown below) 283,439 246,938 828,825 729,874
Research and development 66,773 64,887 202,087 192,467
Sales and marketing 122,749 122,258 370,004 383,640
General and administrative 128,365 123,216 385,435 366,167
Amortization of acquired intangible assets 10,340 9,624 31,155 28,871
Restructuring charge (benefit) 21 (300) 10,439 6,879
Total costs and operating expenses 611,687 566,623 1,827,945 1,707,898
Income from operations 181,158 143,289 523,917 413,596
Interest income 6,307 7,908 22,852 22,953
Interest expense (17,324) (12,127) (51,778) (32,689)
Other expense, net (2,158) (752) (7,869) (819)
Income before provision for income taxes 167,983 138,318 487,122 403,041
(Provision) benefit for income taxes (8,801) 960 (41,764) (42,718)
Loss from equity method investment (559) (1,388) (1,674) (1,388)
Net income $ 158,623 $ 137,890 $ 443,684 $ 358,935
Net income per share:        
Basic (in dollars per share) $ 0.97 $ 0.85 $ 2.73 $ 2.20
Diluted (in dollars per share) $ 0.95 $ 0.84 $ 2.69 $ 2.18
Shares used in per share calculations:        
Basic (in shares) 162,757 162,445 162,387 163,029
Diluted (in shares) 166,519 164,558 164,990 164,788
v3.20.2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net income $ 158,623 $ 137,890 $ 443,684 $ 358,935
Other comprehensive income (loss):        
Foreign currency translation adjustments 13,177 (14,095) (7,292) (10,744)
Change in unrealized (loss) gain on investments, net of income tax benefit (provision) of $559, $(52), $(3,120) and $(1,153) for the three and nine months ended September 30, 2020 and 2019, respectively (1,724) 155 6,582 3,232
Other comprehensive income (loss) 11,453 (13,940) (710) (7,512)
Comprehensive income $ 170,076 $ 123,950 $ 442,974 $ 351,423
v3.20.2
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement of Comprehensive Income [Abstract]        
Income tax provision $ (559) $ 52 $ 3,120 $ 1,153
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities:    
Net income $ 443,684 $ 358,935
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 350,681 324,874
Stock-based compensation 146,901 140,262
(Benefit) provision for deferred income taxes (22,548) 24,581
Amortization of debt discount and issuance costs 47,057 30,761
Other non-cash reconciling items, net 16,284 3,778
Changes in operating assets and liabilities, net of effects of acquisitions:    
Accounts receivable (85,439) (38,144)
Prepaid expenses and other current assets (21,380) (11,663)
Accounts payable and accrued expenses 49,818 (29,441)
Deferred revenue 14,803 16,714
Other current liabilities (1,638) (21,850)
Other non-current assets and liabilities (14,316) (22,643)
Net cash provided by operating activities 923,907 776,164
Cash flows from investing activities:    
Cash received (paid) for business acquisitions, net of cash acquired 106 (121,409)
Cash paid for asset acquisition (36,376) 0
Cash paid for equity method investment 0 (36,008)
Purchases of property and equipment (395,793) (268,766)
Capitalization of internal-use software development costs (168,634) (159,645)
Purchases of short- and long-term marketable securities (1,153,526) (1,373,563)
Proceeds from sales of short- and long-term marketable securities 29,809 547
Proceeds from maturities of short- and long-term marketable securities 1,301,354 878,779
Other non-current assets and liabilities (1,980) 1,895
Net cash used in investing activities (425,040) (1,078,170)
Cash flows from financing activities:    
Proceeds from the issuance of convertible senior notes 0 1,135,629
Proceeds from the issuance of warrants 0 185,150
Purchase of note hedge related to convertible senior notes 0 (312,225)
Repayment of convertible senior notes 0 (690,000)
Proceeds related to the issuance of common stock under stock plans 45,812 43,204
Employee taxes paid related to net share settlement of stock-based awards (77,299) (61,116)
Repurchases of common stock (121,078) (291,788)
Other non-current assets and liabilities 0 (1,558)
Net cash (used in) provided by financing activities (152,565) 7,296
Effects of exchange rate changes on cash, cash equivalents and restricted cash 3,535 (2,650)
Net increase (decrease) in cash, cash equivalents and restricted cash 349,837 (297,360)
Cash, cash equivalents and restricted cash at beginning of period 394,146 1,036,987
Cash, cash equivalents and restricted cash at end of period 743,983 739,627
Supplemental disclosure of cash flow information:    
Cash paid for income taxes, net of refunds received of $16,674 and $2,746 for the nine months ended September 30, 2020 and 2019, respectively 31,634 65,896
Cash paid for interest expense 5,235 719
Cash paid for operating lease liabilities 144,322 107,478
Non-cash activities:    
Operating lease right-of-use assets obtained in exchange for operating lease liabilities 128,177 87,207
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses 48,357 64,982
Capitalization of stock-based compensation 28,487 27,352
Proceeds from income tax refunds $ 16,674 $ 2,746
v3.20.2
Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Statement of Cash Flows [Abstract]    
Proceeds from income tax refunds $ 16,674 $ 2,746
Reconciliation of cash, cash equivalents and restricted cash:    
Cash and cash equivalents 742,521 738,462
Restricted cash 1,462 1,165
Cash, cash equivalents and restricted cash $ 743,983 $ 739,627
v3.20.2
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Cumulative-effect adjustment to accumulated deficit
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Treasury Stock
Retained Earnings (Accumulated Deficit)
Retained Earnings (Accumulated Deficit)
Cumulative-effect adjustment to accumulated deficit
Beginning balance (in shares) at Dec. 31, 2018     162,904,550          
Beginning Balance at Dec. 31, 2018 $ 3,191,860 $ 851 $ 1,629 $ 3,670,033 $ (48,912) $ 0 $ (430,890) $ 851
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes (in shares)     1,833,758          
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes (59,635)   $ 18 (59,653)        
Issuance of common stock under employee stock purchase plan (in shares)     473,462          
Issuance of common stock under employee stock purchase plan 27,669   $ 5 27,664        
Stock-based compensation 167,475     167,475        
Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880 240,820     240,820        
Issuance of warrants related to convertible senior notes 185,150     185,150        
Purchase of note hedge related to convertible senior notes (312,225)     (312,225)        
Repurchases of common stock (in shares)     (3,552,268)          
Repurchases of common stock (291,788)         (291,788)    
Net income 358,935         358,935  
Foreign currency translation adjustments (10,744)       (10,744)      
Change in unrealized gain (loss) on investments, net of tax 3,232       3,232      
Ending balance (in shares) at Sep. 30, 2019     161,659,502          
Ending Balance at Sep. 30, 2019 3,501,600   $ 1,652 3,919,264 (56,424) (291,788) (71,104)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Deferred tax for convertible senior notes 23,170              
Issuance costs for convertible senior notes 2,880              
Beginning balance (in shares) at Jun. 30, 2019     163,359,091          
Beginning Balance at Jun. 30, 2019 3,394,764   $ 1,649 3,760,840 (42,484) (116,247) (208,994)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes (in shares)     305,367          
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes (10,724)   $ 3 (10,727)        
Stock-based compensation 55,406     55,406        
Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880 240,820     240,820        
Issuance of warrants related to convertible senior notes 185,150     185,150        
Purchase of note hedge related to convertible senior notes (312,225)     (312,225)        
Repurchases of common stock (in shares)     (2,004,956)          
Repurchases of common stock (175,541)         (175,541)    
Net income 137,890           137,890  
Foreign currency translation adjustments (14,095)       (14,095)      
Change in unrealized gain (loss) on investments, net of tax 155       155      
Ending balance (in shares) at Sep. 30, 2019     161,659,502          
Ending Balance at Sep. 30, 2019 3,501,600   $ 1,652 3,919,264 (56,424) (291,788) (71,104)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Deferred tax for convertible senior notes 23,170              
Issuance costs for convertible senior notes 2,880              
Beginning balance (in shares) at Dec. 31, 2019     162,000,843          
Beginning Balance at Dec. 31, 2019 3,657,958   $ 1,620 3,653,486 (45,144) 0 47,996  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes (in shares)     1,667,888          
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes (76,679)   $ 17 (76,696)        
Issuance of common stock under employee stock purchase plan (in shares)     393,921          
Issuance of common stock under employee stock purchase plan 29,170   $ 4 29,166        
Stock-based compensation 175,272     175,272        
Repurchases of common stock (in shares)     (1,262,868)          
Repurchases of common stock (121,078)         (121,078)    
Net income 443,684              
Foreign currency translation adjustments (7,292)              
Change in unrealized gain (loss) on investments, net of tax 6,582       6,582      
Ending balance (in shares) at Sep. 30, 2020     162,799,784          
Ending Balance at Sep. 30, 2020 4,107,617   $ 1,641 3,781,228 (45,854) (121,078) 491,680  
Beginning balance (in shares) at Jun. 30, 2020     162,630,477          
Beginning Balance at Jun. 30, 2020 3,904,295   $ 1,638 3,734,787 (57,307) (107,880) 333,057  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes (in shares)     289,304          
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes (13,387)   $ 3 (13,390)        
Stock-based compensation 59,831     59,831        
Repurchases of common stock (in shares)     (119,997)          
Repurchases of common stock (13,198)         (13,198)    
Net income 158,623           158,623  
Foreign currency translation adjustments 13,177       13,177      
Change in unrealized gain (loss) on investments, net of tax (1,724)       (1,724)      
Ending balance (in shares) at Sep. 30, 2020     162,799,784          
Ending Balance at Sep. 30, 2020 $ 4,107,617   $ 1,641 $ 3,781,228 $ (45,854) $ (121,078) $ 491,680  
v3.20.2
Consolidated Statements of Stockholders' Equity (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2019
Statement of Stockholders' Equity [Abstract]    
Deferred tax for convertible senior notes $ 23,170 $ 23,170
Issuance costs for convertible senior notes $ 2,880 $ 2,880
v3.20.2
Nature of Business and Basis of Presentation
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Business and Basis of Presentation Nature of Business and Basis of Presentation
Akamai Technologies, Inc. (the “Company”) provides solutions for delivering, optimizing and securing content and business applications over the Internet. Its globally-distributed platform comprises approximately 325,000 servers across more than 130 countries. The Company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company currently operates in one industry segment: providing cloud services for delivering, optimizing and securing content and business applications over the Internet.

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying financial statements.

Certain information and footnote disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes have been condensed in, or omitted from, these interim financial statements. Accordingly, the unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 28, 2020.

The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair statement of the results of all interim periods reported herein.

Newly-Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance that introduces a new methodology for accounting for credit losses on financial instruments. The guidance establishes a new "expected credit loss model" that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances. The Company prospectively adopted this standard on January 1, 2020. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued guidance that addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance for capitalizing costs associated with developing or obtaining internal-use software. The Company prospectively adopted this standard on January 1, 2020. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements

In August 2020, the FASB issued guidance that is expected to reduce complexity and improve comparability of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. This guidance will be effective for the Company on January 1, 2022. The Company is evaluating the potential impact of adopting this new accounting guidance on its consolidated financial statements.
v3.20.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
The following is a summary of available-for-sale marketable securities held as of September 30, 2020 and December 31, 2019 (in thousands):

Gross UnrealizedClassification on Balance Sheet
Amortized CostGainsLossesAggregate
Fair Value
Short-Term
Marketable
Securities
Long-Term
Marketable
Securities
As of September 30, 2020
Commercial paper$11,954 $42 $— $11,996 $11,996 $— 
Corporate bonds1,410,954 11,095 (274)1,421,775 636,405 785,370 
U.S. government agency obligations359,014 529 (241)359,302 52,637 306,665 
$1,781,922 $11,666 $(515)$1,793,073 $701,038 $1,092,035 
As of December 31, 2019
Certificates of deposit$150,000 $— $— $150,000 $150,000 $— 
Commercial paper73,829 23 (7)73,845 73,845 — 
Corporate bonds1,368,668 1,840 (378)1,370,130 753,538 616,592 
U.S. government agency obligations369,475 80 (74)369,481 165,623 203,858 
$1,961,972 $1,943 $(459)$1,963,456 $1,143,006 $820,450 

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

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

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

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

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

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

September 30,
2020
December 31,
2019
Due in 1 year or less$701,038 $1,143,006 
Due after 1 year through 3 years1,092,035 820,450 
$1,793,073 $1,963,456 
v3.20.2
Accounts Receivable
9 Months Ended
Sep. 30, 2020
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Accounts Receivable Accounts Receivable
Net accounts receivable consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
 
September 30,
2020
December 31,
2019
Trade accounts receivable$471,057 $396,204 
Unbilled accounts receivable163,045 157,619 
Gross accounts receivable634,102 553,823 
Allowances for current expected credit losses and other reserves(3,696)(1,880)
Accounts receivable, net$630,406 $551,943 

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

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

The allowance for current expected credit losses has been developed using historical loss rates for the previous twelve months as well as expectations about the future where the Company has been able to develop forecasts to support its estimates.
v3.20.2
Incremental Costs to Obtain a Contract with a Customer
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Incremental Costs to Obtain a Contract with a Customer Incremental Costs to Obtain a Contract with a Customer
The following table summarizes the deferred costs associated with obtaining customer contracts, specifically commission and incentive payments, as of September 30, 2020 and December 31, 2019 (in thousands):

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

During the three and nine months ended September 30, 2020, the Company recognized $14.8 million and $45.0 million, respectively, of amortization expense related to deferred costs. During the three and nine months ended September 30, 2019, the Company recognized $10.9 million and $32.5 million, respectively, of amortization expense related to deferred costs. Amortization expense related to deferred costs is primarily included in sales and marketing expense in the consolidated statements of income.
Revenue from Contracts with Customers
The Company sells its solutions 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. The following table summarizes revenue by geography included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
U.S.$437,381 $413,116 $1,309,979 $1,248,175 
International355,464 296,796 1,041,883 873,319 
Total revenue$792,845 $709,912 $2,351,862 $2,121,494 

While the Company sells its solutions through a geographically dispersed sales force, it manages its customer relationships in two divisions: the Web Division and the Media and Carrier Division. Customers are assigned to a division for relationship management purposes according to their predominant purchasing activity; however, customers may purchase solutions managed by the other division as well. As of January 1, 2020, the Company reassigned some of its customers between the Media and Carrier Division and the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented. As the purchasing patterns and required account expertise of customers change over time, the Company may reassign a customer's division from one to another. The following table summarizes revenue by division included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Web Division$418,064 $387,662 $1,228,401 $1,139,422 
Media and Carrier Division374,781 322,250 1,123,461 982,072 
Total revenue$792,845 $709,912 $2,351,862 $2,121,494 

Most content delivery and security services sold by the Company represent obligations that are satisfied over time as the customer simultaneously receives and consumes the services provided. Accordingly, the majority of the Company's revenue is recognized over time, generally ratably over the term of the arrangement due to consistent monthly traffic commitments that expire each period. A small percentage of the Company's services 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.
During the nine months ended September 30, 2020 and 2019, the Company recognized $66.0 million and $51.0 million of revenue that was included in deferred revenue as of December 31, 2019 and 2018, respectively.

As of September 30, 2020, the aggregate amount of remaining performance obligations from contracts with customers was $2.7 billion. The Company expects to recognize approximately 70% of its remaining performance obligations as revenue over the next 12 months, with the remaining 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 satisfied at the reporting date. This consists of future committed revenue for monthly, quarterly or annual periods within current contracts with customers, as well as deferred revenue arising from consideration invoiced in prior periods for which the related performance 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.
v3.20.2
Goodwill and Acquired Intangible Assets
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Acquired Intangible Assets Goodwill and Acquired Intangible Assets
The change in the carrying amount of goodwill for the nine months ended September 30, 2020 was as follows (in thousands):

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

The Company tests goodwill for impairment at least annually. Through the date the consolidated financial statements were issued, no triggering events had occurred that would indicate a potential impairment exists.
Acquired intangible assets that are subject to amortization consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):

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

Aggregate expense related to amortization of acquired intangible assets for the three and nine months ended September 30, 2020 was $10.3 million and $31.2 million, respectively. Aggregate expense related to amortization of acquired intangible assets for the three and nine months ended September 30, 2019 was $9.6 million and $28.9 million, respectively. Based on the Company’s acquired intangible assets as of September 30, 2020, aggregate expense related to amortization of acquired intangible assets is expected to be $10.5 million for the remainder of 2020, and $43.0 million, $37.3 million, $28.9 million and $20.5 million for 2021, 2022, 2023 and 2024, respectively.
v3.20.2
Acquisitions
9 Months Ended
Sep. 30, 2020
Asset Acquisition [Abstract]  
Acquisitions Acquisitions
Asavie

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

Instart

In February 2020, the Company acquired certain assets from Instart Logic, Inc. ("Instart"), a provider of cloud solutions for improving web and mobile application performance, for $36.4 million in cash. The purchase price was primarily allocated to a customer-related intangible asset that will be amortized over 17 years in a pattern that matches expense with expected economic benefits.
v3.20.2
Debt
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Debt Debt
Convertible Notes Due 2027

In August 2019, the Company issued $1,150.0 million in par value of convertible senior notes due 2027 (the "2027 Notes"). The 2027 Notes are senior unsecured obligations of the Company, bear regular interest of 0.375%, payable semi-annually in arrears on March 1 and September 1 of each year and mature on September 1, 2027, unless repurchased or converted in accordance with their terms prior to maturity.
At their option, holders may convert their 2027 Notes prior to the close of business on the business day immediately preceding May 1, 2027, only under the following circumstances:

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

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

upon the occurrence of specified corporate events.

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

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

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

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

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

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

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

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

Note Hedge

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

Warrants

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

Convertible Notes Due 2025

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

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

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

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

upon the occurrence of specified corporate events.

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

Upon conversion, the Company, at its election, may pay or deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The initial conversion rate is 10.5150 shares of the Company's common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $95.10 per share, subject to adjustments in certain events, and represents a potential conversion into 12.1 million shares.

In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components. The carrying cost of the liability component was calculated by measuring the fair value of a similar debt obligation that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 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 and will not be remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the transaction costs related to the issuance of the 2025 Notes, the Company allocated the total transaction costs incurred to the liability and equity components based on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the term of the 2025 Notes, and transaction costs attributable to the equity component are netted against the equity component of the 2025 Notes in stockholders’ equity.

The 2025 Notes consisted of the following components as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,
2020
December 31,
2019
Liability component:
Principal$1,150,000 $1,150,000 
Less: debt discount and issuance costs, net of amortization(207,185)(237,281)
Net carrying amount$942,815 $912,719 
Equity component:$285,225 $285,225 

The estimated fair value of the 2025 Notes at September 30, 2020 and December 31, 2019 was $1,486.4 million and $1,270.7 million, respectively. The fair value was determined based on the quoted price of the 2025 Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. Based on the closing price of the Company's common stock of $110.54 on September 30, 2020, the value of the 2025 Notes if converted to common stock was more than the principal amount of $1,150.0 million.

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 the $690.0 million in par value of convertible senior notes due in 2019.

Note Hedge

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 note hedge transactions are intended to reduce dilution in the event of conversion of the 2025 Notes.

Warrants

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.

Convertible Notes Due 2019

In February 2014, the Company issued $690.0 million in par value of convertible senior notes due 2019 (the "2019 Notes"). The 2019 Notes were senior unsecured obligations of the Company and did not bear regular interest. The 2019 Notes matured and were repaid in full on February 15, 2019 as no repurchases or conversions occurred prior to maturity.
Revolving Credit Facility

In May 2018, the Company entered into a $500.0 million five-year, revolving credit agreement (the “Credit Agreement”). Borrowings under the Credit Agreement may be used to finance working capital needs and for general corporate purposes. The 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 Credit Agreement expires in May 2023.

Borrowings under the Credit Agreement bear 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 Credit Agreement. Regardless of what amounts, if any, are outstanding under the Credit Agreement, the Company is 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 the Company's consolidated leverage ratio specified in the Credit Agreement.

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. Principal covenants include a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. There were no outstanding borrowings under the Credit Agreement as of September 30, 2020. 

Interest Expense

The 2027 Notes bear interest at a fixed rate of 0.375%. The interest is payable semi-annually on March 1 and September 1 of each year. The 2027 Notes have an effective interest rate of 3.1% attributable to the conversion feature. The 2025 Notes bear interest at a fixed rate of 0.125%. The interest is payable semi-annually on May 1 and November 1 of each year, commencing in November 2018. The 2025 Notes have an effective interest rate of 4.26% attributable to the conversion feature. The 2019 Notes did not bear regular interest, but had an effective interest rate of 3.2% attributable to the conversion feature. The Company is also obligated to pay ongoing commitment fees under the terms of the Credit Agreement. The following table sets forth total interest expense included in the consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Amortization of debt discount and issuance costs$16,866 $12,982 $50,130 $35,657 
Coupon interest payable on 2025 Notes360 359 1,078 1,077 
Coupon interest payable on 2027 Notes1,078 479 3,234 479 
Revolving credit facility contractual interest expense139 156 409 372 
Capitalization of interest expense(1,119)(1,849)(3,073)(4,896)
Total interest expense$17,324 $12,127 $51,778 $32,689 
v3.20.2
Restructuring
9 Months Ended
Sep. 30, 2020
Restructuring and Related Activities [Abstract]  
Restructuring Restructuring
During the fourth quarter of 2019, management committed to an action to restructure certain parts of the Company to focus on investments with the potential to accelerate revenue growth. As a result, certain headcount reductions were necessary and certain capitalized internal-use software charges were realized for software not yet placed into service that will not be completed and implemented due to this action. The Company has incurred restructuring charges of $20.6 million as part of this action, of which an insignificant amount was incurred during the three months ended September 30, 2020 and $10.4 million was incurred during the nine months ended September 30, 2020. Included in the charge is $6.2 million related to impairment of a right-of-use asset related to the exit of a leased facility. The Company does not expect to incur material additional restructuring charges related to this action.

During the fourth quarter of 2018, management committed to an action to restructure certain parts of the Company with the intent of re-balancing investments to ensure long-term growth and scale. As a result, certain headcount reductions were necessary and certain capitalized internal-use software charges were realized for software not yet placed into service that will not be completed and implemented due to this action. The Company has incurred restructuring charges of $19.0 million as part of this action, of which a benefit of $0.3 million and a charge of $6.7 million, respectively, was incurred during the three and
nine months ended September 30, 2019. There were no charges related to these actions during the nine months ended September 30, 2020, and no additional charges are expected.

The following table summarizes the activity of the Company's restructuring accrual during the nine months ended September 30, 2020 (in thousands):

Employee Severance and Related BenefitsSoftware ChargesOtherTotal
Balance as of January 1, 2020$5,707 $99 $151 $5,957 
Costs incurred4,180 — 57 4,237 
Cash disbursements(9,645)(99)(208)(9,952)
Non-cash charges— — (11)(11)
Balance as of September 30, 2020$242 $— $(11)$231 
v3.20.2
Stockholders' Equity
9 Months Ended
Sep. 30, 2020
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Stockholders’ Equity
Share Repurchase Program

Effective November 2018, the Board of Directors of the Company authorized a $1.1 billion share repurchase program through December 2021. During the three and nine months ended September 30, 2020, the Company repurchased 0.1 million and 1.3 million shares of its common stock, respectively, for $13.2 million and $121.1 million, respectively. The Company's goals for the share repurchase program are to offset 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.

Stock-Based Compensation

The following table summarizes stock-based compensation included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):
 
 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Cost of revenue$6,384 $5,555 $18,374 $16,917 
Research and development12,722 12,842 36,336 36,943 
Sales and marketing16,809 15,593 48,555 46,384 
General and administrative14,302 12,825 43,636 40,018 
Total stock-based compensation50,217 46,815 146,901 140,262 
Provision for income taxes(15,604)(14,867)(45,063)(41,658)
Total stock-based compensation, net of income taxes$34,613 $31,948 $101,838 $98,604 

In addition to the amounts of stock-based compensation reported in the table above, the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $7.1 million and $21.9 million, respectively, before taxes, and for the three and nine months ended September 30, 2019, include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $7.5 million and $22.9 million, respectively, before taxes.
v3.20.2
Accumulated Other Comprehensive Loss
9 Months Ended
Sep. 30, 2020
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss, net of tax, which is reported as a component of stockholders' equity, for the nine months ended September 30, 2020 (in thousands):

Foreign Currency Translation Net Unrealized Gains on InvestmentsTotal
Balance as of January 1, 2020$(52,924)$7,780 $(45,144)
Other comprehensive (loss) income(7,292)6,582 (710)
Balance as of September 30, 2020$(60,216)$14,362 $(45,854)

There were no amounts reclassified from accumulated other comprehensive loss to net income for the nine months ended September 30, 2020.
v3.20.2
Revenue from Contracts with Customers
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers Incremental Costs to Obtain a Contract with a Customer
The following table summarizes the deferred costs associated with obtaining customer contracts, specifically commission and incentive payments, as of September 30, 2020 and December 31, 2019 (in thousands):

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

During the three and nine months ended September 30, 2020, the Company recognized $14.8 million and $45.0 million, respectively, of amortization expense related to deferred costs. During the three and nine months ended September 30, 2019, the Company recognized $10.9 million and $32.5 million, respectively, of amortization expense related to deferred costs. Amortization expense related to deferred costs is primarily included in sales and marketing expense in the consolidated statements of income.
Revenue from Contracts with Customers
The Company sells its solutions 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. The following table summarizes revenue by geography included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
U.S.$437,381 $413,116 $1,309,979 $1,248,175 
International355,464 296,796 1,041,883 873,319 
Total revenue$792,845 $709,912 $2,351,862 $2,121,494 

While the Company sells its solutions through a geographically dispersed sales force, it manages its customer relationships in two divisions: the Web Division and the Media and Carrier Division. Customers are assigned to a division for relationship management purposes according to their predominant purchasing activity; however, customers may purchase solutions managed by the other division as well. As of January 1, 2020, the Company reassigned some of its customers between the Media and Carrier Division and the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented. As the purchasing patterns and required account expertise of customers change over time, the Company may reassign a customer's division from one to another. The following table summarizes revenue by division included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Web Division$418,064 $387,662 $1,228,401 $1,139,422 
Media and Carrier Division374,781 322,250 1,123,461 982,072 
Total revenue$792,845 $709,912 $2,351,862 $2,121,494 

Most content delivery and security services sold by the Company represent obligations that are satisfied over time as the customer simultaneously receives and consumes the services provided. Accordingly, the majority of the Company's revenue is recognized over time, generally ratably over the term of the arrangement due to consistent monthly traffic commitments that expire each period. A small percentage of the Company's services 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.
During the nine months ended September 30, 2020 and 2019, the Company recognized $66.0 million and $51.0 million of revenue that was included in deferred revenue as of December 31, 2019 and 2018, respectively.

As of September 30, 2020, the aggregate amount of remaining performance obligations from contracts with customers was $2.7 billion. The Company expects to recognize approximately 70% of its remaining performance obligations as revenue over the next 12 months, with the remaining 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 satisfied at the reporting date. This consists of future committed revenue for monthly, quarterly or annual periods within current contracts with customers, as well as deferred revenue arising from consideration invoiced in prior periods for which the related performance 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.
v3.20.2
Income Taxes
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company's effective income tax rate is based on estimated income for the year, the estimated composition of the income in different jurisdictions and discrete adjustments, if any, in the applicable quarterly periods. Potential discrete adjustments include tax charges or benefits related to stock-based compensation, changes in tax legislation, settlements of tax audits or assessments, uncertain tax positions and acquisitions, among other items.

In the second quarter of 2018, the Company filed an appeal with the Massachusetts Appellate Tax Board (“MATB”) contesting adverse audit findings related to certain tax benefits and exemptions. In July 2020, the MATB ruled in the Company’s favor; however, the decision is eligible for appeal by the Massachusetts Department of Revenue. The Company has determined that it is more-likely-than-not that it will ultimately prevail in the event of any such appeal. Accordingly, no reserve has been recorded related to these controversies. The Company has, however, estimated that an adverse ruling could result in a gross income tax charge of approximately $41.0 million, which may be partially offset by certain state tax credits of $26.0 million, which are not currently benefited as a result of the Company's valuation allowance assessment.

The Company’s effective income tax rate was 8.6% and 10.6% for the nine months ended September 30, 2020 and 2019, respectively. The lower effective tax rate for the nine months ended September 30, 2020, is primarily due to an increase in foreign income taxed at lower rates, an increase in the excess tax benefit related to stock-based compensation and a decrease in intercompany sales of intellectual property. These amounts were partially offset by the release of certain tax reserves related to the expiration of local statutes of limitations in 2019 and a decrease in the benefit of U.S. federal, state and foreign research and development credits.

For the nine months ended September 30, 2020, the effective income tax rate was lower than the federal statutory tax rate due to foreign 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 nine months ended September 30, 2019, the effective income tax rate was lower than the federal statutory tax rate due to the release of certain tax reserves related to the expiration of local statutes of limitations, foreign 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 the valuation allowance recorded against deferred tax assets related to state tax credits, non-deductible executive compensation, state taxes and an intercompany sale of intellectual property.

In response to the novel coronavirus, or COVID-19, pandemic, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in March 2020. The CARES Act did not have a material impact on the effective tax rate for the period ended September 30, 2020. The Company will continue to monitor further changes to the global legislative and regulatory developments enacted as a result of COVID-19.
v3.20.2
Net Income per Share
9 Months Ended
Sep. 30, 2020
Earnings Per Share Reconciliation [Abstract]  
Net Income per Share Net Income per ShareBasic 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, restricted stock units ("RSUs"), deferred stock units ("DSUs"), convertible senior notes and warrants issued by the Company. The dilutive effect of outstanding awards and convertible securities is reflected in diluted earnings per share by application of the treasury stock method.
The following table sets forth the components used in the computation of basic and diluted net income per share for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share data):
 
 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 2020201920202019
Numerator:
Net income$158,623 $137,890 $443,684 $358,935 
Denominator:
Shares used for basic net income per share162,757 162,445 162,387 163,029 
Effect of dilutive securities:
Stock options36 27 59 
RSUs and DSUs2,024 2,077 1,781 1,700 
Convertible senior notes1,732 — 795 — 
Warrants related to issuance of convertible senior notes— — — — 
Shares used for diluted net income per share166,519 164,558 164,990 164,788 
Basic net income per share$0.97 $0.85 $2.73 $2.20 
Diluted net income per share$0.95 $0.84 $2.69 $2.18 

For the three and nine months ended September 30, 2020 and 2019, certain potential outstanding common shares issuable in respect of stock options, service-based RSUs, 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 common shares excluded from the computation of diluted net income per share for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Service-based RSUs116 139 751 959 
Market- and performance-based RSUs1,383 1,484 1,418 1,484 
Convertible senior notes9,898 21,991 13,929 21,991 
Warrants related to issuance of convertible senior notes21,991 21,991 21,991 21,991 
Total shares excluded from computation33,388 45,605 38,089 46,425 
v3.20.2
Nature of Business and Basis of Presentation (Policies)
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Accounting
The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying financial statements.

Certain information and footnote disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes have been condensed in, or omitted from, these interim financial statements. Accordingly, the unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 28, 2020.

The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair statement of the results of all interim periods reported herein.
Newly-Adopted and Recent Accounting Pronouncements
Newly-Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance that introduces a new methodology for accounting for credit losses on financial instruments. The guidance establishes a new "expected credit loss model" that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances. The Company prospectively adopted this standard on January 1, 2020. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued guidance that addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance for capitalizing costs associated with developing or obtaining internal-use software. The Company prospectively adopted this standard on January 1, 2020. Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements

In August 2020, the FASB issued guidance that is expected to reduce complexity and improve comparability of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. This guidance will be effective for the Company on January 1, 2022. The Company is evaluating the potential impact of adopting this new accounting guidance on its consolidated financial statements.
v3.20.2
Fair Value Measurements (Tables)
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Schedule of Marketable Securities
The following is a summary of available-for-sale marketable securities held as of September 30, 2020 and December 31, 2019 (in thousands):

Gross UnrealizedClassification on Balance Sheet
Amortized CostGainsLossesAggregate
Fair Value
Short-Term
Marketable
Securities
Long-Term
Marketable
Securities
As of September 30, 2020
Commercial paper$11,954 $42 $— $11,996 $11,996 $— 
Corporate bonds1,410,954 11,095 (274)1,421,775 636,405 785,370 
U.S. government agency obligations359,014 529 (241)359,302 52,637 306,665 
$1,781,922 $11,666 $(515)$1,793,073 $701,038 $1,092,035 
As of December 31, 2019
Certificates of deposit$150,000 $— $— $150,000 $150,000 $— 
Commercial paper73,829 23 (7)73,845 73,845 — 
Corporate bonds1,368,668 1,840 (378)1,370,130 753,538 616,592 
U.S. government agency obligations369,475 80 (74)369,481 165,623 203,858 
$1,961,972 $1,943 $(459)$1,963,456 $1,143,006 $820,450 
Schedule of Fair Value Measurement
The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets as of September 30, 2020 and December 31, 2019 (in thousands):

Total Fair ValueFair Value Measurements at
Reporting Date Using
 Level 1    Level 2    
As of September 30, 2020
Money market funds$375,752 $375,752 $— 
Commercial paper41,994 — 41,994 
Corporate bonds1,421,775 — 1,421,775 
U.S. government agency obligations409,298 — 409,298 
Mutual funds18,500 18,500 — 
$2,267,319 $394,252 $1,873,067 
As of December 31, 2019
Money market funds$50,779 $50,779 $— 
Certificates of deposit150,000 — 150,000 
Commercial paper73,845 — 73,845 
Corporate bonds1,370,130 — 1,370,130 
U.S. government agency obligations369,481 — 369,481 
Mutual funds15,177 15,177 — 
$2,029,412 $65,956 $1,963,456 
Schedule of Contractual Maturities of Marketable Securities and Other Investment Related Assets
Contractual maturities of the Company’s available-for-sale marketable securities held as of September 30, 2020 and December 31, 2019 were as follows (in thousands):

September 30,
2020
December 31,
2019
Due in 1 year or less$701,038 $1,143,006 
Due after 1 year through 3 years1,092,035 820,450 
$1,793,073 $1,963,456 
v3.20.2
Accounts Receivable (Tables)
9 Months Ended
Sep. 30, 2020
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Schedule of Accounts Receivable
Net accounts receivable consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
 
September 30,
2020
December 31,
2019
Trade accounts receivable$471,057 $396,204 
Unbilled accounts receivable163,045 157,619 
Gross accounts receivable634,102 553,823 
Allowances for current expected credit losses and other reserves(3,696)(1,880)
Accounts receivable, net$630,406 $551,943 
Summary of Allowance for Credit Loss Activity
The following table summarizes the activity of the Company's allowance for current expected credit losses and other reserves during the nine months ended September 30, 2020 (in thousands):

Balance as of January 1, 2020$1,880 
Charges to income from operations10,354 
Collections from customers previously reserved and other(8,538)
Balance as of September 30, 2020$3,696 
v3.20.2
Incremental Costs to Obtain a Contract with a Customer (Tables)
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Schedule of deferred costs associated with obtaining customer contracts
The following table summarizes the deferred costs associated with obtaining customer contracts, specifically commission and incentive payments, as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,
2020
December 31,
2019
Deferred costs included in prepaid and other current assets$41,017 $45,009 
Deferred costs included in other assets24,642 25,698 
Total deferred costs$65,659 $70,707 
v3.20.2
Goodwill and Acquired Intangible Assets (Tables)
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Goodwill
The change in the carrying amount of goodwill for the nine months ended September 30, 2020 was as follows (in thousands):

Balance as of January 1, 2020$1,600,265 
Measurement period adjustments related to acquisitions completed in prior years(1,056)
Foreign currency translation(290)
Balance as of September 30, 2020$1,598,919 
Schedule of Acquired Intangible Assets
Acquired intangible assets that are subject to amortization consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):

 September 30, 2020December 31, 2019
 Gross
Carrying
Amount
Accumulated AmortizationNet
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Completed technology$154,343 $(106,730)$47,613 $153,722 $(94,088)$59,634 
Customer-related intangible assets315,087 (180,658)134,429 279,684 (163,155)116,529 
Non-compete agreements816 (721)95 830 (529)301 
Trademarks and trade names7,543 (5,202)2,341 7,600 (4,633)2,967 
Acquired license rights490 (490)— 490 (490)— 
Total$478,279 $(293,801)$184,478 $442,326 $(262,895)$179,431 
v3.20.2
Debt (Tables)
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Schedule of Convertible Senior Notes
The 2027 Notes consisted of the following components as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,
2020
December 31,
2019
Liability component:
Principal$1,150,000 $1,150,000 
Less: debt discount and issuance costs, net of amortization(203,072)(222,928)
Net carrying amount$946,928 $927,072 
Equity component:$220,529 $220,529 
The 2025 Notes consisted of the following components as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,
2020
December 31,
2019
Liability component:
Principal$1,150,000 $1,150,000 
Less: debt discount and issuance costs, net of amortization(207,185)(237,281)
Net carrying amount$942,815 $912,719 
Equity component:$285,225 $285,225 
Schedule of Interest Expense The following table sets forth total interest expense included in the consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Amortization of debt discount and issuance costs$16,866 $12,982 $50,130 $35,657 
Coupon interest payable on 2025 Notes360 359 1,078 1,077 
Coupon interest payable on 2027 Notes1,078 479 3,234 479 
Revolving credit facility contractual interest expense139 156 409 372 
Capitalization of interest expense(1,119)(1,849)(3,073)(4,896)
Total interest expense$17,324 $12,127 $51,778 $32,689 
v3.20.2
Restructuring (Tables)
9 Months Ended
Sep. 30, 2020
Restructuring and Related Activities [Abstract]  
Summary of Restructuring Accrual Activity
The following table summarizes the activity of the Company's restructuring accrual during the nine months ended September 30, 2020 (in thousands):

Employee Severance and Related BenefitsSoftware ChargesOtherTotal
Balance as of January 1, 2020$5,707 $99 $151 $5,957 
Costs incurred4,180 — 57 4,237 
Cash disbursements(9,645)(99)(208)(9,952)
Non-cash charges— — (11)(11)
Balance as of September 30, 2020$242 $— $(11)$231 
v3.20.2
Stockholders' Equity (Tables)
9 Months Ended
Sep. 30, 2020
Stockholders' Equity Note [Abstract]  
Schedule of Stock-Based Compensation Expense
The following table summarizes stock-based compensation included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):
 
 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Cost of revenue$6,384 $5,555 $18,374 $16,917 
Research and development12,722 12,842 36,336 36,943 
Sales and marketing16,809 15,593 48,555 46,384 
General and administrative14,302 12,825 43,636 40,018 
Total stock-based compensation50,217 46,815 146,901 140,262 
Provision for income taxes(15,604)(14,867)(45,063)(41,658)
Total stock-based compensation, net of income taxes$34,613 $31,948 $101,838 $98,604 
v3.20.2
Accumulated Other Comprehensive Loss (Tables)
9 Months Ended
Sep. 30, 2020
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Schedule of Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive loss, net of tax, which is reported as a component of stockholders' equity, for the nine months ended September 30, 2020 (in thousands):

Foreign Currency Translation Net Unrealized Gains on InvestmentsTotal
Balance as of January 1, 2020$(52,924)$7,780 $(45,144)
Other comprehensive (loss) income(7,292)6,582 (710)
Balance as of September 30, 2020$(60,216)$14,362 $(45,854)
v3.20.2
Revenue from Contracts with Customers (Tables)
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Disaggregation of Revenue The following table summarizes revenue by geography included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
U.S.$437,381 $413,116 $1,309,979 $1,248,175 
International355,464 296,796 1,041,883 873,319 
Total revenue$792,845 $709,912 $2,351,862 $2,121,494 
The following table summarizes revenue by division included in the Company’s consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 (in thousands):
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Web Division$418,064 $387,662 $1,228,401 $1,139,422 
Media and Carrier Division374,781 322,250 1,123,461 982,072 
Total revenue$792,845 $709,912 $2,351,862 $2,121,494 
v3.20.2
Net Income per Share (Tables)
9 Months Ended
Sep. 30, 2020
Earnings Per Share Reconciliation [Abstract]  
Schedule of Components Used in Diluted and Basic Income Per Common Share
The following table sets forth the components used in the computation of basic and diluted net income per share for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share data):
 
 For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
 2020201920202019
Numerator:
Net income$158,623 $137,890 $443,684 $358,935 
Denominator:
Shares used for basic net income per share162,757 162,445 162,387 163,029 
Effect of dilutive securities:
Stock options36 27 59 
RSUs and DSUs2,024 2,077 1,781 1,700 
Convertible senior notes1,732 — 795 — 
Warrants related to issuance of convertible senior notes— — — — 
Shares used for diluted net income per share166,519 164,558 164,990 164,788 
Basic net income per share$0.97 $0.85 $2.73 $2.20 
Diluted net income per share$0.95 $0.84 $2.69 $2.18 
Schedule of Shares Excluded from Computation of Diluted Net Income Per Share The number of potentially outstanding common shares excluded from the computation of diluted net income per share for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
Service-based RSUs116 139 751 959 
Market- and performance-based RSUs1,383 1,484 1,418 1,484 
Convertible senior notes9,898 21,991 13,929 21,991 
Warrants related to issuance of convertible senior notes21,991 21,991 21,991 21,991 
Total shares excluded from computation33,388 45,605 38,089 46,425 
v3.20.2
Nature of Business and Basis of Presentation (Details)
9 Months Ended
Sep. 30, 2020
server
segment
country
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Number of servers (more than) | server 325,000
Number of countries in which servers are located (more than) | country 130
Number of industry segments | segment 1
v3.20.2
Fair Value Measurements - Marketable Securities (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Marketable Securities [Line Items]    
Amortized Cost $ 1,781,922 $ 1,961,972
Gross Unrealized Gains 11,666 1,943
Gross Unrealized Losses (515) (459)
Available-for-sale securities 1,793,073 1,963,456
Short-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities 701,038 1,143,006
Long-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities 1,092,035 820,450
Certificates of deposit    
Marketable Securities [Line Items]    
Amortized Cost   150,000
Gross Unrealized Gains   0
Gross Unrealized Losses   0
Available-for-sale securities   150,000
Certificates of deposit | Short-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities   150,000
Certificates of deposit | Long-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities   0
Commercial paper    
Marketable Securities [Line Items]    
Amortized Cost 11,954 73,829
Gross Unrealized Gains 42 23
Gross Unrealized Losses 0 (7)
Available-for-sale securities 11,996 73,845
Commercial paper | Short-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities 11,996 73,845
Commercial paper | Long-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities 0 0
Corporate bonds    
Marketable Securities [Line Items]    
Amortized Cost 1,410,954 1,368,668
Gross Unrealized Gains 11,095 1,840
Gross Unrealized Losses (274) (378)
Available-for-sale securities 1,421,775 1,370,130
Corporate bonds | Short-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities 636,405 753,538
Corporate bonds | Long-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities 785,370 616,592
U.S. government agency obligations    
Marketable Securities [Line Items]    
Amortized Cost 359,014 369,475
Gross Unrealized Gains 529 80
Gross Unrealized Losses (241) (74)
Available-for-sale securities 359,302 369,481
U.S. government agency obligations | Short-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities 52,637 165,623
U.S. government agency obligations | Long-Term Marketable Securities    
Marketable Securities [Line Items]    
Available-for-sale securities $ 306,665 $ 203,858
v3.20.2
Fair Value Measurements - Schedule of Fair Value Measurement (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities $ 1,793,073 $ 1,963,456
Cash equivalents and marketable securities 2,267,319 2,029,412
Money market funds    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Money market funds 375,752 50,779
Certificates of deposit    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities   150,000
Commercial paper    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities and cash equivalents 41,994  
Available-for-sale securities 11,996 73,845
Corporate bonds    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities 1,421,775 1,370,130
U.S. government agency obligations    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities and cash equivalents 409,298  
Available-for-sale securities 359,302 369,481
Mutual funds    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities 18,500 15,177
Level 1    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Cash equivalents and marketable securities 394,252 65,956
Level 1 | Money market funds    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Money market funds 375,752 50,779
Level 1 | Certificates of deposit    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities   0
Level 1 | Commercial paper    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities and cash equivalents 0  
Available-for-sale securities   0
Level 1 | Corporate bonds    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities 0 0
Level 1 | U.S. government agency obligations    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities and cash equivalents 0  
Available-for-sale securities   0
Level 1 | Mutual funds    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities 18,500 15,177
Level 2    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Cash equivalents and marketable securities 1,873,067 1,963,456
Level 2 | Money market funds    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Money market funds 0 0
Level 2 | Certificates of deposit    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities   150,000
Level 2 | Commercial paper    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities and cash equivalents 41,994  
Available-for-sale securities   73,845
Level 2 | Corporate bonds    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities 1,421,775 1,370,130
Level 2 | U.S. government agency obligations    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities and cash equivalents 409,298  
Available-for-sale securities   369,481
Level 2 | Mutual funds    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Available-for-sale securities $ 0 $ 0
v3.20.2
Fair Value Measurements - Contractual Maturities (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Fair Value Disclosures [Abstract]    
Due in 1 year or less $ 701,038 $ 1,143,006
Due after 1 year through 3 years 1,092,035 820,450
Aggregate Fair Value $ 1,793,073 $ 1,963,456
v3.20.2
Accounts Receivable - Schedule of Accounts Receivable (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Gross accounts receivable $ 634,102 $ 553,823
Allowances for current expected credit losses and other reserves (3,696) (1,880)
Accounts receivable, net 630,406 551,943
Unbilled accounts receivable    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Gross accounts receivable 163,045 157,619
Trade accounts receivable    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Gross accounts receivable $ 471,057 $ 396,204
v3.20.2
Accounts Receivables - Allowance for Credit Losses (Details)
$ in Thousands
9 Months Ended
Sep. 30, 2020
USD ($)
Accounts Receivable, Allowance for Credit Loss [Roll Forward]  
Balance as of January 1, 2020 $ 1,880
Charges to income from operations 10,354
Collections from customers previously reserved and other (8,538)
Balance as of September 30, 2020 $ 3,696
v3.20.2
Incremental Costs to Obtain a Contract with a Customer (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Commission and incentive payments          
Capitalized Contract Cost [Line Items]          
Total deferred costs $ 65,659   $ 65,659   $ 70,707
Commission and incentive payments | Deferred costs included in prepaid and other current assets          
Capitalized Contract Cost [Line Items]          
Total deferred costs 41,017   41,017   45,009
Commission and incentive payments | Deferred costs included in other assets          
Capitalized Contract Cost [Line Items]          
Total deferred costs 24,642   24,642   $ 25,698
Deferred commissions          
Capitalized Contract Cost [Line Items]          
Amortization expense $ 14,800 $ 10,900 $ 45,000 $ 32,500  
v3.20.2
Goodwill and Acquired Intangible Assets - Schedule of Goodwill (Details)
$ in Thousands
9 Months Ended
Sep. 30, 2020
USD ($)
Schedule of Goodwill [Roll Forward]  
Balance as of January 1, 2020 $ 1,600,265
Measurement period adjustments related to acquisitions completed in prior years (1,056)
Foreign currency translation (290)
Balance as of September 30, 2020 $ 1,598,919
v3.20.2
Goodwill and Acquired Intangible Assets - Schedule of Acquired Intangible Assets (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount $ 478,279 $ 442,326
Accumulated Amortization (293,801) (262,895)
Net Carrying Amount 184,478 179,431
Completed technology    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 154,343 153,722
Accumulated Amortization (106,730) (94,088)
Net Carrying Amount 47,613 59,634
Customer-related intangible assets    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 315,087 279,684
Accumulated Amortization (180,658) (163,155)
Net Carrying Amount 134,429 116,529
Non-compete agreements    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 816 830
Accumulated Amortization (721) (529)
Net Carrying Amount 95 301
Trademarks and trade names    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 7,543 7,600
Accumulated Amortization (5,202) (4,633)
Net Carrying Amount 2,341 2,967
Acquired license rights    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 490 490
Accumulated Amortization (490) (490)
Net Carrying Amount $ 0 $ 0
v3.20.2
Goodwill and Acquired Intangible Assets - Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]        
Amortization of acquired intangible assets $ 10,340 $ 9,624 $ 31,155 $ 28,871
Future amortization expense to be recognized in remainder of 2020 10,500   10,500  
Future amortization expense 2021 43,000   43,000  
Future amortization expense 2022 37,300   37,300  
Future amortization expense 2023 28,900   28,900  
Future amortization expense 2024 $ 20,500   $ 20,500  
v3.20.2
Acquisitions - Narrative (Details) - USD ($)
$ in Thousands
1 Months Ended 9 Months Ended
Oct. 31, 2020
Feb. 29, 2020
Sep. 30, 2020
Sep. 30, 2019
Asset Acquisition [Line Items]        
Cash paid to acquire business net of cash acquired     $ (106) $ 121,409
Cash paid for asset acquisition     $ 36,376 $ 0
Asavie | Subsequent Even        
Asset Acquisition [Line Items]        
Cash paid to acquire business $ 155,100      
Cash paid to acquire business net of cash acquired $ 128,000      
Instart        
Asset Acquisition [Line Items]        
Cash paid for asset acquisition   $ 36,400    
Instart | Customer-related intangible assets        
Asset Acquisition [Line Items]        
Useful life of intangible asset   17 years    
v3.20.2
Debt - Narrative (Details)
$ / shares in Units, shares in Millions
1 Months Ended 9 Months Ended
Aug. 31, 2019
USD ($)
d
$ / shares
shares
May 31, 2018
USD ($)
d
$ / shares
shares
Sep. 30, 2020
USD ($)
$ / shares
Sep. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
Feb. 28, 2014
USD ($)
Debt Instrument [Line Items]            
Repurchases of common stock     $ 121,078,000 $ 291,788,000    
Payments for note hedge transactions     0 312,225,000    
Proceeds from sale of warrants     0 $ 185,150,000    
Credit Agreement            
Debt Instrument [Line Items]            
Maximum borrowing capacity   $ 500,000,000.0        
Debt term   5 years        
Maximum borrowing capacity under specific conditions   $ 1,000,000,000.0        
Outstanding borrowings     0      
Credit Agreement | Minimum            
Debt Instrument [Line Items]            
Commitment fee   0.075%        
Credit Agreement | Minimum | Base Rate            
Debt Instrument [Line Items]            
Basis spread on variable rate   0.00%        
Credit Agreement | Minimum | LIBOR            
Debt Instrument [Line Items]            
Basis spread on variable rate   0.875%        
Credit Agreement | Maximum            
Debt Instrument [Line Items]            
Commitment fee   0.15%        
Credit Agreement | Maximum | Base Rate            
Debt Instrument [Line Items]            
Basis spread on variable rate   0.25%        
Credit Agreement | Maximum | LIBOR            
Debt Instrument [Line Items]            
Basis spread on variable rate   1.25%        
2027 Notes | Convertible Debt            
Debt Instrument [Line Items]            
Debt issued $ 1,150,000,000.0   1,150,000,000   $ 1,150,000,000  
Interest rate 0.375%          
Threshold trading days exceeding price | d 20          
Threshold consecutive trading days exceeding price | d 30          
Threshold greater than percentage of stock price trigger 130.00%          
Threshold trading days not exceeding price 5 days          
Principal amount per conversion $ 1,000          
Conversion rate 0.0086073          
Conversion price (in dollars per share) | $ / shares $ 116.18          
Potential conversion shares of convertible debt (in shares) | shares 9.9          
Fair value of convertible senior notes     $ 1,332,400,000   1,133,800,000  
Closing price of common stock (in dollars per share) | $ / shares     $ 110.54      
Repurchases of common stock $ 100,000,000.0          
Payments for purchase of convertible note hedge and warrant transactions 127,100,000          
Payments for note hedge transactions $ 312,200,000          
Warrants outstanding (in shares) | shares 9.9          
Warrant strike price (in dollars per share) | $ / shares $ 178.74          
Proceeds from sale of warrants $ 185,200,000          
Threshold less than percentage of stock price trigger 98.00%          
Effective interest rate     3.10%      
2025 Notes | Convertible Debt            
Debt Instrument [Line Items]            
Debt issued   $ 1,150,000,000.0 $ 1,150,000,000   1,150,000,000  
Interest rate   0.125%        
Threshold trading days exceeding price | d   20        
Threshold consecutive trading days exceeding price | d   30        
Threshold greater than percentage of stock price trigger   130.00%        
Threshold trading days not exceeding price   5 days        
Principal amount per conversion   $ 1,000        
Conversion rate   0.010515        
Conversion price (in dollars per share) | $ / shares   $ 95.10        
Potential conversion shares of convertible debt (in shares) | shares   12.1        
Fair value of convertible senior notes     $ 1,486,400,000   $ 1,270,700,000  
Closing price of common stock (in dollars per share) | $ / shares     $ 110.54      
Repurchases of common stock   $ 46,200,000        
Payments for purchase of convertible note hedge and warrant transactions   141,800,000        
Payments for note hedge transactions   $ 261,700,000        
Warrants outstanding (in shares) | shares   12.1        
Warrant strike price (in dollars per share) | $ / shares   $ 149.18        
Proceeds from sale of warrants   $ 119,900,000        
Threshold consecutive trading days not exceeding price   5 days        
Threshold less than percentage of stock price trigger   98.00%        
Effective interest rate     4.26%      
2019 Notes | Convertible Debt            
Debt Instrument [Line Items]            
Debt issued           $ 690,000,000.0
Effective interest rate     3.20%      
v3.20.2
Debt - Schedule of Convertible Senior Notes (Details) - Convertible Debt - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Aug. 31, 2019
May 31, 2018
2027 Notes        
Liability component:        
Principal $ 1,150,000,000 $ 1,150,000,000 $ 1,150,000,000.0  
Less: debt discount and issuance costs, net of amortization (203,072,000) (222,928,000)    
Net carrying amount 946,928,000 927,072,000    
Equity component: 220,529,000 220,529,000    
2025 Notes        
Liability component:        
Principal 1,150,000,000 1,150,000,000   $ 1,150,000,000.0
Less: debt discount and issuance costs, net of amortization (207,185,000) (237,281,000)    
Net carrying amount 942,815,000 912,719,000    
Equity component: $ 285,225,000 $ 285,225,000    
v3.20.2
Debt - Schedule of Interest Expense (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Debt Instrument [Line Items]        
Amortization of debt discount and issuance costs $ 16,866 $ 12,982 $ 50,130 $ 35,657
Capitalization of interest expense (1,119) (1,849) (3,073) (4,896)
Total interest expense 17,324 12,127 51,778 32,689
Credit Agreement        
Debt Instrument [Line Items]        
Interest on debt instruments 139 156 409 372
Convertible Debt | 2025 Notes        
Debt Instrument [Line Items]        
Interest on debt instruments 360 359 1,078 1,077
Convertible Debt | 2027 Notes        
Debt Instrument [Line Items]        
Interest on debt instruments $ 1,078 $ 479 $ 3,234 $ 479
v3.20.2
Restructuring (Details) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended 24 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2020
Restructuring Cost and Reserve [Line Items]            
Restructuring charges incurred $ 21,000 $ (300,000) $ 10,439,000 $ 6,879,000    
Restructuring Reserve [Roll Forward]            
Balance as of January 1, 2020     5,957,000      
Costs incurred     4,237,000      
Cash disbursements     (9,952,000)      
Non-cash charges     (11,000)      
Balance as of September 30, 2020 231,000   231,000   $ 231,000 $ 231,000
2019 Restructuring Plan            
Restructuring Cost and Reserve [Line Items]            
Restructuring charges incurred     10,400,000   20,600,000  
Impairment on right-of-use asset     6,200,000      
2018 Restructuring Plan            
Restructuring Cost and Reserve [Line Items]            
Restructuring charges incurred   $ (300,000) 0 $ 6,700,000   19,000,000.0
Employee Severance and Related Benefits            
Restructuring Reserve [Roll Forward]            
Balance as of January 1, 2020     5,707,000      
Costs incurred     4,180,000      
Cash disbursements     (9,645,000)      
Non-cash charges     0      
Balance as of September 30, 2020 242,000   242,000   242,000 242,000
Software Charges            
Restructuring Reserve [Roll Forward]            
Balance as of January 1, 2020     99,000      
Costs incurred     0      
Cash disbursements     (99,000)      
Non-cash charges     0      
Balance as of September 30, 2020 0   0   0 0
Other            
Restructuring Reserve [Roll Forward]            
Balance as of January 1, 2020     151,000      
Costs incurred     57,000      
Cash disbursements     (208,000)      
Non-cash charges     (11,000)      
Balance as of September 30, 2020 $ (11,000)   $ (11,000)   $ (11,000) $ (11,000)
v3.20.2
Stockholders' Equity - Narrative (Details) - USD ($)
shares in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Nov. 30, 2018
Class of Stock [Line Items]          
Stock repurchase program, authorized amount         $ 1,100,000,000
Repurchases of common stock     $ 121,078,000 $ 291,788,000  
Amortization expense from capitalized stock-based compensation $ 7,100,000 $ 7,500,000 $ 21,900,000 $ 22,900,000  
Common Stock          
Class of Stock [Line Items]          
Shares repurchased during period (in shares) 0.1   1.3    
Repurchases of common stock $ 13,200,000   $ 121,100,000    
v3.20.2
Stockholders' Equity - Schedule of Stock Based Compensation Expense (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Total stock-based compensation $ 50,217 $ 46,815 $ 146,901 $ 140,262
Provision for income taxes (15,604) (14,867) (45,063) (41,658)
Total stock-based compensation, net of income taxes 34,613 31,948 101,838 98,604
Cost of revenue        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Total stock-based compensation 6,384 5,555 18,374 16,917
Research and development        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Total stock-based compensation 12,722 12,842 36,336 36,943
Sales and marketing        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Total stock-based compensation 16,809 15,593 48,555 46,384
General and administrative        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Total stock-based compensation $ 14,302 $ 12,825 $ 43,636 $ 40,018
v3.20.2
Accumulated Other Comprehensive Loss - Schedule of Accumulated Other Comprehensive Income Loss (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]        
Beginning Balance $ 3,904,295 $ 3,394,764 $ 3,657,958 $ 3,191,860
Other comprehensive (loss) income 11,453 (13,940) (710) (7,512)
Ending Balance 4,107,617 3,501,600 4,107,617 3,501,600
Total        
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]        
Beginning Balance (57,307) (42,484) (45,144) (48,912)
Ending Balance (45,854) $ (56,424) (45,854) $ (56,424)
Foreign Currency Translation        
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]        
Beginning Balance     (52,924)  
Other comprehensive (loss) income     (7,292)  
Ending Balance (60,216)   (60,216)  
Net Unrealized Gains on Investments        
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]        
Beginning Balance     7,780  
Other comprehensive (loss) income     6,582  
Ending Balance $ 14,362   $ 14,362  
v3.20.2
Revenue from Contracts with Customers - Disaggregation of Revenue (Details)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
USD ($)
division
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
division
Sep. 30, 2019
USD ($)
Disaggregation of Revenue [Line Items]        
Revenue $ 792,845 $ 709,912 $ 2,351,862 $ 2,121,494
Number of divisions | division 2   2  
Web Division        
Disaggregation of Revenue [Line Items]        
Revenue $ 418,064 387,662 $ 1,228,401 1,139,422
Media and Carrier Division        
Disaggregation of Revenue [Line Items]        
Revenue 374,781 322,250 1,123,461 982,072
U.S.        
Disaggregation of Revenue [Line Items]        
Revenue 437,381 413,116 1,309,979 1,248,175
International        
Disaggregation of Revenue [Line Items]        
Revenue $ 355,464 $ 296,796 $ 1,041,883 $ 873,319
v3.20.2
Revenue from Contracts with Customers - Performance Obligation (Details) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]    
Revenue recognized $ 66.0 $ 51.0
Remaining performance obligation $ 2,700.0  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01    
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]    
Remaining performance obligations, percentage 70.00%  
Remaining performance obligation, expected timing 12 months  
v3.20.2
Income Taxes - Narrative (Details) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Income Tax Disclosure [Abstract]    
Estimated income tax charge $ 41.0  
Tax credit $ 26.0  
Effective income tax rate 8.60% 10.60%
v3.20.2
Net Income per Share - Schedule of Components Used in Diluted and Basic Income Per Common Share (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Numerator:        
Net income (in dollars) $ 158,623 $ 137,890 $ 443,684 $ 358,935
Denominator:        
Shares used for basic net income per share 162,757 162,445 162,387 163,029
Effect of dilutive securities:        
Stock options 6 36 27 59
RSUs and DSUs 2,024 2,077 1,781 1,700
Convertible senior notes 1,732 0 795 0
Warrants related to issuance of convertible senior notes 0 0 0 0
Shares used for diluted net income per share 166,519 164,558 164,990 164,788
Basic net income per share (in dollars per share) $ 0.97 $ 0.85 $ 2.73 $ 2.20
Diluted net income per share (in dollars per share) $ 0.95 $ 0.84 $ 2.69 $ 2.18
v3.20.2
Net Income per Share - Schedule of Shares Excluded from Computation of Diluted EPS (Details) - shares
shares in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Anti-dilutive securities 33,388 45,605 38,089 46,425
Service-based RSUs        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Anti-dilutive securities 116 139 751 959
Market-and performance-based RSUs        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Anti-dilutive securities 1,383 1,484 1,418 1,484
Convertible senior notes        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Anti-dilutive securities 9,898 21,991 13,929 21,991
Warrants related to issuance of convertible senior notes        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Anti-dilutive securities 21,991 21,991 21,991 21,991